What is a permanent journal entry?
A permanent journal entry is a financial transaction recorded in the general ledger that remains in the accounting records indefinitely. It is a transaction that does not require any future adjustments or corrections. Permanent journal entries are commonly used for significant events or transactions that have a lasting impact on a company's financial position.
To record a permanent journal entry, follow these steps:
1. Identify the transaction: Determine the specific event or transaction that needs to be recorded as a permanent journal entry.
2. Determine the accounts involved: Identify the accounts that will be affected by the transaction. This could include assets, liabilities, equity, revenue, or expense accounts.
3. Decide on the journal entry format: Determine whether the transaction will result in a debit or credit to each affected account. This will depend on the nature of the transaction and the accounting principles being followed.
4. Prepare the journal entry: Write down the appropriate account titles, debit, and credit amounts in the general journal using the chosen format.
5. Post the entry to the general ledger: Transfer the journal entry from the general journal to the respective accounts in the general ledger. Make sure to record the date of the transaction.
6. Review and verify: Double-check the accuracy of the journal entry and ensure that it is supported by relevant documentation, such as invoices or receipts.
Once recorded, a permanent journal entry will remain in the company's books as part of its financial history. It provides a permanent record of the transaction's impact on the accounts and aids in financial reporting, analysis, and auditing processes.