journal entries assignment pdf

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Common Assignments: Journal Entries

Basics of journal entries, related webinar.

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• Journal Entries

Home › Accounting › Accounting Cycle › Journal Entries

• What is a Journal Entry?

1. Identify Transactions

2. analyze transactions, 3. journalizing transactions, common journal entry questions.

Journal entries  are the first step in the accounting cycle and are used to record all  business transactions  and events in the accounting system. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation. For example, when the company spends cash to purchase a new vehicle, the cash account is decreased or credited and the vehicle account is increased or debited.

How to Make a Journal Entry

Here are the steps to making an accounting journal entry.

There are generally three steps to making a journal entry. First, the business transaction has to be identified. Obviously, if you don’t know a transaction occurred, you can’t record one. Using our vehicle example above, you must identify what transaction took place. In this case, the company purchased a vehicle. This means a new asset must be added to the accounting equation.

After an event is identified to have an economic impact on the accounting equation, the business event must be analyzed to see how the transaction changed the accounting equation. When the company purchased the vehicle, it spent cash and received a vehicle. Both of these accounts are asset accounts, so the overall accounting equation didn’t change. Total assets increased and decreased by the same amount, but an economic transaction still took place because the cash was essentially transferred into a vehicle.

After the business event is identified and analyzed, it can be recorded. 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. Here is an example of how the vehicle purchase would be recorded.

Since there are so many different types of business transactions, accountants usually categorize them and record them in separate journal to help keep track of business events. For instance, cash was used to purchase this vehicle, so this transaction would most likely be recorded in the cash disbursements journal. There are numerous other journals like the sales journal, purchases journal, and accounts receivable journal.

We are following Paul around for the first year as he starts his guitar store called Paul’s Guitar Shop, Inc. Here are the events that take place.

Entry #1 — Paul forms the corporation by purchasing 10,000 shares of $1 par stock.

Entry #2 — Paul finds a nice retail storefront in the local mall and signs a lease for $500 a month.

Entry #3  — PGS takes out a bank loan to renovate the new store location for $100,000 and agrees to pay $1,000 a month. He spends all of the money on improving and updating the store’s fixtures and looks.

Entry #4 — PGS purchases $50,000 worth of inventory to sell to customers on account with its vendors. He agrees to pay $1,000 a month.

Entry #5  — PGS’s first rent payment is due.

Entry #6 — PGS has a grand opening and makes it first sale. It sells a guitar for $500 that cost $100.

Entry #7 — PGS sells another guitar to a customer on account for $300. The cost of this guitar was $100.

Entry #8 — PGS pays electric bill for $200.

Entry #9  — PGS purchases supplies to use around the store.

Entry #10 — Paul is getting so busy that he decides to hire an employee for $500 a week. Pay makes his first payroll payment.

Entry #11 — PGS’s first vendor inventory payment is due of $1,000.

Entry #12 — Paul starts giving guitar lessons and receives $2,000 in lesson income.

Entry #13 — PGS’s first bank loan payment is due.

Entry #14 — PGS has more cash sales of $25,000 with cost of goods of $10,000.

Entry #15 — In lieu of paying himself, Paul decides to declare a $1,000 dividend for the year.

Now that these transactions are recorded in their journals, they must be posted to the T-accounts or  ledger accounts  in the next step of the  accounting cycle .

Here is an additional list of the most common business transactions and the journal entry examples to go with them.

• Depreciation Expense Entry
• Accumulated Depreciation Entry
• Accrued Expense Entry

What is a manual Journal Entry? 

Manual journal entries were used before modern, computerized accounting systems were invented. The entries above would be manually written in a journal throughout the year as business transactions occurred. These entries would then be totaled at the end of the period and transferred to the ledger. Today, accounting systems do this automatically with computer systems.

What is a general journal entry in accounting?

An accounting journal entry is the written record of a business transaction in a double entry accounting system. Every entry contains an equal debit and credit along with the names of the accounts, description of the transaction, and date of the business event.

What is the purpose of a journal and ledger?

The purpose of an accounting journal is record business transactions and keep a record of all the company’s financial events that take place during the year. An accounting ledger, on the other hand, is a listing of all accounts in the accounting system along with their balances.

What is the purpose of a journal entry?

A journal entry records financial transactions that a business engages in throughout the accounting period. These entries are initially used to create ledgers and trial balances. Eventually, they are used to create a full set of financial statements of the company.

Accounting & CPA Exam Expert

Shaun Conrad is a Certified Public Accountant and CPA exam expert with a passion for teaching. After almost a decade of experience in public accounting, he created MyAccountingCourse.com to help people learn accounting & finance, pass the CPA exam, and start their career.

• Financial Accounting Basics
• Accounting Principles
• Accounting Cycle
• Unadjusted Trial Balance
• Adjusting Entries
• Adjusted Trial Balance
• Financial Statement Prep
• Accounting Worksheet
• Closing Entries
• Income Summary Account
• Post Closing Trial Balance
• Reversing Entries
• Financial Statements
• Financial Ratios

3.5 Use Journal Entries to Record Transactions and Post to T-Accounts

When we introduced debits and credits, you learned about the usefulness of T-accounts as a graphic representation of any account in the general ledger. But before transactions are posted to the T-accounts, they are first recorded using special forms known as journals .

Accountants use special forms called journals to keep track of their business transactions. A journal is the first place information is entered into the accounting system. A journal is often referred to as the book of original entry because it is the place the information originally enters into the system. A journal keeps a historical account of all recordable transactions with which the company has engaged. In other words, a journal is similar to a diary for a business. When you enter information into a journal, we say you are journalizing the entry. Journaling the entry is the second step in the accounting cycle. Here is a picture of a journal.

You can see that a journal has columns labeled debit and credit. The debit is on the left side, and the credit is on the right. Let’s look at how we use a journal.

When filling in a journal, there are some rules you need to follow to improve journal entry organization.

Formatting When Recording Journal Entries

• Include a date of when the transaction occurred.
• The debit account title(s) always come first and on the left.
• The credit account title(s) always come after all debit titles are entered, and on the right.
• The titles of the credit accounts will be indented below the debit accounts.
• You will have at least one debit (possibly more).
• You will always have at least one credit (possibly more).
• The dollar value of the debits must equal the dollar value of the credits or else the equation will go out of balance.
• You will write a short description after each journal entry.
• Skip a space after the description before starting the next journal entry.

An example journal entry format is as follows. It is not taken from previous examples but is intended to stand alone.

Note that this example has only one debit account and one credit account, which is considered a simple entry . A compound entry is when there is more than one account listed under the debit and/or credit column of a journal entry (as seen in the following).

Notice that for this entry, the rules for recording journal entries have been followed. There is a date of April 1, 2018, the debit account titles are listed first with Cash and Supplies, the credit account title of Common Stock is indented after the debit account titles, there are at least one debit and one credit, the debit amounts equal the credit amount, and there is a short description of the transaction.

Let’s now look at a few transactions from Printing Plus and record their journal entries.

Recording Transactions

We now return to our company example of Printing Plus, Lynn Sanders’ printing service company. We will analyze and record each of the transactions for her business and discuss how this impacts the financial statements. Some of the listed transactions have been ones we have seen throughout this chapter. More detail for each of these transactions is provided, along with a few new transactions.

