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How to Make Accounting Journal Entries


 JUNE 16, 2011 BY  VIC (HTTPS://BUSINESSTIPS.PH/AUTHOR/VIC/)
 12 COMMENTS
(HTTPS://BUSINESSTIPS.PH/HOW-TO-MAKE-ACCOUNTING-JOURNAL-ENTRIES/#COMMENTS)

After identifying and measuring your business transactions, you will now move to the
recording process of accounting (http://businesstips.ph/what-is-accounting/). The rst
phase of recording is making the journal entries (journalizing) that should be recorded in the
general journal or special journals, such as sales journal, purchases journal, cash receipts
journal and cash disbursements journal. A journal is a chronological listing of an entity’s
transactions, including the amounts, accounts that are affected, and in which direction the
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accounts are affected. From the journal, the entries will be posted to the designated
accounts in the general ledger. The following will guide you on how to make accounting
journal entries.

What is a business transaction?

A business transaction is an economic event or condition that directly changes an entity’s


nancial condition or directly affects its results of operations. An accounting transaction
takes place when a business exchanges a thing of value for another. Examples of business
transactions are when a company obtains loan from a bank, buys goods for sale, sell these
goods to customers on account, and collect the cash from its sale of goods.

What are debits and credits?


Debits and credits form the basis of the double-entry bookkeeping system (as opposed to
the Single-entry bookkeeping system); for every debit transaction there must be a
corresponding credit transaction and vice versa. Every debit and credit value is initially
recorded as a journal-entry and from these journal-entries is then transferred to ledger-
accounts and nally from these ledger-accounts nancial reports can then be prepared.
Debit and credit are the most fundamental concepts in accounting, representing the two
sides of each individual transaction recorded in any accounting system. A debit transaction
can be used to increase a debit balance in an asset account or to reduce a credit balance in a
liability account. On the other hand, a credit transaction can be used to decrease a debit
balance in an asset account, or to increase a credit balance in a liability account.

When to debit and when to credit transactions?


To understand which accounts are debited or credited in order to either increase or
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decrease their amounts, the following ve fundamental elements of any nancial statement
should be considered:
Assets – are the resources controlled by the entity as a result of past events and from which
future economic bene ts are expected to ow to the entity. This includes cash, receivables,
inventories, prepayments, investments, property and equipment.
Liabilities – are the present obligations of the enterprise arising from past events, the
settlement of which is expected to result in an out ow from the enterprise of resources
embodying economic bene ts. This includes accounts payable, accrued expenses, income tax
payable, unearned revenue and loans payable.
Equity – this is the owner/s’ interest on the assets of the enterprise after deducting all its
liabilities. The structure of equity depends on the form of a business: sole proprietorship
(owner’s equity), partnership (partners’ equity), stock corporation (stockholders’ equity),
and nonstick – nonpro t corporation (fund balances or members’ equity).
Income – an increase in economic bene ts during the accounting period in the form of
in ows or enhancements of assets or decreases of liabilities that result in an increase in
equity, other than those relating to contributions from equity participants. Examples of
income are rental income, sales from goods, service income, commission income, et cetera.
Expenses– are decreases in economic bene ts during the accounting period in the form of
out ows or depletions of assets or incurrence of liabilities that result in decreases in equity,
other than those relating to distributions to equity participants. Examples of expenses are
employees’ salaries, rent expense, supplies, taxes and licenses.
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Assets, liabilities and equity are the 3 elements of balance sheet (or statement of nancial
position) that expresses the accounting equation (http://businesstips.ph/what-is-the-
accounting-equation-and-how-does-it-work/) (assets = liabilities + equity), which must
always be balanced. Income and expenses are the elements that form the income statement.
The easy way to remember when to debit and when to credit an account is to remember the
normal balances of the ve types of accounts on the Chart of Accounts. The Chart of
Accounts is list of accounting accounts, categorized according to types of accounts (assets,
liability, equity, income and expenses) with their corresponding account numbers. The
normal balance is what the account would have if it increases or if its increases are more
than its decreases. The following are the normal balances of those account types:
Asset accounts – debit
Liability accounts – credit
Owner’s equity – credit
Revenue accounts – credit
Expense accounts – debit
Contra assets accounts, such as allowance for bad debts and accumulated depreciation have
credit normal balances.

