10 Journal Entry Approval Best Practices

A journal entry is a record of financial transactions that are posted to a company’s general ledger. Journal entries are used to record a wide variety of business transactions, including the purchase of goods and services, the sale of goods and services, the receipt of cash and the payment of cash.

Journal entries must be approved by a designated individual before they are posted to the general ledger. The approval process helps to ensure that all journal entries are accurate and complete.

There are a number of best practices that should be followed when approving journal entries. This article discusses 10 of the most important journal entry approval best practices.

1. Use a Journal Entry Approval Workflow

A journal entry approval workflow ensures that all journal entries are reviewed and approved by the appropriate people before they are posted to the general ledger. This helps to prevent errors and fraud, and it also provides a paper trail in case there are any questions about a particular journal entry.

When setting up a journal entry approval workflow, be sure to specify who is responsible for each step of the process, and make sure that everyone involved understands their role. You may also want to consider using an electronic system for journal entry approval, which can help to automate the process and make it even more efficient.

2. Create a Centralized Location for All JEs

When journal entries are spread out across different departments or even different locations, it can be difficult to keep track of them all. This can lead to errors and delays in the approval process.

A centralized location makes it easy to see all JEs that need to be approved, and it also makes it easier to keep track of who has approved what. This can help prevent mistakes and ensure that the approval process is as efficient as possible.

3. Ensure the Right People are Involved in the Process

If the wrong people are approving journal entries, it can lead to errors and fraud. For example, if someone who doesn’t understand accounting approves a journal entry, they might not catch an error. Or, if someone with malicious intent is involved in the approval process, they could approve fraudulent journal entries.

To avoid these problems, make sure only people who understand accounting and have no conflict of interest are involved in approving journal entries.

4. Provide Clear Guidelines on What to Look For

If you don’t provide clear guidelines, then the person approving the journal entries will likelyapprove them based on their own personal preferences. This can lead to inconsistency in the approval process, and it can also result in journal entries that are not properly vetted.

When providing guidelines, be sure to cover all of the bases. For example, you may want to include a checklist of items that should be reviewed, such as whether all of the debits and credits balance, whether the journal entry is correctly classified, and whether there are any red flags that should be investigated.

Providing clear guidelines will help to ensure that journal entries are approved in a consistent and thorough manner.

5. Establish an Audit Trail

If there is ever a question about the accuracy or validity of a journal entry, an audit trail can be used to track down who made the entry, when it was made, and what changes were made (if any). This information can then be used to determine if the journal entry was made correctly, and if not, who is responsible for correcting it.

An audit trail can also be helpful in cases of fraud or embezzlement. By tracking who made what entries, and when, you can often identify patterns that may indicate fraudulent activity.

Finally, an audit trail is simply good business practice. It provides a level of transparency and accountability that can help build trust with your stakeholders, and it can give you peace of mind knowing that your financial records are accurate and complete.

6. Automate Your Journal Entry Approval Process

When you automate your journal entry approval process, you can set up rules and approvals in advance so that you don’t have to waste time manually reviewing and approving each journal entry. This means that you can spend more time on other tasks, such as analyzing your data or working on strategic projects.

Additionally, automating your journal entry approval process can help to ensure that all journal entries are reviewed and approved in a timely manner. This is because the system will automatically send out reminders to approvers when a journal entry is due for review.

Finally, automating your journal entry approval process can help to improve the accuracy of your data. This is because all journal entries will be reviewed by multiple people before being approved, which reduces the chances of errors slipping through the cracks.

7. Make Sure You Have a Backup Plan

If you’re relying on a single person to approve journal entries, what happens if that person is out of the office? Or worse, what if something happens to them and they’re unable to perform their duties?

Having a backup plan ensures that there’s always someone who can approve journal entries, even if the primary approver is unavailable. This could mean having multiple people who can approve journal entries, or it could mean having a system in place where journal entries are automatically approved after a certain period of time.

Either way, make sure you have a plan in place so that your business can continue to run smoothly, even if the primary approver is unavailable.

8. Train Employees on How to Use the System

If employees don’t understand how the system works, they’re more likely to make mistakes when entering journal entries. This can lead to errors in the financial statements, and it can also cause delays in the approval process.

It’s important to train employees on the basics of journal entry approval, such as how to create journal entries, how to route them for approval, and how to track the status of their entries. Employees should also be aware of any deadlines that are associated with the journal entry approval process.

By training employees on how to use the system, you can help ensure that journal entries are entered correctly and that the approval process runs smoothly.

9. Review and Update Your Process Regularly

As your business grows and changes, so do your journal entry approval needs. What worked for a team of five accountants may not work for a team of ten. And as your accounting software evolves, new features may be added that change the way youapprove journal entries.

By reviewing and updating your process regularly, you can ensure that it always meets the needs of your team and takes advantage of any new features that could make the process easier or more efficient.

10. Leverage Technology to Simplify the Process

With the right solution in place, you can automate many of the tasks associated with journal entry approval, including routing entries for review, notifying approvers of new entries, and tracking approvals. This can save a significant amount of time and effort, and help ensure that entries are approved in a timely and efficient manner.

Additionally, a journal entry approval solution can provide visibility into the status of entries at any given time, so you can quickly identify and resolve any bottlenecks in the process.