Automate Your Journal Entries to Drive Efficiency & Scalability

Journal entries are critical and inevitable for every accounting organization. Yet, for most organizations, creating, supporting, and certifying journal entries is time-consuming, lacks standardization, and poses downstream audit challenges.

With hundreds or thousands of journal entries each period, the traditional manual process is unsustainable. Luckily, there are opportunities to modernize and automate each step of the journal entry process, from data extraction to allocations, entry, approvals, and posting.

Automatic journal entries are financial entries recorded in the accounting system without manual intervention. They are typically used to streamline and automate repetitive and routine accounting tasks, such as accruals, depreciation, and payroll allocations.

By setting predefined rules and triggers in accounting software, these entries can be automatically generated at specified intervals or based on certain financial events. This reduces the likelihood of human error and saves time for accounting professionals. Automation ensures that financial records are updated promptly and consistently, maintaining the accuracy and integrity of financial data.

In modern accounting practices, automatic journal entries play a crucial role in enhancing the efficiency of financial operations. They allow businesses to adhere to compliance standards by recording all transactions accurately and promptly. With advanced journal entry software, companies can customize their automatic journal entries to suit their specific operational needs, including complex transactions involving multiple currencies or subsidiaries. As a result, automatic journal entries contribute to a more streamlined accounting process and provide valuable real-time insights into a company's financial health, aiding in more informed decision-making.

Manual and automated journal entries represent two distinct approaches to recording financial transactions within an organization's accounting system.

As the video notes, manual journal entries can take up a lot of an accountant’s time—much of it spent in Excel— because they require a person to enter transactions into the accounting system by hand. Tasks typically involve data entry, calculations, and ensuring compliance with accounting standards. This can be time-consuming and prone to human error, especially in complex or repetitive tasks. Manual journal entries are often used for unique or non-recurring transactions that require specific attention, such as corrections, adjustments, or entries that involve judgment calls.

In contrast and as discussed above, automated journal entries are created by accounting software that automatically records transactions based on predefined rules or triggers. This automation is ideal for recurring and routine transactions, such as monthly accruals, depreciation, and intercompany transactions. Automated entries reduce the likelihood of errors, increase efficiency, and free up time for accountants to focus on more strategic tasks.

Journal entries are vital for recording various financial transactions within a company's general ledger. Each type of journal entry serves a specific purpose and reflects different types of business activities.

Here are the five common types of journal entries:

1. Simple Journal Entries

• Definition: Simple journal entries involve a single debit and a single credit entry. They are straightforward transactions that are easy to record and understand.

• Examples: Recording cash sales, paying a supplier, or receiving payment from a customer. For instance, if a business sells goods for cash, the entry would debit Cash and credit Sales Revenue.

2. Compound Journal Entries

• Definition: Compound journal entries involve more than one debit or credit. These entries are used when a single transaction affects multiple accounts.

• Examples: Payroll entries, where wages, taxes, and other deductions are recorded; a single sale involving cash and a credit portion. For example, purchasing equipment with cash and a loan would involve debiting Equipment, crediting Cash, and crediting a Loan Payable account.

3. Adjusting Journal Entries

• Definition: Adjusting journal entries are made at the end of an accounting period to update account balances before financial statements are prepared. They ensure that revenues and expenses are recorded in the period they occur.

• Examples: Accruing expenses that have been incurred but not yet recorded (e.g., utilities payable), adjusting for prepaid expenses, and recognizing earned revenue that was received in advance.

4. Reversing Journal Entries

• Definition: Reversing journal entries are optional entries made at the beginning of an accounting period to reverse certain adjusting entries from the previous period. This practice is useful for simplifying record-keeping.

• Examples: Reversing an accrued expense from the previous period, such as wages payable, to avoid double-counting expenses when they are paid in the next period.

5. Closing Journal Entries

• Definition: Closing journal entries are made at the end of an accounting period to transfer temporary account balances (revenues, expenses, gains, and losses) to permanent accounts (Retained Earnings or Capital account).

• Examples: Closing revenue accounts to Retained Earnings, closing expense accounts to Retained Earnings, and transferring net income or loss to the Retained Earnings account.

In the video, our BlackLine expert gives an example of a bad debt provision entry that is a prime candidate for automation. It’s a complex journal that needs to be posted every month, and it requires a lot of Excel calculations and manipulations. Many companies have complex spreadsheets that do the bulk of this.

With some analysis, you can identify other entries like this that are time-consuming but driven by logic without subjectivity. These will be the perfect candidates to start automating.

As you begin your analysis, keep in mind that the ideal types of journals for automation are those that involve repetitive, routine transactions and can benefit significantly from consistency and efficiency. Automating these journal entries reduces the likelihood of human error, saves time, and ensures timely and accurate financial reporting.

Here are some specific types of journals that may be well-suited for automation:

1. Recurring Journal entries occur regularly, such as monthly, quarterly, or annually, and typically involve fixed amounts or patterns. Examples include rent payments, insurance premiums, and subscription services.

2. Accrual and Deferral Journal Entries recognize revenues and expenses in the period they occur, regardless of when cash is exchanged. Some examples include accrued expenses (e.g., utilities, wages) and deferred revenue (e.g., advance payments from customers).

3. Depreciation and Amortization Entries allocate the cost of an asset over its useful life, reflecting its usage and reducing its book value, and include depreciation of property, plant, and equipment and amortization of intangible assets (e.g., patents, software).

4. Intercompany Transactions occur between different entities within the same corporate group and include transfer of goods or services between subsidiaries and allocations of shared expenses.

5. Payroll Journal Entries record employee compensation, taxes, and benefits such as salary payments and employee benefits (e.g., health insurance, retirement contributions).

BlackLine Journal Entry is a comprehensive solution that integrates with your ERPs and other BlackLine financial close management solutions to centralize and automate the creation, validation, review, and posting of journal entries. BlackLine introduces intelligent controls, approval, routing, and segregation of duties.

Let’s return to our bad debt reserve example from the video. The software has automatically populated all the header fields, automatically posted into the ERP, returned the document number and the company codes in the fiscal year from the ERP, and performed significant calculation work in the background. You can even view the calculations BlackLine did behind the scenes from a detailed view.

Using BlackLine for a journal entry like this reduces the risk of human error, plus you no longer have to rely on a bulky spreadsheet. You’ll gain confidence that automated journal entries are recorded accurately and timely, freeing up your time to work on strategic initiatives.

 You and your team can enjoy these benefits when you apply advanced solutions like BlackLine Journal Entry:

• Consistency: Automated systems apply consistent rules across all transactions, ensuring that accounting policies are uniformly enforced

• Efficiency: Reduce the workload on accountants, allowing them to focus on more strategic tasks

• Accuracy: Minimize human error, ensuring entries are recorded accurately and timely

• Scalability: Support business growth by efficiently handling increasing transaction volumes without additional resources

• Employee Morale & Retention: This technology allows F&A professionals to focus on higher-value activities and strategic initiatives by streamlining manual workflows and reducing mundane tasks