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    How to Record Accounting Journal Entries

    (Last Updated On: November 6, 2018)

    Lesson 3 in the Basic Accounting series:

    Learning how to record accounting journal entries is the foundation of any business accounting course .  Let us show you the steps and some examples!

    If you are a student, small business owner, or just wanting to brush up on your accounting skills, understanding the basic accounting concepts  of debits and credits and double-entry accounting will be the first step you want to take in building your accounting skills.

    What is a Journal Entry?

    A journal entry is the primary record of all financial transactions of a business in chronological order.  Before computer accounting software programs , the process of recording transactions was manual and recorded in a paper journal and is where the term journal entry comes from.  

    What are Journal Entries Used For?

    Journal entries are used to record daily financial transactions to analyze how financial transactions impact a business

    The journal entries are aggregated to the general ledger which is then used to construct financial statements .

    What is in a Journal Entry?

    A journal entry should typically include:

    • Unique identifying number of the entry
    • Date of the transaction
    • Amount(s) to be debited and credited
    • Account(s) where the debits and credits are recorded
    • Name of the person making the entry
    • Whether the entry on one-time or recurring
    • A description of the transaction may be beneficial to include and provide information regarding the entry

    Here are some examples of accounting journal entries . 

    Now that we have the basics, let’s go step-by-step through the accounting cycle of double entry journal entries .  

    Step 1 – Recording Accounting Journal Entries with Debits and Credits:

    • In a double entry accounting system (used by most businesses) every business transaction is recorded in at least two accounts. (Learn more about double-entry accounting in our  bookkeeping section)
    • One account from your small business chart of accounts will be debited which simply means the amount will be recorded on the left side and one account will be credited…amount recorded on right side.
    • Debits and credits must balance equal.
    • See more about debits and credits in our basic accounting concepts section.

    Step 2 – Journalizing

    Note: Today most accounting is done on computers and the journalizing (recording accounting journal entries) is done in the background; however, it is still important to know the basics of double entry accounting.

    • In manual accounting, each financial transaction is first recorded in a book called a journal .
    • In that accounting journal entry, the title of the account to be debited is listed first, followed by the amount to be debited. The title of the account to be credited is listed below and to the right of the debit, followed by the amount to be credited.
    • To determine which account is debited and which is credited you have to first determine what kind of account is being affected and if it was increased or decreased.

    Step 3 – Recording Accounting Journal Entries using the Accounting Equation:

    • To determine which account is debited and which is credited memorize this basic accounting equation (the foundation of all basic accounting concepts):

    Assets = Liabilities + Owner’s Equity


    • Assets are on the left side or debit side and asset accounts such as Cash have their normal balances on the left side.
    • Liabilities and Owner’s equity are on the right side or credit side and their accounts in the general accounting ledger have their normal balance on the right side.

    Okay…here’s where it gets a little complicated…but keeping the above equation in mind makes it a lot easier to understand:)

    Step 4 – Recording Accounting Journal Entries: Increase or Decrease?

    • To record a business transaction in an accounting journal entry, we need to look closely at the transaction and see which accounts it involves and if it increased or decreased those accounts.
    • If it involved an asset account such as Cash, you would picture that basic accounting equation above and know that its normal balance is on the left side (debit side), so if we received (increase) cash we would record the amount on the left side.
    • However, if it decreased our asset account such as paying our small business bills, we would record it on the second line and on the right side to show a decrease in that account.
    • If the business transaction increased our liabilities or owner’s equity we would record it on the right side ( credit side) because those balance sheet accounts have a normal credit (right) balance. (Remember that equation?)
    • If the transaction decreased our liabilities or owner’s equity we would record it on the left side ( debit side).
    • To sum it up—remembering the basic accounting equation: increase a balance sheet account by recording the amount on the same side as its on in the equation; decrease it by recording amount on the opposite side.
    • For income statement accounts such as revenue (income) and expenses, you just need to remember revenue accounts have a normal right credit balance. (Easy for me to remember—Revenue increases owner’s equity and has the same normal “credit” balance)
    • So following the rules above—when you increase your revenue account, you would record the amount on its normal credit (right) side and to decrease it you would record the amount on the debit (left )side.
    • Expenses have a normal debit (left) balance. To increase your expense account, you would record the amount on its normal debit (left) side and to decrease it you would record the amount on its opposite (credit) side. Tip: Expenses are almost always debited!

    Step 5 – Practice Recording Accounting Journal Entries:

    The best way to learn something is to do it…so let’s study some examples of general journal entries using double-entry bookkeeping:  Bob open their brand new store selling thingamajigs. Here are some examples of their basic accounting journal entries for the first accounting period:

    Transaction #1 – Jane an Bob invest $15,000 into their new business; rent a building, and start selling their merchandise.  How should the general journal entry be made?

