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 U.S. GAAP Codification Accounting Topics

 Accounting Journal Entries Review and Practice Materials

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

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 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