## **Learning Outcomes**

After completing this article, you will be able to explain how journals are used to record adjustments, recognise the function of narrations, and understand the documentation standards required for financial transactions. You will also be able to identify key terms, provide clear explanations for journal entries, and meet ACCA exam requirements in this topic.

## **ACCA Recording Financial Transactions (FA1) Syllabus**

For ACCA Recording Financial Transactions (FA1), you are required to understand how to prepare and document journals and adjustments. Particular focus should be placed on:

- The purpose and format of the journal for recording adjustments and corrections
- The requirement for providing accurate narrations to support journal entries
- Documentation and authorisation standards for non-routine adjustments
- Content requirements for supporting documentation in both manual and computerised systems
- Best practices for referencing source evidence and maintaining an audit trail

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. What is the primary role of a narration in a journal entry?
2. Which statement best describes documentation standards for journal adjustments?
   a) Only monetary values are required.
   b) Authorisation and explanation are essential.
   c) Dates can be omitted if known by preparer.
   d) Journals are kept informally and not referenced.
3. When preparing a journal entry to correct an error, which document(s) should be consulted first?
4. Provide an example of a brief narration for the write-off of an irrecoverable debt.

## **Introduction**

The journal is a core part of every accounting system, used to record adjustments, corrections, and non-routine transactions that cannot be entered directly in standard books of prime entry. Precise documentation and clear narrations are essential to ensure that records are complete and transparent, and to maintain both legality and accountability for every adjustment. This article focuses on the practical application of journals, the requirements for narration, and best-practice documentation standards for ACCA FA1.

> **Key Term: journal**
> The record in which non-standard, adjustment, or corrective accounting entries are set out using double entry, before posting to ledger accounts.

## **Purpose and Format of the Journal**

Every accounting system uses the journal to enter transactions that do not fit standard sales, purchases, or cash logs—such as year-end adjustments, corrections, or transfer between accounts.

A proper journal entry includes the following elements:

- Date of the transaction
- Debited account(s) and amount(s)
- Credited account(s) and amount(s)
- A concise narration (explanation)
- Reference to supporting documents

> **Key Term: narration**
> A brief explanation attached to a journal entry describing the reason for the transaction or adjustment.

## **Narrations in Journal Entries**

A narration is a short note with each journal entry that explains the purpose of the entry. Narrations must be clear, concise, and factual, enabling any reviewer to understand the reason for the adjustment without ambiguity.

Typical points in a narration:

- Reference to the transaction or event being adjusted or corrected
- Identification of relevant parties if needed
- Reference to supporting evidence (e.g., invoice number, contract, management instruction)

> **Key Term: documentation standards**
> Rules governing the information, references, and authorisations required to support any financial record or adjustment.

## **Documentation Standards and Authorisation**

All journal entries must be supported by appropriate evidence—such as invoices, contracts, credit notes, statements, or management approvals. In addition, documentation must be securely maintained so that each journal entry can be traced to its source and justified independently.

Requirements typically include:

- Date and value of the original transaction
- Source document references
- Approval or authorisation by a responsible staff member
- Cross-references to the impacted accounts
- Retention of supporting documents in a secure and orderly manner

In computerised systems, the journal entry may include electronic document links, digital approval records, and system-generated audit trails. In paper-based systems, reference numbers and physical signatures are standard.

> **Key Term: authorisation**
> Confirmation by a qualified or designated person that a transaction, adjustment, or correction is legitimate before it is entered into the records.

## **Practical Use of Journals for Adjustments**

Journals are used for various adjustments, such as accruals, prepayments, correcting errors, or recording items that occur infrequently. When making an adjustment, it is essential to ensure that:

- The entry is complete (both debit and credit are included)
- Amounts are accurate
- The reason is made clear in the narration
- Source evidence is accessible

### **Worked Example 1.1**

A business identifies that \$450 wages owed at the year-end were not recorded. Prepare the journal entry to record this adjustment and write an appropriate narration.

> **Answer:**
>
> | Date     | Account       | Debit | Credit |
> | -------- | ------------- | ----- | ------ |
> | 31/12/X3 | Wages Expense | \$450 |        |
> |          | Accrued Wages |       | \$450  |
>
> Narration: "To record wages accrued as at year end (see payroll summary, ref. 994)."

### **Worked Example 1.2**

A sales invoice of \$1,200 was mistakenly posted to the Rent Expense account. What journal entry corrects this and what should the narration state?

> **Answer:**
>
> | Date     | Account      | Debit   | Credit  |
> | -------- | ------------ | ------- | ------- |
> | 02/05/X4 | Rent Expense |         | \$1,200 |
> |          | Sales        | \$1,200 |         |
>
> Narration: "To correct misposting of sales invoice #SV549 from Rent Expense to Sales account."

## **Maintaining an Audit Trail**

Journals and adjustments must always be traceable. This means:

- All adjusting entries are supported by references to the original transaction
- A clear trail is maintained from source document to journal to ledger
- Documents are securely filed for the minimum retention period
- Appropriate controls are in place for access and review

Storing documentation electronically is increasingly common, but the requirements for traceability and clarity remain the same. Access must be restricted to authorised personnel only.

### **Exam Warning**

> Journal entries that lack clear narrations or missing documentation may invalidate adjustments and lead to audit findings. Every journal entry must be transparent and properly authorised.

### **Revision Tip**

> Avoid vague narrations like "to correct error"—instead, state exactly what was adjusted and why, referencing evidence where possible.

## **Summary**

Journals are essential for recording non-standard transactions and adjustments. Narrations must always explain the reason clearly, and every entry must be supported by appropriate documents and authorisation. Maintaining these standards is critical for audit, control, and regulatory compliance.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Understand the structure and use of the journal for adjustments and corrections
- Recognise the requirement for clear, factual narrations in every journal entry
- Know the documentation standards that must support journal entries
- Identify how to reference, file, and secure supporting evidence for every adjustment
- Appreciate the importance of authorisation in maintaining reliable accounting records

## **Key Terms and Concepts**

- journal
- narration
- documentation standards
- authorisation

The journal and adjustments - Narrations and documentation standards