• On January 3, 2019, issues $20,000 shares of common stock for cash.
• On January 5, 2019, purchases equipment on account for $3,500, payment due within the month.
• On January 9, 2019, receives $4,000 cash in advance from a customer for services not yet rendered.
• On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.
• On January 12, 2019, pays a $300 utility bill with cash.
• On January 14, 2019, distributed $100 cash in dividends to stockholders.
• On January 17, 2019, receives $2,800 cash from a customer for services rendered.
• On January 18, 2019, paid in full, with cash, for the equipment purchase on January 5.
• On January 20, 2019, paid $3,600 cash in salaries expense to employees.
• On January 23, 2019, received cash payment in full from the customer on the January 10 transaction.
• On January 27, 2019, provides $1,200 in services to a customer who asks to be billed for the services.
• On January 30, 2019, purchases supplies on account for $500, payment due within three months.

Transaction 1: On January 3, 2019, issues $20,000 shares of common stock for cash.

• This is a transaction that needs to be recorded, as Printing Plus has received money, and the stockholders have invested in the firm.
• Printing Plus now has more cash. Cash is an asset, which in this case is increasing. Cash increases on the debit side.
• When the company issues stock, stockholders purchase common stock, yielding a higher common stock figure than before issuance. The common stock account is increasing and affects equity. Looking at the expanded accounting equation, we see that Common Stock increases on the credit side.

Impact on the financial statements: Both of these accounts are balance sheet accounts. You will see total assets increase and total stockholders’ equity will also increase, both by $20,000. With both totals increasing by $20,000, the accounting equation, and therefore our balance sheet, will be in balance. There is no effect on the income statement from this transaction as there were no revenues or expenses recorded.

Transaction 2: On January 5, 2019, purchases equipment on account for $3,500, payment due within the month.

• In this case, equipment is an asset that is increasing. It increases because Printing Plus now has more equipment than it did before. Assets increase on the debit side; therefore, the Equipment account would show a $3,500 debit.
• The company did not pay for the equipment immediately. Lynn asked to be sent a bill for payment at a future date. This creates a liability for Printing Plus, who owes the supplier money for the equipment. Accounts Payable is used to recognize this liability. This liability is increasing, as the company now owes money to the supplier. A liability account increases on the credit side; therefore, Accounts Payable will increase on the credit side in the amount of $3,500.

Impact on the financial statements: Since both accounts in the entry are balance sheet accounts, you will see no effect on the income statement.

Transaction 3: On January 9, 2019, receives $4,000 cash in advance from a customer for services not yet rendered.

• Cash was received, thus increasing the Cash account. Cash is an asset that increases on the debit side.
• Printing Plus has not yet provided the service, meaning it cannot recognize the revenue as earned. The company has a liability to the customer until it provides the service. The Unearned Revenue account would be used to recognize this liability. This is a liability the company did not have before, thus increasing this account. Liabilities increase on the credit side; thus, Unearned Revenue will recognize the $4,000 on the credit side.

Transaction 4: On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.

• The company provided service to the client; therefore, the company may recognize the revenue as earned (revenue recognition principle), which increases revenue. Service Revenue is a revenue account affecting equity. Revenue accounts increase on the credit side; thus, Service Revenue will show an increase of $5,500 on the credit side.
• The customer did not immediately pay for the services and owes Printing Plus payment. This money will be received in the future, increasing Accounts Receivable. Accounts Receivable is an asset account. Asset accounts increase on the debit side. Therefore, Accounts Receivable will increase for $5,500 on the debit side.

Impact on the financial statements: You have revenue of $5,500. Revenue is reported on your income statement. The more revenue you have, the more net income (earnings) you will have. The more earnings you have, the more retained earnings you will keep. Retained earnings is a stockholders’ equity account, so total equity will increase $5,500. Accounts receivable is going up so total assets will increase by $5,500. The accounting equation, and therefore the balance sheet, remain in balance.

Transaction 5: On January 12, 2019, pays a $300 utility bill with cash.

• Cash was used to pay the utility bill, which means cash is decreasing. Cash is an asset that decreases on the credit side.
• Paying a utility bill creates an expense for the company. Utility Expense increases, and does so on the debit side of the accounting equation.

Impact on the financial statements: You have an expense of $300. Expenses are reported on your income statement. More expenses lead to a decrease in net income (earnings). The fewer earnings you have, the fewer retained earnings you will end up with. Retained earnings is a stockholders’ equity account, so total equity will decrease by $300. Cash is decreasing, so total assets will decrease by $300, impacting the balance sheet.

Transaction 6: On January 14, 2019, distributed $100 cash in dividends to stockholders.

• Cash was used to pay the dividends, which means cash is decreasing. Cash is an asset that decreases on the credit side.
• Dividends distribution occurred, which increases the Dividends account. Dividends is a part of stockholder’s equity and is recorded on the debit side. This debit entry has the effect of reducing stockholder’s equity.

Impact on the financial statements: You have dividends of $100. An increase in dividends leads to a decrease in stockholders’ equity (retained earnings). Cash is decreasing, so total assets will decrease by $100, impacting the balance sheet.

Transaction 7: On January 17, 2019, receives $2,800 cash from a customer for services rendered.

• The customer used cash as the payment method, thus increasing the amount in the Cash account. Cash is an asset that is increasing, and it does so on the debit side.
• Printing Plus provided the services, which means the company can recognize revenue as earned in the Service Revenue account. Service Revenue increases equity; therefore, Service Revenue increases on the credit side.

Impact on the financial statements: Revenue is reported on the income statement. More revenue will increase net income (earnings), thus increasing retained earnings. Retained earnings is a stockholders’ equity account, so total equity will increase $2,800. Cash is increasing, which increases total assets on the balance sheet.

Transaction 8: On January 18, 2019, paid in full, with cash, for the equipment purchase on January 5.

• Cash is decreasing because it was used to pay for the outstanding liability created on January 5. Cash is an asset and will decrease on the credit side.
• Accounts Payable recognized the liability the company had to the supplier to pay for the equipment. Since the company is now paying off the debt it owes, this will decrease Accounts Payable. Liabilities decrease on the debit side; therefore, Accounts Payable will decrease on the debit side by $3,500.

Transaction 9: On January 20, 2019, paid $3,600 cash in salaries expense to employees.

• Cash was used to pay for salaries, which decreases the Cash account. Cash is an asset that decreases on the credit side.
• Salaries are an expense to the business for employee work. This will increase Salaries Expense, affecting equity. Expenses increase on the debit side; thus, Salaries Expense will increase on the debit side.

Impact on the financial statements: You have an expense of $3,600. Expenses are reported on the income statement. More expenses lead to a decrease in net income (earnings). The fewer earnings you have, the fewer retained earnings you will end up with. Retained earnings is a stockholders’ equity account, so total equity will decrease by $3,600. Cash is decreasing, so total assets will decrease by $3,600, impacting the balance sheet.

Transaction 10: On January 23, 2019, received cash payment in full from the customer on the January 10 transaction.

• Cash was received, thus increasing the Cash account. Cash is an asset, and assets increase on the debit side.
• Accounts Receivable was originally used to recognize the future customer payment; now that the customer has paid in full, Accounts Receivable will decrease. Accounts Receivable is an asset, and assets decrease on the credit side.

Impact on the financial statements: In this transaction, there was an increase to one asset (Cash) and a decrease to another asset (Accounts Receivable). This means total assets change by $0, because the increase and decrease to assets in the same amount cancel each other out. There are no changes to liabilities or stockholders’ equity, so the equation is still in balance. Since there are no revenues or expenses affected, there is no effect on the income statement.

Transaction 11: On January 27, 2019, provides $1,200 in services to a customer who asks to be billed for the services.

