PSA L&P - Journal Entry: How to make a correcting Journal Entry

How to create a correcting Journal Entry

Also described as, "How to move an amount from one account to another."

  1. Identify the problem.  The best way to do this is to find the original entry where the mistake was made.
  2. Identify the account(s) that was(were) used and the account(s) that should have been used.

    For example, a check was written to Best Buy and the Salaries expense account was incorrectly used. 
  3. Was the incorrect account Debited or Credited? 
    • Check/Bill:  line item is Debited 
    • Depositline item is Credited 
    • If it was the bank account on a check it is Credited. 
    • if it was the bank account on a deposit it is Debited
    • If it was a Journal Entry, note the amounts under the Debit and/or the Credit columns.

      In this example, since it is a check, all of the line items were debited where the bank account from which the check was written was credited.
  4. Once you have determined the incorrect account and if it was originally a debit or a credit, you can create your journal entry: 
    • Click Journal Entries.
    • Add a comment (You may want to include the original transaction number. For example: to correct exp in ck 1203)
    • Add the date. (most often the date of the original transaction unless it crosses a year and reports would be messed up).
    • Enter the original incorrect account(s) and amount using the opposite type from the original (Debit or Credit)
      • if the account was Debited on the original entry you will enter the amount in the Credit column
      • if the account was Credited on the original entry you will Debit it
    • Enter the correct account and amount that should have been used originally and place the amount in the opposite column as the preceding line. For example, if the line containing the incorrect account was Debited in this correcting entry, place the amount in the Credit column and vice versa.

      In this example, the Salaries expense account which was incorrectly debited in the check is now credited in the journal entry. The account which should have been debited in the check is debited in the journal entry.
  5. Once you are done making your entries and all comments and projects are filled in as needed, verify that your Debit and Credit totals match.  If so, click Submit.  If they do not match find your error and correct it.  






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