Journal entries can make your books more accurate and up-to-date, but if you’re not sure of the best way to create them, they can also make a huge mess.
Let’s take a look at how to optimize your journal entry process for clean, streamlined journal entries that make your books more clear,not less. The right process can help you create better — and fewer — journal entries, which helps you speed up the month-end close and slash your manual labor.
Journal Entry Basics
Just a quick recap, a journal entry is a way of manually entering a transaction or set of transactions in your accounting software. With many transactions being automated these days, journal entries are most often used for adjusting entries and accrued or deferred transactions where no cash is actually changing hands.
A journal entry includes the date, the names or numbers of the accounts involved, and the amounts being debited or credited in each. It also includes a description of the transaction and a reference number for the journal entry.
For example, if you created a journal entry to record accrued payroll, you would debit several expense accounts and credit several clearing and accrual accounts. No money has changed hands, so a bank feed automation won’t pick up the transaction but the journal entry serves to record the expenses accrued for a partial pay period and the liabilities they create.
So, let’s figure out how to handle journal entries more efficiently.
Benchmark Where You Are Now
Peter Drucker said you can’t improve what you don’t measure. In some ways you can, but you’ll never be able to prove it or know whether your changes are actually helpful.
First, take a look at the past few months worth of journal entries. How many are there? What are they? Who made them? When you know how many journal entries you’re making, you have a chance to find inefficiencies and eliminate them.
We’ll take a look at how to eliminate those problems in the next steps. For now, just document how many journal entries you have, what caused them to be necessary, and who posted them. If they’re being posted by several people across the department or across several departments, there could be communication problems leading to confusion and unnecessary entries, or even duplicates.
Automate What You Can
Once upon a time, just about everything was a journal entry. Transactions were hand-written into paper journals and that was just the way it was. Technology has changed all that. As we said earlier, journal entries are now mostly used for adjusting entries, accruals, and deferrals.
Just like technology cut down the need for every entry to be manual, it continues to reduce the need for excessive journal entries. As the technology gets better and more and more applications and tools sync to your accounting suite, some of the things you’re posting manually may be able to be automated, as well.
Of course, some journal entries are one-off and unexpected. But there are many that are recurring, include the same accounts month-after-month, and vary only in the amounts of the debits and credits. Many of these journal entries can be automated to cut your workload and reduce the risk of human error. Payroll and amortization/depreciation are good examples of predictable journal entries that happen like clockwork.
For those entries that do need to be posted manually every time, create templates to make the process faster. It’s likely that the accounts never change, only the dollar amounts. By creating a recurring template for your entries, you can speed up the posting by simply editing the numbers. A template also prevents you from accidentally posting to the wrong accounts, especially if you have several with similar names, such as accounts for individual long-term assets.
Coordinate to Minimize Entries
Whether you’re talking about posting manual entries or reviewing automated ones, you need to be sure your team is handling it productively. Look at who is posting entries and when. If there are too many cooks in the kitchen, it can lead to mistakes or simply to wasted time. When adjusting entries are the bottleneck to a fast month-end close, wasted time isn’t something you can afford.
Along with the rest of your closing tasks, recurring journal entries should be a part of your closing checklist. Map out who is responsible for the entries so no one wastes time double checking work that’s already been done by someone else. If there is an opportunity to batch these entries together or combine several into one larger journal entry, you could save time and leave yourself with much cleaner financials.
If there are important judgement calls that need to be made with certain journal entries, make sure the person responsible is able to make them and has access to the required information to do so. Don’t set yourself up for extra steps and information requests at the last minute.
Journal entries are one of the necessary manual processes in the accounting cycle, but their manual nature can make journal entries a bottleneck. The more you can automate them, streamline them, and reduce the need for them, the better.