• The customer does not pay immediately for the services but is expected to pay at a future date. This creates an Accounts Receivable for Printing Plus. The customer owes the money, which increases Accounts Receivable. Accounts Receivable is an asset, and assets increase on the debit side.
• Printing Plus provided the service, thus earning revenue. Service Revenue would increase on the credit side.

Impact on the financial statements: Revenue is reported on the income statement. More revenue will increase net income (earnings), thus increasing retained earnings. Retained earnings is a stockholders’ equity account, so total equity will increase $1,200. Cash is increasing, which increases total assets on the balance sheet.

Transaction 12: On January 30, 2019, purchases supplies on account for $500, payment due within three months.

• The company purchased supplies, which are assets to the business until used. Supplies is increasing, because the company has more supplies than it did before. Supplies is an asset that is increasing on the debit side.
• Printing Plus did not pay immediately for the supplies and asked to be billed for the supplies, payable at a later date. This creates a liability for the company, Accounts Payable. This liability increases Accounts Payable; thus, Accounts Payable increases on the credit side.

Impact on the financial statements: There is an increase to a liability and an increase to assets. These accounts both impact the balance sheet but not the income statement.

The complete journal for these transactions is as follows:

We now look at the next step in the accounting cycle, step 3: post journal information to the ledger.

Continuing Application

Colfax market.

Colfax Market is a small corner grocery store that carries a variety of staple items such as meat, milk, eggs, bread, and so on. As a smaller grocery store, Colfax does not offer the variety of products found in a larger supermarket or chain. However, it records journal entries in a similar way.

Grocery stores of all sizes must purchase product and track inventory. While the number of entries might differ, the recording process does not. For example, Colfax might purchase food items in one large quantity at the beginning of each month, payable by the end of the month. Therefore, it might only have a few accounts payable and inventory journal entries each month. Larger grocery chains might have multiple deliveries a week, and multiple entries for purchases from a variety of vendors on their accounts payable weekly.

This similarity extends to other retailers, from clothing stores to sporting goods to hardware. No matter the size of a company and no matter the product a company sells, the fundamental accounting entries remain the same.

Posting to the General Ledger

Recall that the general ledger is a record of each account and its balance. Reviewing journal entries individually can be tedious and time consuming. The general ledger is helpful in that a company can easily extract account and balance information. Here is a small section of a general ledger.

You can see at the top is the name of the account “Cash,” as well as the assigned account number “101.” Remember, all asset accounts will start with the number 1. The date of each transaction related to this account is included, a possible description of the transaction, and a reference number if available. There are debit and credit columns, storing the financial figures for each transaction, and a balance column that keeps a running total of the balance in the account after every transaction.

Let’s look at one of the journal entries from Printing Plus and fill in the corresponding ledgers.

As you can see, there is one ledger account for Cash and another for Common Stock. Cash is labeled account number 101 because it is an asset account type. The date of January 3, 2019, is in the far left column, and a description of the transaction follows in the next column. Cash had a debit of $20,000 in the journal entry, so $20,000 is transferred to the general ledger in the debit column. The balance in this account is currently $20,000, because no other transactions have affected this account yet.

Common Stock has the same date and description. Common Stock had a credit of $20,000 in the journal entry, and that information is transferred to the general ledger account in the credit column. The balance at that time in the Common Stock ledger account is $20,000.

Another key element to understanding the general ledger, and the third step in the accounting cycle, is how to calculate balances in ledger accounts.

Link to Learning

It is a good idea to familiarize yourself with the type of information companies report each year. Peruse Best Buy ’s 2017 annual report to learn more about Best Buy . Take note of the company’s balance sheet on page 53 of the report and the income statement on page 54. These reports have much more information than the financial statements we have shown you; however, if you read through them you may notice some familiar items.

Calculating Account Balances

When calculating balances in ledger accounts, one must take into consideration which side of the account increases and which side decreases. To find the account balance, you must find the difference between the sum of all figures on the side that increases and the sum of all figures on the side that decreases.

For example, the Cash account is an asset. We know from the accounting equation that assets increase on the debit side and decrease on the credit side. If there was a debit of $5,000 and a credit of $3,000 in the Cash account, we would find the difference between the two, which is $2,000 (5,000 – 3,000). The debit is the larger of the two sides ($5,000 on the debit side as opposed to $3,000 on the credit side), so the Cash account has a debit balance of $2,000.

Another example is a liability account, such as Accounts Payable, which increases on the credit side and decreases on the debit side. If there were a $4,000 credit and a $2,500 debit, the difference between the two is $1,500. The credit is the larger of the two sides ($4,000 on the credit side as opposed to $2,500 on the debit side), so the Accounts Payable account has a credit balance of $1,500.

The following are selected journal entries from Printing Plus that affect the Cash account. We will use the Cash ledger account to calculate account balances.

The general ledger account for Cash would look like the following:

In the last column of the Cash ledger account is the running balance. This shows where the account stands after each transaction, as well as the final balance in the account. How do we know on which side, debit or credit, to input each of these balances? Let’s consider the general ledger for Cash.

On January 3, there was a debit balance of $20,000 in the Cash account. On January 9, a debit of $4,000 was included. Since both are on the debit side, they will be added together to get a balance on $24,000 (as is seen in the balance column on the January 9 row). On January 12, there was a credit of $300 included in the Cash ledger account. Since this figure is on the credit side, this $300 is subtracted from the previous balance of $24,000 to get a new balance of $23,700. The same process occurs for the rest of the entries in the ledger and their balances. The final balance in the account is $24,800.

Checking to make sure the final balance figure is correct; one can review the figures in the debit and credit columns. In the debit column for this cash account, we see that the total is $32,300 (20,000 + 4,000 + 2,800 + 5,500). The credit column totals $7,500 (300 + 100 + 3,500 + 3,600). The difference between the debit and credit totals is $24,800 (32,300 – 7,500). The balance in this Cash account is a debit of $24,800. Having a debit balance in the Cash account is the normal balance for that account.

Posting to the T-Accounts

The third step in the accounting cycle is to post journal information to the ledger. To do this we can use a T-account format. A company will take information from its journal and post to this general ledger. Posting refers to the process of transferring data from the journal to the general ledger. It is important to understand that T-accounts are only used for illustrative purposes in a textbook, classroom, or business discussion. They are not official accounting forms. Companies will use ledgers for their official books, not T-accounts.

Let’s look at the journal entries for Printing Plus and post each of those entries to their respective T-accounts.

The following are the journal entries recorded earlier for Printing Plus.

In the journal entry, Cash has a debit of $20,000. This is posted to the Cash T-account on the debit side (left side). Common Stock has a credit balance of $20,000. This is posted to the Common Stock T-account on the credit side (right side).

In the journal entry, Equipment has a debit of $3,500. This is posted to the Equipment T-account on the debit side. Accounts Payable has a credit balance of $3,500. This is posted to the Accounts Payable T-account on the credit side.

In the journal entry, Cash has a debit of $4,000. This is posted to the Cash T-account on the debit side. You will notice that the transaction from January 3 is listed already in this T-account. The next transaction figure of $4,000 is added directly below the $20,000 on the debit side. Unearned Revenue has a credit balance of $4,000. This is posted to the Unearned Revenue T-account on the credit side.

In the journal entry, Accounts Receivable has a debit of $5,500. This is posted to the Accounts Receivable T-account on the debit side. Service Revenue has a credit balance of $5,500. This is posted to the Service Revenue T-account on the credit side.

