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Accounting Journal Entries
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What is a journal entry in Accounting?
 
  
Journal entry is an entry to the journal.
   Journal is a record that keeps accounting transactions in chronological order, i.e. as they occur.
  
Ledger is a record that keeps accounting transactions by accounts.
  
Account is a unit to record and summarize accounting transactions.
 
   All accounting transactions are recorded through journal entries that show account names, amounts, and whether those accounts are recorded in debit or credit side of accounts.
 
 
Double-Entry Recording of Accounting Transactions
 
  
To record transactions, accounting system uses double-entry accounting.
   Double-entry implies that transactions are always recorded using two sides, debit and credit.
   Debit refers to the left-hand side and credit refers to the right-hand side of the journal entry or account.
 
   The sum of debit side amounts should equal to the sum of credit side amounts.
   A journal entry is called "balanced" when the sum of debit side amounts equals to the sum of credit side amounts.
 
 
T-Account
 
   This form looks like a letter "T", so it is called a T-account.
  
T-account is a convenient form to analyze accounts, because it shows both debit and credit sides of the account.
 

Account

Debit

Credit

   



Examples of Journal Entries

   Transaction 1: Company A sold its products at $120 and received the full amount in cash.
 

Steps

Self-Questions

Answers

1

What did Company A receive? Cash.

2

If Company A received cash, how would this affect the cash balance? Receiving cash increases the cash balance of the company.

3

Which side of cash account represents the increase in cash? Debit side (Left side).

4

What is the account name to record the sales of products. Sales.

5

Which side of sales account represents the increase in sales? Credit side (Right side).

6

Does the sum of debit side amounts equal to the sum of credit side amounts? In other words, does this journal entry balance? Yes.
$120 = $120

[Journal entry to record transaction 1]

Debit

Credit

Cash

120

 
Sales  

120




Examples of Journal Entries

 
  Transaction 2: Company A purchased supplies and paid $50 in cash.
 

Steps

Self-Questions

Answers

1

What did Company A receive? Supplies.

2

If Company A received supplies, how would this affect the supplies balance? It increases supplies balance.

3

Which side of supplies account represents the increase in cash? Debit side (Left side).

4

What did Company A pay? Cash.

5

Which side of cash account represents the decrease in cash? Credit side (Right side).

6

Does the sum of debit side amounts equal to the sum of credit side amounts? In other words, does this journal entry balance? Yes.

$50 = $50

[Journal entry to record transaction 2] 

Debit

Credit

Supplies

50

 
Cash  

50



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Debits and Credits of Accounts
 

Debit

Credit

Increase in asset accounts

Decrease in asset accounts

Increase in expense accounts

Decrease in expense accounts

   

Decrease in liability accounts

Increase in liability accounts

Decrease in equity accounts

Increase in equity accounts

Decrease in revenue accounts

Increase in revenue accounts

  
 
 
 
Normal Balances of Accounts

  
Accounts have normal balances on the side where the increases in such accounts are recorded.
 
   Asset accounts have normal balances on debit side.
  
Expense accounts have normal balances on debit side.
 

  
Liability accounts have normal balances on credit side.
   Equity accounts have normal balances on credit side.
   Revenue accounts have normal balances on credit side.
 

  
In the financial statements, accounts are reported on the sides where they have normal balances.
 
 

Balance Sheet

Assets

Liabilities

 

Owners' Equity

   

 

Income Statement

Expenses

Revenues

   



More Examples of Accounting Journal Entries
 
Adjusting Journal Entries: Review and Examples







U.S. GAAP by Topic
International Financial Reporting Standards (IFRS)
 
Accounting Topics
Inventory Valuation Methods
Depreciation Methods
Revenue Recognition Principle
Accrual Basis vs. Cash Basis Accounting
Basics of Journal Entries
Ratios for Financial Statement Analysis
Overview of Financial Statements







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