Accounting entry

What it means

An accounting entry puts an accounting transaction into the books: chronologically in the journal and by subject in the general ledger. In double entry it always hits two sides at once.

The entry must be permanent, legible and backed by a document. It must not be overwritten or erased so that the original content disappears, because that destroys the trail an audit follows from paper to statement.

An entry can be simple, with one account on each side, or compound, where the amount is split across several accounts. An ordinary purchase invoice with VAT is a compound entry: the cost, the deductible input VAT and the total owed to the supplier, and the totals of both sides must be equal.

How it works in practice

The software builds the entry from the document: transaction date, amount, accounts, narrative and the link back. Splitting into analytical accounts separates VAT rates, currencies, cost centres and jobs.

A wrong entry is fixed by a dated correcting entry, never by rewriting. After the fix the trial balance must still show total debits equal to total credits.

Part of the monthly work is payment matching: a payment from the bank statement is posted against a specific invoice, not just against the supplier in general. Only then does the ledger show which invoices are really open, and no reminder goes out to a customer who has already paid.

What to watch out for

Fixing an error by deleting the entry in a period already closed. Document and ledger stop matching, and in a tax audit such a cost is not evidenced, so the administrator strikes it out of the tax base.

A formally correct entry on the wrong account. When a capital improvement is posted as a repair, the whole outlay goes into costs at once instead of through depreciation, the tax base is understated, and an audit assesses the difference with a penalty.