    Date                               

    Account Names & Explanation                                                                                                                                                  

    Debit                                                

    Credit                                             

    3/1

    Cash

    15000

     
     

    Capital

     

    15000

     

    Jane and Bob deposit $15,000 in their new business bank account.

      
     

    Debit: increase in asset (cash)

      
     

    Credit: increase in owner’s equity

      

    Transaction #2 – On March 5th, the company paid their first month’s rent of $1,700.  The expense is recorded by debiting it and deceasing cash by crediting it.

    3/5

    Rent Expense

    1700

     
     

    Cash

     

    1700

     

    Paid first month’s rent of $1700.

      
     

    Debit: increase in expenses (rent)

      
     

    Credit: decrease in asset (cash)

      

    Transaction #3 – On March 10th, the company purchased direct material for inventory that was worth $4,000 on credit.  This will result in an increase in an asset account which is a debit and a credit to Accounts Payable in the amount of $4,000.  

    3/10

    Thingamajig Material – Inventory

    4000

     
     

    Accounts Payable

     

    4000

     

    To make their thingamajigs Jane purchased $4000 in thingamajig materials on credit for cost of goods..

      
     

    Debit: increase in assets (inventory)

      
     

    Credit: increase in liabilities (AP)

      

    Transaction #4 – On March 15, the company made sales of $2,200 and received $1,200 in cash and the remaining $1,000 as Accounts Receivable .  This results in a compound journal entry.  We will record an increase in cash and Accounts Receivable and debit those accounts.  In addition, the Revenue account is credited by $2,200 even though full payment hasn’t been received.

    3/15

    Cash

    1200

     
     

    Account Receivable

    1000

     
     

    Revenue

     

    2200

     

    Sales of $2200. Cash sales of $1200 and sold $1000 on customer credit. (Compound entry: Some transactions will affect more than one account)

      
     

    Debit: increase in assets (cash)

      
     

    Debit: increase in assets (AR)

      
     

    Credit: increase in Revenue

      

    Transaction #5 – Also on March 15, an expense was made to purchase materials that will be used to create inventory for $600.  As such there will be a debit in expenses and credit in inventory.

    3/15

    Thingamajig Material Expense

    600

     
     

    Thingamajig Material – Inventory

     

    600

     

    $600 in Thingamajig material was used to make more Thingamajigs.

      
     

    Debit: increase in expenses (Thingamajig Material)

      
     

    Credit: decrease in asset (inventory)

      
     

    Transaction #6 – For this accounting entry, on March 28, the company paid some of its liability from Transaction #3 by issuing a check.  To record this transaction, we will debit Accounts Payable for $1,800 to decrease it, then we will credit cash to decrease it as a result of the payment. 

    3/28

    Accounts Payable

    1800

     
     

    Cash

     

    1800

     

    Paid $1800 on credit account.

      
     

    Debit: decrease in liabilities (AP)

      
     

    Credit: decrease in assets (cash)

      

    Transaction #7 – On March 30 the company collected a portion of the amount due from the customer in Transaction #4.  This transaction is recorded as an increase in cash by debiting it by $500.  Then, we credit Accounts Receivable to decrease it, which will reduce the receivable since some of the money has been collected.

    3/30

    Cash

    500

     
     

    Accounts Receivable

     

    500

     

    Collected $500 in cash from credit customers.

     

    Debit: increase in assets (cash)

      
     

    Credit: decrease in asset (AR)

      

    Notice how each transaction is balanced. Everything entered on the left hand (debit) side equals the (credit side) right hand side. That’s what double entry bookkeeping is all about—transactions must balance. It’s kind of like what you learned in basic algebra classes–if you can remember back that far – what you did to one side of the equation you had to do to the other side.

    A couple of more tips on journal entry accounting:

    • The above accounting journal entries did not include account numbers. Usually in real life, you would use the account numbers from your chart of accounts to identify each account.
    • You do not use dollar signs in recording the amounts. If the journal is prepared in the United States the amounts are understood to be in the US Dollar.

    Next Section: Lesson 4

    Posting to the Accounting Ledger

    Previous Section: Double Entry Bookkeeping



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      How to Record Accounting Journal Entries

      (Last Updated On: November 6, 2018)

      Lesson 3 in the Basic Accounting series:

      Learning how to record accounting journal entries is the foundation of any business accounting course .  Let us show you the steps and some examples!

      If you are a student, small business owner, or just wanting to brush up on your accounting skills, understanding the basic accounting concepts  of debits and credits and double-entry accounting will be the first step you want to take in building your accounting skills.

