Journal Entries

Definition

A journal entry is the point where an economic event becomes part of the accounting record. Each entry captures the date, the accounts debited and credited, the amounts, and a description that links back to a source document. Journals are sometimes called "books of original entry" because they are the first place a transaction is written down in double-entry form before being posted to the ledger.

Key rules

• Total debits must equal total credits. An entry with three lines is still valid as long as the sums match.
• Every entry needs a date, a reference (invoice or receipt number), and a narrative explaining what happened.
• Recurring events go to specialized journals (sales, purchases, cash receipts, cash disbursements) in manual systems. Modern software posts everything to a single general journal with tags.
• Adjusting entries at period end bring the books onto the accrual basis: accrued revenue, accrued expenses, deferrals, depreciation, and estimates.
• Under ITA s. 230 the corporation must keep the supporting documents for each entry for at least six years after the end of the tax year. See six-year retention.

Example

The corporation receives a $1,200 software annual subscription invoice on April 1, pays it on April 3, and uses it over twelve months. Two different entry styles are shown: the practical approach for a small CCPC and the strict accrual approach.

April 1. Record the invoice (accrual)
Debit:  Prepaid Expenses           $1,200
Credit: Accounts Payable           $1,200
Memo: Annual SaaS invoice #INV-4421

April 3. Pay the invoice
Debit:  Accounts Payable           $1,200
Credit: Cash                       $1,200

April 30. Amortize one month
Debit:  Software Expense           $  100
Credit: Prepaid Expenses           $  100

Common mistakes

• Posting a transaction directly to a bank balance without the offsetting entry, which breaks the trial balance.
• Using the "cash" date for accrual entries. The economic event and the cash movement are often on different dates.
• Omitting the GST or PST split on a purchase, which loses the input tax credit. See input tax credits.
• Writing an unclear memo. "Reimbursement" tells a future auditor nothing; "Mileage reimbursement to owner, Mar 2026 log" does.
• Reclassifying prior-period entries by overwriting them. Corrections should be recorded as a new entry with a reference to the one being corrected, preserving the audit trail.

Related concepts

Journal entries express the mechanics defined by debits and credits and feed the general ledger. They are the second step in the accounting cycle and the foundation for the trial balance that proves the math at period end.