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:
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.
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.
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.
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.
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.