      What is a Journal Entry?

      A journal entry is the primary record of all financial transactions of a business in chronological order.  Before computer accounting software programs , the process of recording transactions was manual and recorded in a paper journal and is where the term journal entry comes from.  

      What are Journal Entries Used For?

      Journal entries are used to record daily financial transactions to analyze how financial transactions impact a business

      The journal entries are aggregated to the general ledger which is then used to construct financial statements .

      What is in a Journal Entry?

      A journal entry should typically include:

      • Unique identifying number of the entry
      • Date of the transaction
      • Amount(s) to be debited and credited
      • Account(s) where the debits and credits are recorded
      • Name of the person making the entry
      • Whether the entry on one-time or recurring
      • A description of the transaction may be beneficial to include and provide information regarding the entry

      Here are some examples of accounting journal entries . 

      Now that we have the basics, let’s go step-by-step through the accounting cycle of double entry journal entries .  

      Step 1 – Recording Accounting Journal Entries with Debits and Credits:

      • In a double entry accounting system (used by most businesses) every business transaction is recorded in at least two accounts. (Learn more about double-entry accounting in our  bookkeeping section)
      • One account from your small business chart of accounts will be debited which simply means the amount will be recorded on the left side and one account will be credited…amount recorded on right side.
      • Debits and credits must balance equal.
      • See more about debits and credits in our basic accounting concepts section.

      Step 2 – Journalizing

      Note: Today most accounting is done on computers and the journalizing (recording accounting journal entries) is done in the background; however, it is still important to know the basics of double entry accounting.

      • In manual accounting, each financial transaction is first recorded in a book called a journal .
      • In that accounting journal entry, the title of the account to be debited is listed first, followed by the amount to be debited. The title of the account to be credited is listed below and to the right of the debit, followed by the amount to be credited.
      • To determine which account is debited and which is credited you have to first determine what kind of account is being affected and if it was increased or decreased.

      Step 3 – Recording Accounting Journal Entries using the Accounting Equation:

      • To determine which account is debited and which is credited memorize this basic accounting equation (the foundation of all basic accounting concepts):

      Assets = Liabilities + Owner’s Equity


      • Assets are on the left side or debit side and asset accounts such as Cash have their normal balances on the left side.
      • Liabilities and Owner’s equity are on the right side or credit side and their accounts in the general accounting ledger have their normal balance on the right side.

      Okay…here’s where it gets a little complicated…but keeping the above equation in mind makes it a lot easier to understand:)

      Step 4 – Recording Accounting Journal Entries: Increase or Decrease?

      • To record a business transaction in an accounting journal entry, we need to look closely at the transaction and see which accounts it involves and if it increased or decreased those accounts.
      • If it involved an asset account such as Cash, you would picture that basic accounting equation above and know that its normal balance is on the left side (debit side), so if we received (increase) cash we would record the amount on the left side.
      • However, if it decreased our asset account such as paying our small business bills, we would record it on the second line and on the right side to show a decrease in that account.
      • If the business transaction increased our liabilities or owner’s equity we would record it on the right side ( credit side) because those balance sheet accounts have a normal credit (right) balance. (Remember that equation?)
      • If the transaction decreased our liabilities or owner’s equity we would record it on the left side ( debit side).
      • To sum it up—remembering the basic accounting equation: increase a balance sheet account by recording the amount on the same side as its on in the equation; decrease it by recording amount on the opposite side.
      • For income statement accounts such as revenue (income) and expenses, you just need to remember revenue accounts have a normal right credit balance. (Easy for me to remember—Revenue increases owner’s equity and has the same normal “credit” balance)
      • So following the rules above—when you increase your revenue account, you would record the amount on its normal credit (right) side and to decrease it you would record the amount on the debit (left )side.
      • Expenses have a normal debit (left) balance. To increase your expense account, you would record the amount on its normal debit (left) side and to decrease it you would record the amount on its opposite (credit) side. Tip: Expenses are almost always debited!

      Step 5 – Practice Recording Accounting Journal Entries:

      The best way to learn something is to do it…so let’s study some examples of general journal entries using double-entry bookkeeping:  Bob open their brand new store selling thingamajigs. Here are some examples of their basic accounting journal entries for the first accounting period:

      Transaction #1 – Jane an Bob invest $15,000 into their new business; rent a building, and start selling their merchandise.  How should the general journal entry be made?

      Date                               

      Account Names & Explanation                                                                                                                                                  

      Debit                                                

      Credit                                             

      3/1

      Cash

      15000

       
       

      Capital

       

      15000

       

      Jane and Bob deposit $15,000 in their new business bank account.