In the journal entry, Utility Expense has a debit balance of $300. This is posted to the Utility Expense T-account on the debit side. Cash has a credit of $300. This is posted to the Cash T-account on the credit side. You will notice that the transactions from January 3 and January 9 are listed already in this T-account. The next transaction figure of $300 is added on the credit side.

In the journal entry, Dividends has a debit balance of $100. This is posted to the Dividends T-account on the debit side. Cash has a credit of $100. This is posted to the Cash T-account on the credit side. You will notice that the transactions from January 3, January 9, and January 12 are listed already in this T-account. The next transaction figure of $100 is added directly below the January 12 record on the credit side.

In the journal entry, Cash has a debit of $2,800. This is posted to the Cash T-account on the debit side. You will notice that the transactions from January 3, January 9, January 12, and January 14 are listed already in this T-account. The next transaction figure of $2,800 is added directly below the January 9 record on the debit side. Service Revenue has a credit balance of $2,800. This too has a balance already from January 10. The new entry is recorded under the Jan 10 record, posted to the Service Revenue T-account on the credit side.

On this transaction, Cash has a credit of $3,500. This is posted to the Cash T-account on the credit side beneath the January 14 transaction. Accounts Payable has a debit of $3,500 (payment in full for the Jan. 5 purchase). You notice there is already a credit in Accounts Payable, and the new record is placed directly across from the January 5 record.

On this transaction, Cash has a credit of $3,600. This is posted to the Cash T-account on the credit side beneath the January 18 transaction. Salaries Expense has a debit of $3,600. This is placed on the debit side of the Salaries Expense T-account.

On this transaction, Cash has a debit of $5,500. This is posted to the Cash T-account on the debit side beneath the January 17 transaction. Accounts Receivable has a credit of $5,500 (from the Jan. 10 transaction). The record is placed on the credit side of the Accounts Receivable T-account across from the January 10 record.

On this transaction, Accounts Receivable has a debit of $1,200. The record is placed on the debit side of the Accounts Receivable T-account underneath the January 10 record. Service Revenue has a credit of $1,200. The record is placed on the credit side of the Service Revenue T-account underneath the January 17 record.

On this transaction, Supplies has a debit of $500. This will go on the debit side of the Supplies T-account. Accounts Payable has a credit of $500. You notice there are already figures in Accounts Payable, and the new record is placed directly underneath the January 5 record.

T-Accounts Summary

Once all journal entries have been posted to T-accounts, we can check to make sure the accounting equation remains balanced. A summary showing the T-accounts for Printing Plus is presented in Figure 3.10 .

The sum on the assets side of the accounting equation equals $30,000, found by adding together the final balances in each asset account (24,800 + 1,200 + 500 + 3,500). To find the total on the liabilities and equity side of the equation, we need to find the difference between debits and credits. Credits on the liabilities and equity side of the equation total $34,000 (500 + 4,000 + 20,000 + 9,500). Debits on the liabilities and equity side of the equation total $4,000 (100 + 3,600 + 300). The difference $34,000 – $4,000 = $30,000. Thus, the equation remains balanced with $30,000 on the asset side and $30,000 on the liabilities and equity side. Now that we have the T-account information, and have confirmed the accounting equation remains balanced, we can create the unadjusted trial balance.

Journalizing Transactions

You have the following transactions the last few days of April.

• Prepare the necessary journal entries for these four transactions.
• Explain why you debited and credited the accounts you did.
• What will be the new balance in each account used in these entries?
• You have incurred more gas expense. This means you have an increase in the total amount of gas expense for April. Expenses go up with debit entries. Therefore, you will debit gas expense.
• You purchased the gas on account. This will increase your liabilities. Liabilities increase with credit entries. Credit accounts payable to increase the total in the account.
• You have received more cash from customers, so you want the total cash to increase. Cash is an asset, and assets increase with debit entries, so debit cash.
• You also have more money owed to you by your customers. You have performed the services, your customers owe you the money, and you will receive the money in the future. Debit accounts receivable as asset accounts increase with debits.
• You have mowed lawns and earned more revenue. You want the total of your revenue account to increase to reflect this additional revenue. Revenue accounts increase with credit entries, so credit lawn-mowing revenue.
• Advertising is an expense of doing business. You have incurred more expenses, so you want to increase an expense account. Expense accounts increase with debit entries. Debit advertising expense.
• You paid cash for the advertising. You have less cash, so credit the cash account. Cash is an asset, and asset account totals decrease with credits.
• You paid “on account.” Remember that “on account” means a service was performed or an item was received without being paid for. The customer asked to be billed. You were the customer in this case. You made a purchase of gas on account earlier in the month, and at that time you increased accounts payable to show you had a liability to pay this amount sometime in the future. You are now paying down some of the money you owe on that account. Since you paid this money, you now have less of a liability so you want to see the liability account, accounts payable, decrease by the amount paid. Liability accounts decrease with debit entries.
• You paid, which means you gave cash (or wrote a check or electronically transferred) so you have less cash. To decrease the total cash, credit the account because asset accounts are reduced by recording credit entries.

Normal Account Balances

Calculate the balances in each of the following accounts. Do they all have the normal balance they should have? If not, which one? How do you know this?

Think It Through

Gift cards have become an important topic for managers of any company. Understanding who buys gift cards, why, and when can be important in business planning. Also, knowing when and how to determine that a gift card will not likely be redeemed will affect both the company’s balance sheet (in the liabilities section) and the income statement (in the revenues section).

According to a 2017 holiday shopping report from the National Retail Federation, gift cards are the most-requested presents for the eleventh year in a row, with 61% of people surveyed saying they are at the top of their wish lists. 6 CEB TowerGroup projects that total gift card volume will reach $160 billion by 2018. 7

How are all of these gift card sales affecting one of America’s favorite specialty coffee companies, Starbucks ?

In 2014 one in seven adults received a Starbucks gift card. On Christmas Eve alone $2.5 million gift cards were sold. This is a rate of 1,700 cards per minute. 8

The following discussion about gift cards is taken from Starbucks ’s 2016 annual report:

When an amount is loaded onto a stored value card we recognize a corresponding liability for the full amount loaded onto the card, which is recorded within stored value card liability on our consolidated balance sheets. When a stored value card is redeemed at a company-operated store or online, we recognize revenue by reducing the stored value card liability. When a stored value card is redeemed at a licensed store location, we reduce the corresponding stored value card liability and cash, which is reimbursed to the licensee. There are no expiration dates on our stored value cards, and in most markets, we do not charge service fees that cause a decrement to customer balances. While we will continue to honor all stored value cards presented for payment, management may determine the likelihood of redemption, based on historical experience, is deemed to be remote for certain cards due to long periods of inactivity. In these circumstances, unredeemed card balances may be recognized as breakage income. In fiscal 2016, 2015, and 2014, we recognized breakage income of $60.5 million, $39.3 million, and $38.3 million, respectively. 9

As of October 1, 2017, Starbucks had a total of $1,288,500,000 in stored value card liability.

• 6 National Retail Federation (NRF). “NRF Consumer Survey Points to Busy Holiday Season, Backs Up Economic Forecast and Import Numbers.” October 27, 2017. https://nrf.com/media-center/press-releases/nrf-consumer-survey-points-busy-holiday-season-backs-economic-forecast
• 7 CEB Tower Group. “2015 Gift Card Sales to Reach New Peak of $130 Billion.” PR Newswire. December 8, 2015. https://www.prnewswire.com/news-releases/2015-gift-card-sales-to-reach-new-peak-of-130-billion-300189615.html
• 8 Sara Haralson. “Last-Minute Shoppers Rejoice! Starbucks Has You Covered.” Fortune . December 22, 2015. http://fortune.com/video/2015/12/22/starbucks-gift-cards/
• 9 U.S. Securities and Exchange Commission. Communication from Starbucks Corporation regarding 2014 10-K Filing. November 14, 2014. https://www.sec.gov/Archives/edgar/data/829224/000082922415000020/filename1.htm

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Journal Entries Explained - Full Guide With Examples

Creating a journal entry is the process of recording and tracking any transaction that your business conducts. Journal entries help transform business transactions into useful data.

