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.
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.
The purpose of journal entries is to keep a day-to-day, chronological record of a business and its transactions.
Journal entries look like this:
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.
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 description of the transaction, the journal itself, as well as a link to the detailed lesson on this site that teaches that specific journal entry in-depth.
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:
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.
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.
When an owner of a business withdraws funds from the business for personal use, this is known as drawings. It is the opposite of capital.
When a business earns income and receives the payment for this immediately, we record the following:
This is the journal entry for when a business makes income but does not receive the payment for this straight away. A debtor (or receivable) is recorded - an asset account representing the amount of funds owed to us.
When a debtor (receivable) pays us, we record the following:
When we have an expense and pay this immediately, we record the following:
In this transaction we have an expense but we don't pay it straight away. The expense is accrued, meaning owing. A liability is thus created. When we owe our suppliers, we call them creditors. Creditors represent the value of these debts that we owe.
Here we actually pay our creditors the money that we owe them.
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.
A recording in the journal (the theoretical book of first entry) is also called a journal (or a journal entry).
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.
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.
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)
Name the Accounts Question
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Journal Entry Question:
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Journal Entry - Purchasing Goods
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Journal Entries and Ledger Question and Answer
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Journal Entry for Shares Issued
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Gift, Sale, Discount & Carriage Paid By Another
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Journal Entries Question:
Perpetual Inventory System & Credit Card Transaction
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Journal Entries Accrual Items Question
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Transactions Exercise (Malaysia)
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Basic Journal Entries Question
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Basic Accounting Journal Entries Exercise
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What are the Journal Entries for a Returned Check?
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Issuing Shares for Assets
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Journal Entry Question and Answer
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Recording Retained Earnings
in the Journal
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