Journal Entry Preparation

Prepare properly structured journal entries with debits, credits, account coding, supporting documentation, and approval routing. Ensure entries comply with GAAP and internal accounting policies.

Workflow

Step 1: Understand the Transaction

Gather the facts needed to record the entry:

• What happened: The economic event or adjustment being recorded.
• Amount: Dollar value and currency.
• Period: Which accounting period the entry belongs to.
• Entry type: Standard, adjusting, accrual, reversal, reclassification, or correction.
• Supporting documentation: Invoice, contract, calculation, or management estimate.
• Recurring or one-time: Whether this entry repeats and whether auto-reversal is needed.

Step 2: Determine the Accounts and Coding

Select the correct general ledger accounts:

• Identify the affected accounts by type: asset, liability, equity, revenue, or expense.
• Apply the debit/credit rules:
  • Assets: debit to increase, credit to decrease.
  • Liabilities: credit to increase, debit to decrease.
  • Equity: credit to increase, debit to decrease.
  • Revenue: credit to increase, debit to decrease.
  • Expenses: debit to increase, credit to decrease.
• Add cost center, department, project, or entity coding as required.
• Verify accounts against the chart of accounts.

Step 3: Build the Journal Entry

Structure the entry with all required fields:

• Entry header: Date, description, entry type, preparer, period.
• Line items: Account number, account name, debit amount, credit amount, line memo.
• Validation: Total debits must equal total credits.
• Supporting detail: Calculation methodology, reference documents.

Step 4: Review and Approve

Apply the approval framework:

• Below $10K: Staff accountant prepares, senior accountant reviews.
• $10K - $100K: Senior accountant prepares, accounting manager approves.
• $100K - $1M: Manager prepares, controller approves.
• Above $1M: Controller prepares, CFO approves.
• Non-standard / topside entries: Always require controller or higher approval.

Step 5: Document for Audit Trail

Ensure the entry is audit-ready:

• Attach or reference all supporting documentation.
• Include the business purpose and rationale.
• Note if the entry is recurring and the reversal date.
• Cross-reference related entries (e.g., original entry for a reversal).

Output Format

## Journal Entry

**Entry ID**: JE-[YYYY]-[NNNN]
**Date**: [YYYY-MM-DD] | **Period**: [YYYY-MM]
**Type**: [Accrual / Adjustment / Reclassification / Reversal / Depreciation]
**Prepared by**: [Name] | **Approved by**: [Name]
**Auto-reverse**: [Yes - YYYY-MM-DD / No]

### Description
[Clear description of the transaction and business purpose]

### Entry Detail
| Line | Account #  | Account Name              | Dept  | Debit      | Credit     | Memo                          |
|------|-----------|---------------------------|-------|------------|------------|-------------------------------|
| 1    | 6200-100  | Professional Fees Expense  | G&A   | $45,000.00 |            | Q1 legal fees accrual         |
| 2    | 2100-100  | Accrued Expenses           | --    |            | $45,000.00 | Q1 legal fees accrual         |
|      |           | **TOTAL**                  |       | **$45,000**| **$45,000**|                               |

### Supporting Documentation
- [ ] Invoice / estimate reference: [Document ID or description]
- [ ] Calculation workpaper: [Attached / reference]
- [ ] Prior period comparison: [Amount last period]
- [ ] Approval documentation: [Email / signature]

### Accounting Basis
[Brief explanation of the GAAP basis for this entry, e.g., ASC 840 lease accounting,
ASC 606 revenue recognition, matching principle for accruals]

Examples

User: "Book a $45,000 accrual for Q1 legal fees" Action: Create the accrual JE debiting professional fees expense and crediting accrued expenses, with auto-reversal flag and supporting detail.

User: "Record monthly depreciation for our fixed assets totaling $125,000" Action: Build the depreciation entry with debits to depreciation expense by department and credit to accumulated depreciation, referencing the fixed asset register.

User: "Reclassify $20,000 from office supplies to software expense" Action: Create a reclassification entry debiting software expense and crediting office supplies, with memo explaining the correction.

Best Practices

• Always verify debits equal credits before finalizing. An unbalanced entry will not post.
• Include enough detail in the description that someone unfamiliar with the transaction can understand it.
• Use consistent account coding; refer to the chart of accounts rather than guessing account numbers.
• For accruals, always specify whether auto-reversal is needed and the reversal date.
• For recurring entries, note the recurrence pattern and maintain a recurring JE schedule.
• Reversals should reference the original entry ID for traceability.
• Round to the penny for actual entries; use whole dollars only for estimates clearly marked as such.
• Flag any entries that affect prior periods; these may require disclosure or restatement consideration.