Want to learn how to correctly write journal entries for your business? You’ve come to the right place!

In this guide, we’re going to cover:

What Is a Journal Entry?

Why are journal entries so important, what is included in a journal entry, what are the different types of journal entries, how to use accounting software to document your journal entries.

Journal entries are records of financial transactions flowing in and out of your business. These transactions all get recorded in the company book, called the general journal .

Journal entries are the very first step in the accounting cycle . The main thing you need to know about journal entries in accounting is that they all follow the double-accounting method.

What this means is that for every recorded transaction, two accounts are affected - and as a result, there is always a debit entry and a credit entry.

Before diving into the nits and grits of double-entry bookkeeping and writing journal entries, you should understand why journal entries are so important for a business.

Well, for starters, maintaining organized records of your transactions helps keep your company information organized . Accountants record data chronologically based on a specific format. This way they can easily find information and keep an eye out for any possible accounting errors .

Secondly, journal entries are the first step in the recording process. So you’ll eventually need them to prepare other financial statements . The income statement, cash flow, balance sheet, all of them are based on the initial recordings of journal entries.

Lastly, performance measurement . Auditors use financial reports to analyze how transactions are impacting the business.

What Is Double-Entry Bookkeeping?

As we said above, in every transaction, at least two accounts will change, where one is debited and the other one credited. This is known in accounting as double-entry bookkeeping .

Double-entry bookkeeping isn’t as complicated as it might sound. To understand the concept, think about any purchase you’ve ever made.

Money in exchange for a product, right? In accounting language, this is a transaction that simultaneously affects two accounts . The cash account, which decreases since you’re paying, and the equipment account, which increases from buying the product.

So in simple terms, in the business world, money doesn’t simply appear or disappear. If it goes into one account, it has to get out of another. That’s why it’s called “double-entry”.

This is where the concepts of debit and credit come to play.

First, let’s get some common misconceptions out of the way.

Debit and credit are neither good nor bad . And no, they’re not the same as adding or subtracting .

They are just words that show the double-sided nature of financial transactions .

In brief: debit is money that flows into an account , whereas credit is money that flows out of an account .

Here’s all you need to remember:

• A credit is always on the right side of a journal entry . It increases the owner's equity, liabilities, and revenue when credited. It decreases them when debited.
• A debit, on the other hand, is always on the left side of a journal entry . It increases assets and expenses when debited. It decreases them when credited.
• At the end of the journal entry, the credit and debit balance should be equal to each other . If they don’t, double-check because you’ve probably made a mistake.

Does it all still sound a bit confusing? Don’t worry! We’ve made a cheat sheet so you can easily remember.

Ready to solve an example? Let’s take a simple one and explain the process step-by-step.

Double-Entry Bookkeeping Example

Let’s say the owner of an advertising company decides to invest $10,000 cash in his business.

There are three main steps you have to follow to make the perfect journal entry:

First, figure out which accounts are affected . In this transaction, they are the assets account and the owner’s equity account.

Now, determine which items have been increased or decreased , and by how much .

Since the owner is making an investment , both of the accounts will increase by $10.000. The asset account will have $10.000 more in cash, whereas the Owner’s Equity account $10.000 more in Capital.

Lastly, we have to translate the changes into debits and credits . We learned that debits increase assets, so cash will be debited for $10,000. On the other hand, the opposite will happen to the owner’s equity. Capital will be credited for $10,000.

After this point, the hardest work is done. All there’s left to do now is neatly document the transaction.

Here’s how you do it ...

To make a complete journal entry you need the following elements:

• A reference number or also known as the journal entry number , which is unique for every transaction.
• The date of the journal entry .
• The account column , where you put the names of the accounts that have changed .
• Two separate columns for debit and credit . Here you will put the amounts that will be credited and debited. Again, it’s important to remember that they must be equal in the end. If you’re using accounting software, it won’t let you post the journal entry unless the amounts match. However, if you’re using manual apps like Sheets or Excel, always triple check the balance.
• Lastly, the journal entry explanation . This needs to be a brief but accurate description of the journal entry. You may need to refer back to it in the future, so be as clear as possible.

This is what the previous transaction would look like in a Journal:

What are the Most Common Types of Journals?

Businesses are diverse - in size, service, ownership. That’s why there are different types of journals, based on the company you run. Mainly, however, we divide them into two categories: general and special .

We briefly mentioned the general journal in the beginning. To recap, the general journal is the company book in which accountants post (or summarize) all journal entries.

While small businesses and startups might not have difficulty fitting all of their entries in the general journal, that’s not always the case.

For big industries like trading or manufacturing, other journals, called special journals are necessary. Their purpose is to group and record transactions of a specific type. These types depend on the nature of the business. Usually, though, special journals record the most recurring transactions within a company.

Here’s a list of the most frequent types of special journals utilized by companies:

• Sales - income you earn from sales.
• Sales Return - loss of income from sales you’ve refunded
• Accounts Receivable - cash owed to the company
• Accounts Payable - cash the company owes
• Cash Receipts - cash you’ve gained
• Purchases - payments you’ve done
• Equity - owner’s investment
• Payroll - payroll transactions such as gross wages, or withheld taxes

Most Common Journal Entries for a Small Business

Some of the most common types of journal entries that a small business will make are the following:

All examples assume tax is applied on sales and purchase. If no tax, then it can be removed as the value will be zero.

Journal Entry for Sales of Services

Journal Entry for Sales Invoice - Goods/Inventory

Journal Entry for Cash Sales

Journal Entry for Receiving Payment for Invoice

Journal Entry for Purchase of Goods

Journal Entry for Purchase of Services

Journal Entry for Making Payments for Purchases

Journal Entry for Only Fulfilling Orders (transfer of goods/inventory out of the system)

Journal Entry for Only Receiving Goods (transfer of goods/inventory into the system)

As you might’ve guessed, a journal entry for sales of goods, is created whenever your business sells some manufactured goods. Since these are self-descriptive enough, let’s move on to some more complex accounting journal entries.

There are three other main types of journal entries in accounting:

Compound Entries

When transactions affect more than two accounts , we make compound entries . These are common when the recordings are related in nature or happen during the same day.

Remember: debits and credits must always be equal. The principle stays the same, there are just more accounts that change.

Let’s check out an example.

XYZ company decides to buy new computer software for $1,000. They pay $500 in cash right away and agree to pay the remaining $500 later.

The steps are the same as in the double-entry bookkeeping.

First, we figure out which accounts have changed and by how much. In this scenario, those are three:

• Asset account, which increases by $1,000 when buying the new computer software.
• Cash account, which decreases $500 in Cash from paying.
• Accounts payable account, which increases $500 from the remaining unpaid amount.

The next step is to translate them into debit and credit.

Assets increase when debited, so Equipment will be debited for $1,000. Expenses decrease when credited, so Cash will be credited for $500. Liabilities increase when credited, so Accounts Payable will also be credited for $500.

