How to Make a Journal Entry in QuickBooks Online

Making a manual journal entry in QuickBooks Online isn't difficult, but doing it correctly is vital for maintaining accurate financial statements. Most of your daily transactions—invoices, payments, expenses—are handled through QuickBooks' specialized forms, which create the debits and credits for you in the background. This guide explains when you need to step in and create a journal entry yourself, providing a detailed walkthrough and best practices to ensure your books remain pristine and auditable.

When Should You Use a Journal Entry?

Journal entries are the accountant's tool for recording transactions that don't fit neatly into QuickBooks' standard forms. They offer direct control over the general ledger, allowing you to move value between any two or more accounts. While you should use forms like "Expense" or "Invoice" whenever possible to take full advantage of QuickBooks' automation, manual journal entries are necessary for certain situations.

Here are the most common scenarios where a professional would use a journal entry:

• Recording Depreciation and Amortization: At the end of a period, you need to record the non-cash expense of depreciation on your fixed assets. A journal entry is the standard method for debiting Depreciation Expense and crediting Accumulated Depreciation.
• Accruing Expenses or Revenue: Under the accrual basis of accounting, you must recognize revenues when earned and expenses when incurred, regardless of when cash changes hands. Journal entries are used to record things like accrued payroll liabilities at month-end or revenue you've earned but haven’t invoiced yet.
• Correcting Errors: If an amount was posted to the wrong account, a journal entry is often the cleanest way to fix it—especially for errors from prior periods that have already been reconciled. It creates a clear audit trail showing exactly how the correction was made.
• Making Year-End Adjustments: Besides depreciation, closing entries or adjustments for things like prepaid expenses (moving an amount from the asset account to the expense account) are handled with journal entries as guided by your accountant or CPA.
• Recording Loan Payments: When you make a loan payment, a single cash transaction needs to be split between a reduction in the loan liability (principal) and an interest expense. A journal entry allows you to precisely record this split.
• Transferring Funds and Recording Capital Contributions: While some transfers can be recorded through other menu items, journal entries provide clarity for more complex movements, like a business owner contributing personal funds (credit to Owner's Equity or Paid-in Capital) or a piece of equipment (debit to a Fixed Asset account) to the business.

Before You Start: Gathering Your Information

A successful journal entry is planned before you even click "+ New" in QuickBooks. Haphazard entries create messy books that are difficult to troubleshoot later. Before you begin, you must have the following information ironed out:

1. The Transaction Date: The correct date the transaction occurred, which is crucial for accurate period-end reporting.
2. The Accounts Involved: You need to know exactly which accounts from your Chart of Accounts will be debited and credited. If you are unsure, consult your accountant.
3. The Amounts: The specific debit and credit amounts for each line of the entry.
4. A Clear Description: A detailed memo is non-negotiable. It explains the purpose of the entry to your future self, an auditor, or a colleague. Avoid vague descriptions like "To reclass" or "Journal Entry."

At its heart, a journal entry always follows the fundamental rule of double-entry accounting: debits must equal credits. To quickly remember which accounts are increased by a debit or a credit, many accountants use the DEA-LER mnemonic:

• DEA: Dividends (or a draw), Expenses, and Assets are increased with a debit.
• LER: Liabilities, Equity, and Revenue are increased with a credit.

Keep this in mind as you prepare your entry. A debit to one account must be offset by an equal credit to another.

Step-by-Step Guide: How to Create a Journal Entry in QuickBooks Online

With your information gathered, you are ready to create the entry in QuickBooks. We will use a common example: recording $500 of monthly depreciation on office equipment.

Step 1: Navigate to the Journal Entry Screen

In the top-left corner of your QuickBooks Online dashboard, click the + New button. In the "Other" column on the right, select Journal Entry.

