Accounting Study Guide

U.S. GAAP-Codification IFRS International Standards Accounting Standards, ASC

Accounting Journal Entries

Review and Practice

U.S. GAAP Codification, Accounting Textbooks

Principles of Accounting, Intermediate Accounting, Advanced Accounting

U.S. GAAP by Topic, Accounting by Topic

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

What did Company A receive? Cash.

1

If Company A received cash, how would this affect the cash balance? Receiving cash increases the cash
2
balance of the company.

Which side of cash account represents the increase in cash? Debit side (Left side).
3

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

4

Which side of sales account represents the increase in sales? Credit side (Right side).
5

Does the sum of debit side amounts equal to the sum of credit side amounts? In Yes.
6
other words, does this journal entry balance? $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

What did Company A receive? Supplies.

1
 If Company A received supplies, how would this affect the supplies balance? It increases supplies balance.
2

Which side of supplies account represents the increase in cash? Debit side (Left side).
3

What did Company A pay? Cash.

4

Which side of cash account represents the decrease in cash? Credit side (Right side).
5

Does the sum of debit side amounts equal to the sum of credit side amounts? In Yes.
6
other words, does this journal entry balance?
$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

Accounting Journal Entry Examples 01

Cash payment transactions

1. Purchase of assets in cash

1a. Purchased merchandise and paid $2,000 in cash

debit credit

merchandise 2,000

cash 2,000

debit: increase in assets (merchandise)

credit: decrease in assets (cash)
1b. Purchased an equipment and paid $15,000 in cash

debit credit

equipment 15,000
 cash 15,000

debit: increase in assets (equipment)

credit: decrease in assets (cash)
2. Repayment of liabilities in cash
2a. Repaid $7,000 of bank loans

debit credit

borrowings 7,000

cash 7,000

debit: decrease in liabilities (borrowings)

credit: decrease in assets (cash)
2b. Paid $3,000 accounts payable

debit credit

accounts payable 3,000

cash 3,000

debit: decrease in liabilities (accounts payable)

credit: decrease in assets (cash)
3. Payment of expenses in cash
3a. Paid $3,500 rent expense

debit credit

rent expense 3,500

cash 3,500

debit: increase in expenses (rent expense)

credit: decrease in assets (cash)
3b. Paid $6,000 salaries expense

debit credit

salaries expense 6,000

cash 6,000

debit: increase in expenses (salaries expense)

credit: decrease in assets (cash)

Cash receipt transactions

4. Sale of assets in cash
4a. Sold merchandise and received $6,500 in cash

debit credit

cash 6,500
 sales 6,500

debit: increase in assets (cash)

credit: increase in revenue (sales)
The cost of merchandise sold was 5,100

debit credit

cost of goods sold 5,100

merchandise 5,100

debit: increase in assets (cash)

credit: increase in revenue (sales)
4b. Sold an equipment and received $8,600 in cash
The book value of the equipment was $8,000

debit credit

cash 8,600

equipment 8,000

gain on sale of equipment 600

debit: increase in assets (cash)

credit: increase in revenue (sales)
5. Borrowing money
5a. Borrowed $9,000 in cash

debit credit

cash 9,000

borrowings 9,000

debit: increase in assets (cash)

credit: increase in liabilities (borrowings)
5b. Issued a promissory note and received $11,000 in cash