This is what the transaction would like in a Journal:

Adjusting Entries

Adjusting entries are used to update previously recorded journal entries . They ensure that those recordings line up to the correct accounting periods. This does not mean that those transactions are deleted or erased, though.  Adjusting entries are new transactions that keep the business’ finances up to date .

They are usually made at the end of an accounting period . The accounting period usually coincides with the business fiscal year.

There are four main types of adjusting entries:

• Prepaid expenses are payments in cash for assets that haven’t been used yet. Think of insurance. It protects a company from possible losses, like fire or theft, which haven’t happened yet.
• Unearned revenue is cash received before the product or service is provided. Take your yearly gym membership or Spotify subscription - you’re paying in advance for future service.
• Accrued revenue is money earned, but not collected. If you take a loan, the interest rate income from the loan will be recorded as an accrued revenue.
• Accrued expenses are expenses made, but not paid. An example would be not paying your workers their salary until the end of the month.

Let’s put all of this information into a concrete exercise.

On October 2nd, you sell to a client, a service worth $3,000. You receive the payment for the provided service, however, you forget to make a journal entry.

Then at the end of October, you compare the actual cash reserve with the cash reserve shown on the balance sheet.

Since the two sums will not match, it means that there is a missing transaction somewhere. At this point, you need to make a journal entry adjustment .

The journal entry on October 31st would look like this:

Reversing Entries

Reverse entries are the opposite of adjusting entries. When we say the opposite, we don’t mean that the adjusting entries get deleted. No amount previously recorded changes. Reverse entries only simplify financial reports , by canceling out the effect of the adjusting entries.

Since their goal is just to simplify, reverse entries are optional. Some accountants choose to make them, others don’t.

They’re usually done at the start of a new accounting period .

Because adjusting entries are made at the end of the period. So, for instance, if the period ends on December 31st, you would do the reverse the next day, on January 1st.

Now, you can’t reverse all types of adjusting entries: only accrued revenues and accrued expenses .

Let’s see how the previous accrued revenues example would look like reversed.

The adjusting entry in the last section was:

• Accounts receivable debited for $3000
• Service revenue credited for $3000

What reversing entries do is switch the places of the two. So now:

• Service revenue will be debited for $3000
• Accounts receivable will be credited for $3000

This is what the complete journal entry would look like:

Running your own company comes with many challenges . No business owner has time to write down all of their journal entries by hand.

That’s why most companies record their entries using accounting software.

You might be thinking - isn’t accounting software only for accountants?

Well, most are, but we at Deskera prioritize small business owners. We’ve spent over 10 years working with small business owners from 100+ different countries to create a cloud accounting software that fits any type of business.

Need to create invoices , manage inventory, create financial reports, track payments, manage dropshipping? You can do all of that with Deskera. Our program is specifically built for you, to easily manage and oversee the finances of your business.

Here’s how you can use Deskera Books to record journal entries. 1.  Go to Accounting > Journal Entry.

Here, you’ll be able to view, create, and manage all your journal entries. The main attributes displayed for every entry here are the journal entry number, the journal entry date, the journal entry type, and the related document number .

To view the details of each journal entry, you can press on the expand all records button. As you can see, the account name, debit amount, credit amount, and description will all appear .

2.   Next, to manually create a journal entry, press on the create button on the top right . You’ll notice two journal entry options: normal or fund transfer. Each option depends on the type of entry you’re making.

3.   Click JE - Normal . This will take you to the general journal page. The top half of the page contains the auto numbering format, currency, and journal date . There’s also an option that allows you to include the entry on the tax report . Then there’s the bottom half , where you can add the account, description, type, and amount .

4. Fill in all of these boxes with the appropriate information and press Save . Ta-da, you’ve created a journal entry!

What if you accidentally enter the wrong amounts? The software will notice and won’t save the journal entry . That’s what the “unbalanced account” on the bottom right of the page serves for. The exact off-balance amount will show.

Automate Journal Entry Creation Using Accounting Software

Businesses have moved on from the age of pen and paper for a reason. Using accounting software like Deskera will help you automate the entire journal entry creation process.

When your business creates an invoice , the corresponding journal entry is added automatically by the system in the respective ledger for Accounts Receivable, Sales, Sales Tax, etc...

Similarly, when a payment is processed, the bank and the accounts receivable are adjusted automatically by the accounting software.

Deskera , allows you to integrate your bank directly and track any expenses automatically. When you make an expense, the journal entry is automatically created, and it is mapped to the correct ledger account.

You can also create custom invoices using the provided templates, and send reminders to make sure you don’t miss out on any invoice payments .

To top it off, creating financial reports with Deskera is as easy as 1-2-3.

Still not sure? Well, luckily Deskera offers a completely free trial. You can sign up here and try out all 3 Deskera platforms - Books, Sales (CRM), & People (HRIS).

Key Takeaways

Hope our guide to journal entries was helpful!

For a quick recap let’s go through the main points we’ve covered:

• Journal entries record the financial transactions of a business . They’re the first step in the accounting cycle.
• Each transaction in a journal entry affects two accounts . One of them is debited, the other one credited. Simply put, debit is money flowing into a company, whereas credit is money flowing out.
• Never forget: debits and credit should always be equal in the end.
• To write a journal entry you need to figure out which accounts are affected, which items decrease or increase, and then translate the changes into debit and credit.
• A complete journal entry is made of 6 elements : a reference number, date, account section, debits, credits, and a journal explanation.
• You can record these journal entries into either a General Journal or a Special Journal .
• There are three main types of journal entries: compound, adjusting, and reversing .
• Use accounting software like Deskera to automate the process of creating journal entries, and save a ton of time!

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Journal entries: More examples

For additional practice in preparing journal entries, here are some more examples of business transactions along with explanations on how their journal entries are prepared.

A Few Things Before We Start

The transactions in this lesson pertain to Gray Electronic Repair Services, our imaginary small sole proprietorship business.

For account titles, we will be using the chart of accounts presented in an earlier lesson.

All transactions are assumed and simplified for illustration purposes.

Note: We will also be using this set of transactions and journal entries in later lessons when we discuss the other steps of the accounting process.

Alright! Let's start.

Transaction #1: On December 1, 2021, Mr. Donald Gray started Gray Electronic Repair Services by investing $10,000. The journal entry should increase the company's Cash, and increase (establish) the capital account of Mr. Gray; hence:

Transaction #2: On December 5, Gray Electronic Repair Services paid registration and licensing fees for the business, $370.

First, we will debit the expense (to increase an expense, you debit it); and then, credit Cash to record the decrease in cash as a result of the payment.

Transaction #3: On December 6, the company acquired tables, chairs, shelves, and other fixtures for a total of $3,000. The entire amount was paid in cash.

There is an increase in an asset account (Furniture and Fixtures) in exchange for a decrease in another asset (Cash).

Transaction #4: On December 7, the company acquired service equipment for $16,000. The company paid a 50% down payment and the balance will be paid after 60 days.

This will result in a compound journal entry. There is an increase in an asset account ( debit Service Equipment, $16,000), a decrease in another asset ( credit Cash, $8,000, the amount paid), and an increase in a liability account ( credit Accounts Payable, $8,000, the balance to be paid after 60 days).

Transaction #5: Also on December 7, Gray Electronic Repair Services purchased service supplies on account amounting to $1,500.

The company received supplies thus we will record a debit to increase supplies. By the terms "on account", it means that the amount has not yet been paid; and so, it is recorded as a liability of the company.

Transaction #6: On December 9, the company received $1,900 for services rendered. We will then record an increase in cash (debit the cash account) and increase in income (credit the income account).

