Journal Entry Prep

Key considerations:

• Reverse in the following period (auto-reversal recommended)
• Use consistent estimation methodology period over period
• Document basis for estimates (PO amount, contract terms, historical run-rate)
• Track actual vs accrual to refine future estimates

Fixed Asset Depreciation

Book periodic depreciation expense for tangible and intangible assets.

Typical entry:

• Debit: Depreciation/amortization expense (by department or cost center)
• Credit: Accumulated depreciation/amortization

Depreciation methods:

• Straight-line: (Cost - Salvage) / Useful life — most common for financial reporting
• Declining balance: Accelerated method applying fixed rate to net book value
• Units of production: Based on actual usage or output vs total expected

Key considerations:

• Run depreciation from the fixed asset register or schedule
• Verify new additions are set up with correct useful life and method
• Check for disposals or impairments requiring write-off
• Ensure consistency between book and tax depreciation tracking

Prepaid Expense Amortization

Amortize prepaid expenses over their benefit period.

Typical entry:

• Debit: Expense account (insurance, software, rent, etc.)
• Credit: Prepaid expense

Common prepaid categories:

• Insurance premiums (typically 12-month policies)
• Software licenses and subscriptions
• Prepaid rent (if applicable under lease terms)
• Prepaid maintenance contracts
• Conference and event deposits

Key considerations:

• Maintain an amortization schedule with start/end dates and monthly amounts
• Review for any prepaid items that should be fully expensed (immaterial amounts)
• Check for cancelled or terminated contracts requiring accelerated amortization
• Verify new prepaids are added to the schedule promptly

Payroll Accruals

Accrue compensation and related costs for the period.

Typical entries:

Salary accrual (for pay periods not aligned with month-end):

• Debit: Salary expense (by department)
• Credit: Accrued payroll

Bonus accrual:

• Debit: Bonus expense (by department)
• Credit: Accrued bonus

Benefits accrual:

• Debit: Benefits expense
• Credit: Accrued benefits

Payroll tax accrual:

• Debit: Payroll tax expense
• Credit: Accrued payroll taxes

Key considerations:

• Calculate salary accrual based on working days in the period vs pay period
• Bonus accruals should reflect plan terms (target amounts, performance metrics, payout timing)
• Include employer-side taxes and benefits (FICA, FUTA, health, 401k match)
• Track PTO/vacation accrual liability if required by policy or jurisdiction

Revenue Recognition

Recognize revenue based on performance obligations and delivery.

Typical entries:

Recognize previously deferred revenue:

• Debit: Deferred revenue
• Credit: Revenue

Recognize revenue with new receivable:

• Debit: Accounts receivable
• Credit: Revenue

Defer revenue received in advance:

• Debit: Cash / Accounts receivable
• Credit: Deferred revenue

Key considerations:

• Follow ASC 606 five-step framework for contracts with customers
• Identify distinct performance obligations in each contract
• Determine transaction price (including variable consideration)
• Allocate transaction price to performance obligations
• Recognize revenue as/when performance obligations are satisfied
• Maintain contract-level detail for audit support

Supporting Documentation Requirements

Every journal entry should have:

1. Entry description/memo: Clear, specific description of what the entry records and why
2. Calculation support: How amounts were derived (formula, schedule, source data reference)
3. Source documents: Reference to the underlying transactions or events (PO numbers, invoice numbers, contract references, payroll register)
4. Period: The accounting period the entry applies to
5. Preparer identification: Who prepared the entry and when
6. Approval: Evidence of review and approval per the authorization matrix
7. Reversal indicator: Whether the entry auto-reverses and the reversal date

Review and Approval Workflows

Typical Approval Matrix

Note: Thresholds should be set based on your organization's materiality and risk tolerance.

Review Checklist

Before approving a journal entry, the reviewer should verify:

• Debits equal credits (entry is balanced)
• Correct accounting period (not posting to a closed period)
• Account codes exist and are appropriate for the transaction
• Amounts are mathematically accurate and supported by calculations
• Description is clear, specific, and sufficient for audit purposes
• Department/cost center/project coding is correct
• Treatment is consistent with prior periods and accounting policies
• Auto-reversal is set appropriately (accruals should reverse)
• Supporting documentation is complete and referenced
• Entry amount is within the preparer's authority level
• No duplicate of an existing entry
• Unusual or large amounts are explained and justified

Common Errors to Check For

1. Unbalanced entries: Debits do not equal credits (system should prevent, but check manual entries)
2. Wrong period: Entry posted to an incorrect or already-closed period
3. Wrong sign: Debit entered as credit or vice versa
4. Duplicate entries: Same transaction recorded twice (check for duplicates before posting)
5. Wrong account: Entry posted to incorrect GL account (especially similar account codes)
6. Missing reversal: Accrual entry not set to auto-reverse, causing double-counting
7. Stale accruals: Recurring accruals not updated for changed circumstances
8. Round-number estimates: Suspiciously round amounts that may not reflect actual calculations
9. Incorrect FX rates: Foreign currency entries using wrong exchange rate or date
10. Missing intercompany elimination: Entries between entities without corresponding elimination
11. Capitalization errors: Expenses that should be capitalized, or capitalized items that should be expensed
12. Cut-off errors: Transactions recorded in the wrong period based on delivery or service date