Recording Journal Entries

Does your organization have a process for recording journal entries?

Journal entries are an important part of the accounting process and should be addressed in your accounting policy manual.  Journal entries are needed for those transactions that are not created by a payment by check or receipt of funds.  Recording depreciation and in-kind contributions, expensing prepaid, recording payroll accruals, and corrections of previously recorded transactions are all done via journal entries.

Your accounting policy manual should include the process for recording and approving journal entries.

– Only certain individuals should be able to record journal entries in the accounting system.  Each user of the accounting system should be required to have a unique log-in and password.  This will document who entered each entry into the system.  This is important in case there is a question as to who recorded the entry or why it was made.

– Make sure there is an adequate description for each journal entry that clearly explains the purpose of the entry.  Anyone that reads the description should be able to understand why the entry was recorded.

– Each entry should have proper supporting documentation for the dollar amount of the entry and the purpose of the entry.  This documentation should be maintained in accordance with the organization’s document retention and destruction policy.

– Journal entries should be reviewed and approved by the proper member of management, someone other than the individual recording the entry. A monthly journal entry report should be provided to the individual performing the review, along with the supporting documentation, in a timely manner after the close of each month.  The individual reviewing the entries should initial and date the face of the journal entry report to document the review and approval.

Journal entries are one of the top ways that an organization’s financial statements can be misstated.  It is very easy to move transactions from one account to another, remove transactions, or even add bogus transactions to the financial statements through journal entries.  This is why it is so important to have a process in place for recording and approving your organization’s journal entries.

Contributed by: Carrie Minnich, MAcct, CPA | Partner | DWD CPAs & Advisors