Why do we prepare journal entries?
Also, what is the purpose of a journal entry?
The Purpose of Journal Entries Journal entries provide foundational information for all of a business's other financial reports. They're used by auditors to analyze how financial transactions impact a business.
Secondly, how do you explain journal entries?
Journal entries use debits and credits to record the changes of the accounting equation in the general journal. Traditional journal entry format dictates that debited accounts are listed before credited accounts. Each journal entry is also accompanied by the transaction date, title, and description of the event.
Contra entry is a transaction which involves both cash and bank. Both debit aspect and credit aspect of a transaction get reflected in the cash book. For example: Cash received from debtors and deposited into bank. Cash withdrawn from bank for office use.