Concept of Recurring Journal Entry:
To understand what a recurring journal entry is, it is necessary to discern the theory of journal entries. Journal entries are the initial influx of business transactions in their books.
A journal entry has a dual-sided effect that amends figures in two distinct accounting heads in business books.
It is imported into the general ledger, which is then used to prepare the financial statements of the company. Journal entry is, therefore, the foundation of the Company’s financial statements.
Recurring Journal Entries:
Recurring journal entries are associated with expense, income, cash, or non-cash transactions that appear periodically every month, quarter, or year.
These are typically used to record the most usual transactions that occur every period. Some illustrations which explain the notion of recurring journal entries are depreciation that is integrated once in a year debits the depreciation expense and credits the accumulated depreciation, which in turn diminishes the value of the asset, hence a dual effect.
Insurance premiums which are paid monthly, quarterly, or even annually, debit the insurance expense account while credits the corresponding cash or payable account, again a dual projection on books of the organization.
How does Recurring Journal Entries work?
Companies implant the effect of recurring journal entries over a proper carrier to record its fallout correctly. Organizations need to decide about the journal entries to automate in their books.
These journal entries can be automated in cloud accounting systems, computerized processes, or manual accounting systems of the organization. When businesses develop a transaction that they feel should be projected in every period, it is infused through the system.
This process of placing of journal entry will repeat itself in every applicable period. As the business has to implement the effect of every journal entry, this automation will hit the dual accounting heads every period.
This effect will result in amending the general ledger figures at different places and therefore affecting the company’s financial statements.
Same account but different amount journal entries:
There are some occurrences in which the recurring journal entries alike have the same nature in every cycle but cannot be mechanized because of the varying monetary amount.
These are the journal entries that need manual entry by bookkeepers to report them in business books. One case of this is the varying lease payments in which periodical payments such as principal and interest vary with time, but their nature remains the same.
The types of recurring journal entries count on the nature of the business. There are a few accounting heads that every business follows. Some of these journal entries comprise depreciation, interest expense payments, loan principal repayments, etc.
Some journal entries are explicitly designed for the business for their intrinsic desire. These are recurring journal entries that are pursued by businesses because they are bound to do them.
One example of this is lease interest and principal payments, which are assimilated only by businesses who have entered a lease deal.
Recurring journal entries are therefore followed by businesses to implement the same nature transactions in every period. These may or may not have the same monetary value, but they must have the same nature.
As explained above, depreciation occurs every period, and hence the organization is bound to consider it in their books.