Transaction #7: On December 12, the company rendered services on account, $4,250.00. As per agreement with the customer, the amount is to be collected after 10 days. Under the accrual basis of accounting , income is recorded when earned.

In this transaction, the services have been fully rendered (meaning, we made an income; we just haven't collected it yet.) Hence, we record an increase in income and an increase in a receivable account.

Transaction #8: On December 14, Mr. Gray invested an additional $3,200.00 into the business. The entry would be similar to what we did in transaction #1, i.e. increase cash and increase the capital account of the owner.

Transaction #9: Rendered services to a big corporation on December 15. As per agreement, the $3,400 amount due will be collected after 30 days.

Transaction #10: On December 22, the company collected from the customer in transaction #7. We will record an increase in cash by debiting it. Then, we will credit accounts receivable to decrease it. We are reducing the receivable since it has already been collected.

Actually, we simply transferred the amount from receivable to cash in the above entry.

Transaction #11: On December 23, the company paid some of its liability in transaction #5 by issuing a check. The company paid $500 of the $1,500 payable.

To record this transaction, we will debit Accounts Payable for $500 to decrease it by the said amount. Then, we will credit cash to decrease it as a result of the payment. The entry would be:

Accounts payable would now have a credit balance of $1,000 ($1,500 initial credit in transaction #5 less $500 debit in the above transaction).

Transaction #12: On December 25, the owner withdrew cash due to an emergency need. Mr. Gray withdrew $7,000 from the company.

We will decrease Cash since the company paid Mr. Gray $7,000. And, we will record withdrawals by debiting the withdrawal account – Mr. Gray, Drawings .

Transaction # 13: On December 29, the company paid rent for December, $ 1,500. Again, we will record the expense by debiting it and decrease cash by crediting it.

Transaction #14: On December 30, the company acquired a $12,000 short-term bank loan; the entire amount plus a 10% interest is payable after 1 year.

Again, the company received cash so we increase it by debiting Cash. The company now has a liability. We will record it by crediting the liability account – Loans Payable .

Transaction #15: On December 31, the company paid salaries to its employees, $3,500.

For this transaction, we will record/increase the expense account by debiting it and decrease cash by crediting it. ( Note: This is a simplified entry to present the payment of salaries. In actual practice, different payroll accounting methods are applied. )

There you have it. You should be getting the hang of it by now. If not, then you can always go back to the examples above. Remember that accounting skills require mastery of concepts and practice.

We've gone through 15 journal entry examples and explained how each are prepared to help you learn the art of recording. By now you'd feel more confident in preparing journal entries. Feel free to refer back to the examples above should you encounter similar transactions.

More under Analyzing, Recording, and Classifying Business Transactions

• 1 Analyzing Business Transactions
• 2 Rules of Debit and Credit
• 3 Chart of Accounts
• 4 Journal Entries
• 5 More Journal Entry Examples
• 6 Accounting Ledger
• 7 Trial Balance
• 8 Correcting Entries

• 1) Basic Concepts
• 2) Basic Transactions
• 3) Double Entries
• 4) Accounting Cycle
• 5) Financial Statements
• 6) Inventory
• Basic Accounting Questions
• Full Questions and Answers
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The Basic Accounting Journal Entries

Previous lesson:   Source Documents   Next lesson:   Accounting Journals: The Books of First Entry

In this lesson we're going to learn exactly what a journal is and what it looks like, and we'll go over the basic accounting journal entries you need to know.

Check your understanding of this lesson by taking the quiz in the Test Yourself! section further below. And right at the bottom of the page, you can find more questions on the topic submitted by fellow students.

So What Exactly is a Journal?

Journals  (or journal entries ) are simply records of individual transactions in chronological (date) order.

They are chronological accounting records, each one composed of a debit and a credit .

What is the Purpose of Journal Entries?

The purpose of journal entries is to keep a day-to-day, chronological record of a business and its transactions. 

What Do Journals Look Like?

Journal entries look like this: 

If you're not yet familiar with journal entries, don't worry! Check out the section just below for a summary of the most common journals, including links to each of the individual lessons...

Does this look at all familiar? It should – we have been doing these basic accounting journal entries throughout the previous section on  double-entry accounting.  

The Ten Most Common Journal Entries

There are roughly ten common transactions that occur repeatedly in accounting, each of which has a different journal entry.

Below is a brief summary of these transactions and journals. For each of these transactions below I've included a quick description of the transaction, the journal entry, as well as a link to the detailed lesson on this site that teaches that specific journal entry in-depth.

1. Journal Entry for the Owner Investing Capital

This is where the owner invests assets in a business. This results in owner's equity and is more specifically known as capital or a capital investment:

Click here for the full Equity Example Lesson .

2. Journal Entry for a Liability (Debt)

A  liability  is simply a debt. In this transaction a business receives some asset and owes someone else for this. In this particular example the business receives a loan .

Click here for the full Liability Example Lesson .

3. Journal Entry for Purchasing an Asset

In this transaction the business spends money in order to obtain an asset . Since money itself is an asset, you're essentially swapping one asset for another.

Click here for the full Asset Example Lesson .

4. Journal Entry for Withdrawing Owner's Funds

When an owner of a business withdraws funds from the business for personal use , this is known as drawings . This is simply the opposite of capital .

Click here for the full lesson on Recording Drawings .

5. Journal Entry for Cash Income

When a business earns income and receives the payment for this immediately , we record the following:

Click here for the  full lesson on Recording Income Received in Cash .

6. Journal Entry for Income on Credit

This is the journal entry for when a business makes income but does not receive the payment for this straight away. Accounts receivable is recorded (this is also known as receivables  or debtors ).   This is an asset account representing the amount of funds owed to us.

Click here for the  full lesson on the Journal for Income on Credit .

7. Journal Entry for Receiving Money from a Debtor

When a  debtor (receivable) pays us, we record the following:

Click here for the  full lesson on Recording a Payment from a Debtor .

8. Journal Entry for Expenses Paid in Cash

When we have an expense and pay this immediately , we record the following:

Click here for the  full lesson on Cash Expenses .

9. Journal Entry for Accounts Payable

In this transaction we have an expense but we don't pay it straight away. The expense is owing. A liability is thus created. When we owe our suppliers, we call them accounts payable (or  creditors ). Accounts payable represent the value of these debts that we owe.

Click here for the  full lesson on Accounts Payable .

10. Journal Entry for Paying Our Creditors

Here we actually pay our creditors the money that we owe them. 

Click here for the  full lesson on Paying Off Creditors .

The Origin of Journals

The  journal  is actually the book of first entry .

It used to be an actual book that the bookkeeper would use to make accounting entries.

Of course, these days bookkeepers enter transactions in an accounting program on the computer. So these books of first entry are now just in digital form.

Examples of journals include the Cash Receipts Journal (CRJ) and the Cash Payments Journal (CPJ). 

A recording in one of the  journals  is called a  journal   entry.

Click here for our full tutorial describing the different Accounting Journals (the books of first entry).

Some Final Technical Points...

Each transaction and journal entry not only require a debit and credit but are also often accompanied by a brief explanation of the transaction. This is written just below the debit and credit.

This explanation should accurately describe what took place, so that anyone who glanced at it for the first time could easily identify what occurred.

Journals also sometimes include a cross-referencing code or  folio number,  which matches the journal to some other document from another stage of the accounting cycle .

For example, a journal can be matched to the relevant source document (such as a check stub or a receipt). 