Step 2: Enter the Header Information

At the top of the Journal Entry screen, you will see a few key fields:

• Journal date: This is a critical field. Ensure it reflects the correct date for the transaction (e.g., the last day of the month for a depreciation entry).
• Journal no.: QuickBooks will automatically assign sequential numbers to your journal entries, but you can override it if you have your own numbering system. It’s best practice to let QuickBooks handle this.

Step 3: Populate the Debit and Credit Lines

This is the core of your task. For our depreciation example, we need to increase Depreciation Expense (an expense account) and increase Accumulated Depreciation (a contra-asset account).

• Line 1 (The Debit):
  • Account: Select "Depreciation Expense" from your Chart of Accounts dropdown menu.
  • Debits: Enter "500.00" in this column.
  • Description: Add a clear memo, such as "To record monthly depreciation for office equipment for Nov 2024." This clarity is indispensable.
• Line 2 (The Credit):
  • Account: Select "Accumulated Depreciation" (this might be a sub-account of your main Fixed Assets or specifically linked to Office Equipment).
  • Credits: QuickBooks will often auto-populate this with the balancing amount. If not, enter "500.00" in this column.
  • Description: You can copy the description from the line above by checking the box next to the account name and using the 'Copy Memo to Selected Lines' tool (this tool may be located at the top or bottom of your editor window).

Step 4: Confirm Your Entry Balances

Look at the bottom of the entry screen. You will see totals for the "Debits" and "Credits" columns. These two numbers must be equal. QuickBooks will not allow you to save a journal entry that is out of balance, preventing you from making a critical accounting error.

Step 5: Add Supporting Attachments If Necessary

At the bottom-left of the screen, you will see an "Attachments" box. Here, you can upload supporting documentation like a PDF of your depreciation schedule, a loan amortization table, or an email authorization for the transaction. This is a tremendous best practice for creating a strong audit trail.

Step 6: Save the Entry

Once you are confident the entry is correct, you have a few options in the bottom-right corner:

• Save and new: Saves the current entry and immediately opens a blank Journal Entry screen.
• Save and close: Saves the current entry and returns you to your previous QuickBooks screen.
• Save: This saves your work and keeps you on the same screen.

Click "Save and close" if you're finished.

Best Practices for Clean and Auditable Journal Entries

Simply knowing the steps isn’t enough. True professionals ensure their work is clear, defensible, and clean. Follow these best practices to elevate your bookkeeping.

• Never Skip the Memo: A journal entry without a detailed description is a red flag for auditors and a puzzle for you six months from now. Explain why you are making the entry with enough detail that anyone could understand its business purpose.
• Source Documents are Your Friend: Always link your journal entries to supporting documents by using the attachments feature. This makes finding proof for an auditor or manager an instant process, not a frantic search through folders.
• Use the Name Field Where Appropriate: If your journal entry pertains to a specific customer, vendor, or employee, be sure to select them in the "Name" column on the same line as your account. This is vital because it ensures the entry appears on reports you filter by name, such as an Accounts Receivable Aging report. It's often used when reclassifying wrongly-applied payments.
• Never Delete, Reverse Instead: It's a key tenet in sound accounting to maintain a clear audit trail. Instead of deleting a journal entry, best practice dictates that you make a reversing journal entry if a mistake has been found. Create a new journal entry dated one day after the erroneous entry, flipping the entry with swapped debits and credits line for line. Add a clear description noting that this "reverses JNL-####." This shows the original error alongside the correction.

Final Thoughts

Mastering journal entries in QuickBooks Online goes beyond simply knowing which buttons to click; it’s about understanding their function and recording them with methodical precision. By knowing when to use them and applying best practices like detailed descriptions and attached source documents, you ensure the integrity of your financial data.

Of course, the entry itself is just the mechanical part. Sometimes, the real work is figuring out the correct accounting or tax treatment behind the numbers, especially for complex transactions. We built Feather AI for just that reason. Instead of digging through IRS publications or state tax codes to confirm the rules for depreciation or deductibility, just ask your question in plain English. We provide instant, citation-backed answers so you can record your entries with complete confidence and get back to advising your clients.