        
       

      Debit: increase in asset (cash)

        
       

      Credit: increase in owner’s equity

        

      Transaction #2 – On March 5th, the company paid their first month’s rent of $1,700.  The expense is recorded by debiting it and deceasing cash by crediting it.

      3/5

      Rent Expense

      1700

       
       

      Cash

       

      1700

       

      Paid first month’s rent of $1700.

        
       

      Debit: increase in expenses (rent)

        
       

      Credit: decrease in asset (cash)

        

      Transaction #3 – On March 10th, the company purchased direct material for inventory that was worth $4,000 on credit.  This will result in an increase in an asset account which is a debit and a credit to Accounts Payable in the amount of $4,000.  

      3/10

      Thingamajig Material – Inventory

      4000

       
       

      Accounts Payable

       

      4000

       

      To make their thingamajigs Jane purchased $4000 in thingamajig materials on credit for cost of goods..

        
       

      Debit: increase in assets (inventory)

        
       

      Credit: increase in liabilities (AP)

        

      Transaction #4 – On March 15, the company made sales of $2,200 and received $1,200 in cash and the remaining $1,000 as Accounts Receivable .  This results in a compound journal entry.  We will record an increase in cash and Accounts Receivable and debit those accounts.  In addition, the Revenue account is credited by $2,200 even though full payment hasn’t been received.

      3/15

      Cash

      1200

       
       

      Account Receivable

      1000

       
       

      Revenue

       

      2200

       

      Sales of $2200. Cash sales of $1200 and sold $1000 on customer credit. (Compound entry: Some transactions will affect more than one account)

        
       

      Debit: increase in assets (cash)

        
       

      Debit: increase in assets (AR)

        
       

      Credit: increase in Revenue

        

      Transaction #5 – Also on March 15, an expense was made to purchase materials that will be used to create inventory for $600.  As such there will be a debit in expenses and credit in inventory.

      3/15

      Thingamajig Material Expense

      600

       
       

      Thingamajig Material – Inventory

       

      600

       

      $600 in Thingamajig material was used to make more Thingamajigs.

        
       

      Debit: increase in expenses (Thingamajig Material)

        
       

      Credit: decrease in asset (inventory)

        
       

      Transaction #6 – For this accounting entry, on March 28, the company paid some of its liability from Transaction #3 by issuing a check.  To record this transaction, we will debit Accounts Payable for $1,800 to decrease it, then we will credit cash to decrease it as a result of the payment. 

      3/28

      Accounts Payable

      1800

       
       

      Cash

       

      1800

       

      Paid $1800 on credit account.

        
       

      Debit: decrease in liabilities (AP)

        
       

      Credit: decrease in assets (cash)

        

      Transaction #7 – On March 30 the company collected a portion of the amount due from the customer in Transaction #4.  This transaction is recorded as an increase in cash by debiting it by $500.  Then, we credit Accounts Receivable to decrease it, which will reduce the receivable since some of the money has been collected.

      3/30

      Cash

      500

       
       

      Accounts Receivable

       

      500

       

      Collected $500 in cash from credit customers.

       

      Debit: increase in assets (cash)

        
       

      Credit: decrease in asset (AR)

        

      Notice how each transaction is balanced. Everything entered on the left hand (debit) side equals the (credit side) right hand side. That’s what double entry bookkeeping is all about—transactions must balance. It’s kind of like what you learned in basic algebra classes–if you can remember back that far – what you did to one side of the equation you had to do to the other side.

      A couple of more tips on journal entry accounting:

      • The above accounting journal entries did not include account numbers. Usually in real life, you would use the account numbers from your chart of accounts to identify each account.
      • You do not use dollar signs in recording the amounts. If the journal is prepared in the United States the amounts are understood to be in the US Dollar.

      Next Section: Lesson 4

      Posting to the Accounting Ledger

      Previous Section: Double Entry Bookkeeping



      You May Also Like
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        Absorption Costing Income Statement

      • The Purpose and Benefits of Closing Entries in Accounting

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        Examples of Accounting Journal Entries

        (Last Updated On: October 3, 2018)

        Recording financial transactions through journal entries is the first step of an accounting system . Journal entries use two or more accounts and generally have the following features:

        • Journal entry is an integral part of the double entry accounting system .
        • There is at least one debit and one credit entry in a journal entry.
        • General journal entries can record any number of debits and credits provided the total of both tallies.
        • Journal entries can be used to record movement in all company accounts i.e. assets, liabilities, income, expense and capital.
        • Journal entries are made in a chronological order.
        • The entries made in journals are then posted to individual general ledger accounts which are then used to prepare the trial balance and financial statements of a business entity.
        • The recording of debit or credit in a journal entry depends on the change in the value the account category being booked. E.g. increase in asset and expense is a debit while an increase in liability, income and equity is a credit.  Remember debits equal credits!