With the first transaction above of $15,000 capital, the folio includes the code 'Ch-38,' referring to check number 38 , which was the particular check written by the owner when making this payment.

Using the folio number to match a journal entry to a source document would enable a person to easily trace the recorded transaction back to the source document and verify the transaction and its amount.

So this code or folio number simply cross-references between one document and another. 

Journals can also include a code or folio number to cross-reference between the  journal entries  and the  T-accounts   (the next step in the accounting cycle).

These cross-referencing numbers or codes would work like this:

‘Sal-1’  is the individual code for the  Salaries account .  ‘J-1’  is the code for  journal page 1 .

Each specific item, such as Salaries , would have its own folio number or code, and this would be used to cross-reference from the  journal entry  involving Salaries to the  T-account for Salaries in the  ledger  (the ledger and T-accounts will be covered in a future lesson).

One could thus follow information from the  journal entry  to an  account  in the  ledger , or vice versa.

The folio numbers make it simple to trace information through the various steps in the  accounting cycle.  

Test Yourself!

Before you start, I would recommend to time yourself to make sure that you not only get the questions right but are completing them at the right speed.

Difficulty rating: Beginner

Quiz length:   4 questions

Time limit: 5 minutes

Important:   The solution sheet on the following page only shows the solutions and not whether you got each of the questions right or wrong. So before you start, get yourself a piece of paper and a pen to write down your answers. Once you're done with the quiz  and  writing down your answers, click the  Check Your Answers  button at the bottom and you'll be taken to our page of solutions.

Please enter the word that you see below.

That's it!

Basically everything you need to know about the basic accounting journal entries!

Actually, not quite everything yet...

Remember how I said earlier that the journal is the book of first entry ?

Well, there's actually seven different "books" - seven different journals .

And in our next lesson we're going to look at each of these journals (books), what they're used for, and how they work.

So what are you waiting for?  Click through to the next lesson on the accounting journals .

Return from  Basic Accounting Journal Entries  to  The Accounting Cycle   Return  from  Basic Accounting Journal Entries   to the  Home Page  

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Previous lesson:   Source Documents Next lesson:   Accounting Journals: The Books of First Entry

Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

Journal Entry Question: Purchase with Personal Funds   Q: On 25th March 2011 Mr. A purchased goods to the value of rs. 25000 (rs = Rupees = Indian, Pakistani and Sri Lankan currency). Due to a shortage of …

Journal Entry Example: Complex Capital Investment by Owner (Compound Entry)   Q: What is the journal entry for the following transaction: Mr. A starts his business by bringing $1000 cash, accounts receivable $500, furniture …

Journal Entries and Ledger Question and Answer   Before you begin: For purposes of testing and exams it's important to make sure you not only answer questions and exercises correctly but also complete …

What is the Journal Entry for Bad Debts?   Q: What is the journal entry for bad debts? A: First of all, let's define bad debts. Bad debts are debts to your business that have gone "bad," …

Journal Entry for Shares Issued   Question: Make a journal entry for the following (assume that this occurred in the second half of 2009): a) Issued additional shares for 1,200 in …

Accounting Journals: Gift, Sale, Discount & Carriage Paid By Another   Q: What are the journal entries for the following: 1) Received gift of Rs 51,000 from father-in-law by check, which is deposited into business bank …

Journal Entries Accrual Items Question   Q: I want to know how do you make the following journal entries (rs = Rupees = Indian currency): 1. Outstanding expense - rs 3,000 2. Accrued interest …

Basic Journal Entries Question   Before you begin: It's important for testing and exams to make sure you not only answer questions correctly but also complete them at the right speed. …

Basic Accounting Journal Entries Exercise   Before you begin: For purposes of testing and exams it's important to make sure you not only answer exercises correctly but do so at the right speed. …

What are the Journal Entries for a Returned Check?   Q: Dear Sir, Can you please explain what the journal entry will be when a check we issued is returned by the bank? And when they reproduce it? …

Journal Entry Question and Answer   Before you begin: It's important for testing and exams to make sure you not only answer questions correctly but also complete them at the right speed. …

Recording Retained Earnings in the Journal   Q: How do you record retained earnings in the journal? A: Earnings means profits and retained earnings is all the net profits one accumulated. …

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3.38: Assignment- Writing in College Journal Entry

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https://youtu.be/RH95h36NChI

The video above discusses beliefs students hold about college and demonstrates how those beliefs relate to test performance. Consider how beliefs might also impact a student’s performance on writing assignments.

Develop a 200-400 word journal entry that identifies three beliefs, mentioned in the video or discovered through your own observations, that relate to a student’s ability to write academic essays. Explain how these beliefs might be adjusted through the practice of metacognition to improve writing results.

Worked Example

Journal entry assignments tend to be more flexible than other types of writing assignments in college, and as a result they can be tailored to your own experiences as long as they answer the primary questions asked in the assignment.

One model of a successful entry about this topic can be found below. Feel free to include your own experiences and examples from real life as they pertain to the issue at hand.

Writing in College Journal Entry

by Sandy Brown

Belief: Learning is fast

Related to writing essays, I could see how I could easily fall into this trap of thinking that fast is good. I have such limited time in the day to work on school assignments, that I think that whatever I can manage to get done must be the best possible work that I’m capable of doing. I should allow myself more time, though that’s easier said than done. Even with smaller writing assignments, like this one, if I give myself a day or two to sketch out ideas for what I want to say, and then reflect on it before writing it, I think I’ll do a much better job in the long run.

Belief: I’m really good at multi-tasking

This one is very related to the “learning is fast” idea. Watching the girl in the video do a million things while she’s studying is just like watching my own kids at night! And I’m pretty guilty of this, as well. If I can set aside a quiet part of my night, and just focus on only one assignment at a time, I think I’ll do a lot better with my writing overall. And I’ll be happier with the results.

Belief: Being good at a subject is a matter of inborn talent

This is actually not a belief I personally hold. I always loved to read growing up, and I still do read fiction as much as time allows. But working as a business administrator for the past 15 years has shown me that I’m pretty good with numbers and bookkeeping, too, which I wouldn’t have guessed before this job.

One of my daughters is very drawn towards English and writing, and another struggles with it. They both seem to feel this is a matter of fate. I’m going to share this video with them, because I think there are ways that my daughter who struggles can be empowered to think that she CAN get better at writing, if she just keeps practicing. (This is also something I’m going to do myself…I’m very out of practice with writing for school!)

• Revision and Adaptation. Provided by : Lumen Learning. License : CC BY: Attribution
• Writing Strategies. Provided by : Lumen Learning. Located at : https://courses.candelalearning.com/lumencollegesuccess/chapter/writing-strategies/ . License : CC BY: Attribution
• How to Get the Most Out of Studying: Part 1 of 5, Beliefs That Make You Fail... Or Succeed. Authored by : Samford Office of Marketing and Communication. Located at : https://youtu.be/RH95h36NChI . License : All Rights Reserved . License Terms : Standard YouTube License

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Home > Accounts Receivable > Assignment of Accounts Receivable Journal Entries

Assignment of Accounts Receivable Journal Entries

The assignment of accounts receivable journal entries below act as a quick reference, and set out the most commonly encountered situations when dealing with the double entry posting of accounts receivable assignment.

The assignment of accounts receivable journal entries are based on the following information:

• Accounts receivable 50,000 on 45 days terms
• Assignment fee of 1% (500)
• Initial advance of 80% (40,000)
• Cash received from customers 6,000
• Interest on advances at 9%, outstanding on average for 40 days (40,000 x 9% x 40 / 365 = 395)

About the Author

Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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