Keeping track of your business finances? You’ll come across two key terms - bookkeeping and journal entry. But what’s the difference, and why does it matter? This simple guide will help you understand!
Key Takeaways
Bookkeeping is the full process of recording and organising financial transactions, while journal entries are individual transaction records that makeup bookkeeping.
Bookkeeping tracks all financial data, while journal entries focus only on recording each transaction using debits and credits.
Understanding the difference helps business owners keep accurate records, fix mistakes easily, and stay prepared for tax season.
What is Bookkeeping?
Bookkeeping is the process of recording and organising a business’s financial transactions to keep track of income and expenses.
Example: A small coffee shop sells 50 cups of coffee for £5 each. The bookkeeper records £250 as revenue and also logs expenses like milk, coffee beans, and rent. This helps the owner see profits, plan budgets, and prepare for taxes.
RECOMMENDED READING: What is Bookkeeping for a Small Business?
What is a Journal Entry?
A journal entry in accounting is a record of a financial transaction in a company’s books, showing which accounts are affected and whether they are debited or credited.
Many businesses use a journal ledger book to maintain these entries before transferring them to the general ledger. If you're wondering about the journal ledger meaning, it simply refers to the record where all journal entries are documented before they are posted to the ledger.
Example: A business buys office supplies for £200 in cash. The journal entry would be:
Debit: Office Supplies (£200) → Increases expenses
Credit: Cash (£200) → Reduces cash balance
Key Differences Between Bookkeeping and Journal Entries
Bookkeeping and journal entries are related, but they are not the same. Here’s how they differ:
What They Do
Bookkeeping is the entire process of recording and organising all financial transactions. Journal entries, on the other hand, are individual transaction records that form the foundation of bookkeeping.
RELATED: What Can A Bookkeeper Not Do?
How They Are Recorded
Journal entries record transactions individually in chronological order, showing which accounts are affected.
Bookkeeping includes journal entries but also involves categorising, summarising, and maintaining financial records to track the overall financial health of a business.
Who Uses Them
Bookkeepers record financial transactions, which may include making journal entries if using a manual system, but many modern bookkeeping systems automate this process.
Business owners, accountants, and financial professionals use bookkeeping records to track finances, make decisions, and prepare for taxes.
Level of Detail
Bookkeeping involves both detailed and summarised financial records, organising transactions into journal and ledger in accounting for tax filing and financial planning.
On the other hand, journal entries record individual transactions with specific details like date, accounts affected, and debit/credit amounts.
RECOMMENDED READING: What are the Similarities and Differences Between Accounting and Bookkeeping?
Use in Financial Statements
Bookkeeping helps create financial statements by organising all transactions in one place.
Journal entries record each transaction separately, but they don’t directly create reports - they are used to update records that go into financial statements.
Bookkeeping vs. Journal Entry Example
Journal Entry: A store sells products for £500 cash. This is how a journal entry will record this.
Debit: Cash (£500) → Increases cash
Credit: Sales Revenue (£500) → Records income
Bookkeeping: The bookkeeper organises this journal entry in a ledger (in the cash and sales accounts) to ensure accurate financial tracking.
What We Think
Many business owners get confused between bookkeeping and journal entries, but the difference is simple - bookkeeping is the full process of keeping financial records organised, while journal entries are just one part of that process, recording individual transactions.
Most small businesses don’t need to record journal entries manually because bookkeeping software does it automatically. This saves time and reduces mistakes. However, it’s still useful to understand journal entries, especially when reviewing records or fixing errors.
How JAFA Can Help
We use AI technology for bookkeeping that automates journal entries, so you don’t have to record transactions manually. This saves time, reduces errors, and keeps your records accurate.
If you ever need to review financial records or fix mistakes, JAFA provides clear, organised reports that make it easy to track income, expenses, and cash flow. Furthermore, we help you stay prepared for tax season without the usual stress.
📞 Get expert support today! Book a FREE discovery call or call us at +44 121 227 6277 to speak with our expert accountants based in Birmingham, UK.
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