        Having a detailed understanding of how the journal entry works, we can now move on to practical examples to view the practical application of journal entries illustrated by the following comprehensive example:

        George intends to develop a mobile app which creates and tracks personal budgets. He has registered a startup business by the name of G. Tech to fulfill his aim. The entity was registered on 1st Jan, 2017 and at the end of the month, the following transactions were identified, George wants journal entries for to be passed for these transactions and have contacted you for help. Review the transactions and pass journal entries accordingly.

        Events:

        1st Jan                  George deposited $50,000.00 from his personal savings and borrowings into the business bank account.

        1st Jan                  Company registration charges of $750.00 were paid to registration consultant from business bank account.

        3rd Jan                 Purchase of computer equipment worth $500.00.

        3rd Jan                 Office premises is acquired for a monthly rent of $900.00 payable at the start of each month. Rest Estate agent’s commission of $1,000.00 is paid at the spot.

        4th Jan                 George withdrew $230.00 from the business bank account for groceries. On the same day, another expense of $100.00 for fuel was paid by George from his own pocket, George believes this fuel expense should be charged to business since most of the traveling would be for business development.

        8th Jan                 George hires a developer and a business analyst on monthly salaries of $5,000.00 and $2,800.00 respectively.


        15th Jan               The newly hired developer collaborates with a freelance IT service provider to get a module of the app configured, the freelancer worked for 4 hours at $40.00 per hour. The payment would only be made after a test run and approval from George.

        20th Jan               George made a payment of $1,250.00 is the monthly installment for his auto loan from his business account.

        28th Jan               As the application goes into the testing phase, George wants to let a word out about his product and spends $300.00 on marketing from the business account.

        31st Jan                Salaries for the month of Jan and Rent for Feb is paid.

        Solution:

        DateDescription Debit (USD)  Credit (USD)  
        1st JanBank         50,000.00  
        1st JanCapital                 50,000.00 
        Narration: Increase in asset and equity accounts. 
             
        1st JanCompany Registration Expense               750.00  
        1st JanBank                       750.00 
        Narration: Increase in Expense and Decrease in asset Account. 
             
        3rd JanComputer Equipment asset               500.00  
        3rd JanBank                       500.00 
        Narration: Increase in one asset account and a decrease in another. 
             
        3rd JanPrepaid Rent               841.93  
        3rd JanBank                       841.93 
        Narration: Rent for 29 days starting from 3rd Jan to 31st Jan (900 x 29/31 = 841.95) resulting in the creation of an asset i.e. prepayment and decrease in asset bank account. 
             
        3rd JanEstate Agent Commission            1,000.00  
        3rd JanBank                   1,000.00 
        Narration: Increase in expense and decrease in the asset account. 
             
        4th JanCapital               230.00  
        4th JanBank                       230.00 
        Narration: Decrease in both the capital and asset accounts. 
             
        4th JanFuel Expense               100.00  
        4th JanPayable to George                       100.00 
        Narration: Increase in both expense and liability accounts. 
             
        15th JanProfessional services expense               160.00  
        15th JanPayable to Freelancer                       160.00 
        Narration: Increase in both expense and liability accounts. 
             
        20th JanCapital            1,250.00  
        20th JanBank                   1,250.00 
        Narration: Decrease in both equity and asset accounts. 
             
        28th JanMarketing Expense               300.00  
        28th JanBank                       300.00 
        Narration: Increase in expense and decrease in the asset account. 
             
        31st JanSalaries Expense            6,038.71  
        31st JanBank                   6,038.71 
        Narration: Salaries for 24 days = 7800 x 24/31 = 6038.71 as an increase in the expense and decrease in asset account. 
             
        31st JanPrepaid Rent for Feb               900.00  
        31st JanBank                       900.00 
        Narration: Increase in two asset accounts i.e. prepayment and bank. 
             
        31st JanRent expense for the first month               841.93  
        31st JanPrepaid rent paid on 3rd Jan                       841.93 
        Narration: This entry records the rent expense when it is due i.e.at the end of the accounting period, at the time of payment on 3rd Jan, the prepayment was created as an asset. This is an example of adjusting journal entry usually made at the time of period end or closing of accounts. 
         

        These are just a few examples of accounting journal entries for a small business.  Entering entries is critical in order to prepare accurate financial statements which help keep a company operating efficiently.  We have more examples of journal entries on our site to help with understanding the concept.



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