Journal Entry Testing and Why is it Important?


In accounting, journal entries are, to a big extent, one of the most significant abilities to ace. Without legitimate journal entries, organizations’ financial reports would be wrong and a total wreck. If you do not want to risk your accounting career, then read the importance and method of entry testing below.

Understanding Journal Entries

A simple method to comprehend journal entries is to consider Isaac Newton’s third law of motion, which expresses that for each activity, there is an equivalent and inverse response. In this way, at whatever point a transaction happens inside an organization, there must be, in any event, two accounts influenced.

For instance, if an organization purchased a vehicle, the organization’s assets would go up by the estimation of the vehicle. In any case, there should be an extra account that changes (i.e., the equivalent and inverse response).

The other account that is influenced is the organization’s money going down in light of the fact that they utilized the money to buy the vehicle.

At long last, much the same as how the size of the powers on the primary objective must be equal to that of the subsequent item, the charges and credits of each journal entry must be equivalent.

A journal is the organization’s legitimate book wherein all transactions are recorded in sequential order. Even though numerous organizations use account programming these days to book journal entries, journals were the dominating technique for booking previously.

In each journal entry that is recorded, the charges and attributes must be equivalent to guarantee that the bookkeeping equation (Assets = Liabilities + Shareholders’ Equity) stays inequality. While doing journal entries, we should consistently think about four variables:

  • Which accounts are influenced by the money exchanges
  • For each account, decide whether it is expanded or diminished
  • For each account, decide the amount it is changed
  • Ensure that the bookkeeping equation remains in balance
Related article  Accrued Expense Journal Entry - Example, Definition, Recording, and Explained

An ideal approach to ace journal entries is through training. Here are various examples that outline some normal journal entries. The primary example is a finished walkthrough of the cycle.

Examples of journal entries

Example 1 – Buying the inventory journal entry

Bought stock costing $15,000 for $5,000 in cash, and the remaining $80,000 is recorded in the record.

DR Inventory15,000 
CR Cash 5,000
CR Accounts Payable 10,000

Example 2 – Getting land journal entry

Bought land costing $60,000 and buildings for $400,000. Gave $100,000 in cash and marked a note payable for the equalization.

DR Land60,000 
DR Buildings200,000 
CR Cash 100,000
CR Note payable 340,000

Method to Track Journal Entries

A huge part of accounting includes monetary reporting. Financial reporting is the demonstration of introducing an organization’s financial summaries to the board, management, the government, and different clients to assist them with settling on better money-related choices.

So as to decide the last money-related estimation of accounts that are recorded on the financial summaries on the organization’s year-end, various journal entries are recorded and followed in an account known as a T-account, which is a visual portrayal of the general ledger account.

The suitable charges and credits are recorded under the fitting sections under these T-Accounts to decide the last incentive to be accounted for.

Why are journal entries important to careers in accounting?

Despite the fact that recording journal entries can be exceptionally tedious and dull, recording precise entries at the perfect time is basic for organizations to show their right budgetary status to individuals inside the firm as well as to outer clients and users.

Related article  Cash Receipt Journal - Definition, Explanation, Format, and More

Organizations might be seen to have more obligation or less obligation or as more productive or less gainful than they really are with incorrect entries. Thus, this could lead organizations and financial specialists to settle on choices dependent on bogus, deceiving data, prompting negative consequences.

Having what it takes to record and comprehend journal entries is fundamental in any vocation in Accounting, regardless of whether you are associated with public practice and are taking a shot at a customer’s audit file, or you are working in an industry and assisting with setting up an organization’s fiscal statements.


In basic terms, the initial step to appropriate financial reporting vigorously depends on recording precise journal entries.

Following the method explained in this article will be very advantageous for your accounting career. This is because recording journal entries is a skill that should be practiced and understood by everyone in the field.