Which of the following best describes a journal entry in financial accounting?

• A. An official and formal written record of a business transaction, showing the accounts debited and credited.
• B. A summary of all account balances at the end of an accounting period.
• C. A report that communicates financial performance to external stakeholders.
• D. A document used to authorize payment to suppliers.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a journal entry: A journal entry is a formal written record in financial accounting that documents a business transaction. It specifies the accounts affected, the amounts debited and credited, and often includes a description of the transaction.
2. Differentiate between the options provided: Analyze each option to determine which one aligns with the definition of a journal entry. For example, a journal entry is not a summary of account balances (this describes a trial balance), nor is it a report for external stakeholders (this describes financial statements). It is also not a document for authorizing payments (this describes a payment voucher).
3. Focus on the correct description: The correct description of a journal entry is 'An official and formal written record of a business transaction, showing the accounts debited and credited.' This matches the definition of a journal entry in financial accounting.
4. Relate the concept to the accounting cycle: Journal entries are part of the accounting cycle, where transactions are first recorded in the journal before being posted to the ledger. This ensures accurate tracking of financial activities.
5. Conclude with the importance of journal entries: Emphasize that journal entries are foundational to maintaining accurate financial records, as they provide a clear and organized way to document all business transactions systematically.