Sample business transactions and their journal entries


The following are examples of business transactions for a sole proprietorship business and
their corresponding journal entries. Take note that the amount on the left side represents
debit and the amount on the right side represents credit.
Transaction #1:
M. Santos, invests P250,000 to start an internet café business.
Journal entry #1:
Cash                                 P250,000
M. Santos, capital                              P250,000
To record M. Santos initial capital.
Transaction #2:
Santos purchase 5 sets of computer equipment on credit amounting to P100,000.
Journal entry #2:
Computer equipment   P100,000
Accounts payable                                 P100,000
To record purchase of 5 sets of computer equipment on account worth P100,000
Transaction #3
Santos buys computer supplies for cash worth P50,000.
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Journal entry #3:
Computer supplies   P50,000
Cash                                                        P50,000
To record purchase of computer supplies on cash worth P50,000
Transaction #4
Santos pay his taxes and licenses amounting to P20,000.
Journal entry #4
Taxes and licenses   P20,000
Cash                                                    P20,000
To record payment of taxes and licenses
Transaction #5
Santos obtain a bank loan for business use and receives P100,000.
Journal entry #5
Cash                        P100,000
Loans payable                          P100,000
To record bank loan received amounted to P100,000
Transaction #6
Customers pay cash for internet rental amounted to P5,000.
Journal entry #6
Cash                                          P5,000
Internet service income                   P5,000
To record internet rental income received on cash
Transaction #7
Customers render printing services on account amounted to P4,000.
Journal entry #7
Accounts receivable          P4,000
Printing service income                       P4,000
To record printing services income on customers account
Transaction #8
Santos paid in full the computer equipment he purchased on account (see transaction #2).
Journal entry #8
Accounts payable  P100,000
Cash                                                        P100,000
To record full payment of computer equipment purchased on account
Transaction #9
Santos paid his monthly rental for the internet café shop space.
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Journal entry #9
Rental expense   P5,000
Cash                                              P5,000
To record monthly rental expense paid
Transaction #10
Santos pays salaries and wages of his staff and employees, P20,000
Journal entry #10
Salaries and wages   P20,000
Cash                                                     P20,000
To record salaries and wages of employees
Note: Journal entry #10 will become different when there are withholding taxes, SSS, PHIC,
HDMF and other employees bene ts or deductions involved.
Transaction #11
Santos collects its accounts receivables amounted to P4,000 from customers (see
transaction #7).
Journal entry #11
Cash                                    P4,000
Accounts receivable                        P4,000
To record collection of accounts receivable
Transaction #12
Supplies amounted to P3,000 were used in business operation (see transaction #3).
Journal entry #12
Computer Supplies expense P3,000
Computer supplies                                        P3,000
To record used supplies
Transaction #13
Santos withdraws P25,000 cash for personal use.
Journal entry #13
Santos, drawing   P25,000
Cash                                                    P25,000
To record cash drawn by Santos for his personal use
Transaction #14
Santos invested additional cash capital amounting P50,000.
Journal entry #14
Cash                         P50,000
Santos, Capital                               P50,000
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To record additional cash capital invested to the business
Note: When recording journal entries on the journals (general journal and or special
journals), the entries may require a more speci ed account. It also includes date, reference
numbers and explanations. The examples shown above are only simple entries. A compound
entry may be necessary when transactions are more bulky and complicated. When a
company has a standard chart of accounts, the recoding of journal entries are based on the
account titles, account numbers and other speci c data stated in the chart of accounts.
Please stay tuned for our next accounting articles.

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Vic (https://businesstips.ph/author/vic/)
Victorino Abrugar (https://plus.google.com/103771889023589213888?rel=author) is an
entrepreneur and founder of Optixor, Inc. (http://optixor.com/), a small startup digital
marketing company based in the Philippines. Follow him on Twitter at @viclogic.
(http://twitter.com/viclogic)

 FILED UNDER: ACCOUNTING (HTTPS://BUSINESSTIPS.PH/CATEGORY/MONEY-FINANCE/ACCOUNTING/)


 TAGGED WITH: ASSETS (HTTPS://BUSINESSTIPS.PH/TAG/ASSETS/), BUSINESS
(HTTPS://BUSINESSTIPS.PH/TAG/BUSINESS-2/), CAPITAL (HTTPS://BUSINESSTIPS.PH/TAG/CAPITAL/), EXPENSES
(HTTPS://BUSINESSTIPS.PH/TAG/EXPENSES/), FINANCIAL (HTTPS://BUSINESSTIPS.PH/TAG/FINANCIAL/),
INCOME (HTTPS://BUSINESSTIPS.PH/TAG/INCOME/), JOURNALIZING
(HTTPS://BUSINESSTIPS.PH/TAG/JOURNALIZING/), LIABILITY (HTTPS://BUSINESSTIPS.PH/TAG/LIABILITY/),
RECORDING (HTTPS://BUSINESSTIPS.PH/TAG/RECORDING/)

COMMENTS

Alma says Privacy & Cookies Policy


September 27, 2012 at 2:52 pm (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-6516)

May I ask if when to record the initial investment? Is it upon registration to BIR or
DTI? kc po late na naregister ung company sa BIR so nauna ung registration sa DTI.
and ano po ung supporting documents for Investment para sa journal? Thanks so
much po.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=6516#respond)

AMELIA says
August 25, 2015 at 7:58 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-39665)

THERE IS A CERTAIN LAND USED BY A GOVERNMENT AGENCY (PHIL) AND IT


WAS NOT RECORDED IN THEIR ACCOUNTING SYSTEM. THE LAND IS SAID TO
BE DONATED BY A CERTAIN PERSON. IF THE APPRAISE VALUE OF THE LAND IS
1 MILLION? WHAT WILL BE THE JOURNAL ENTRIES FOR THE SAID
TRANSACTION.
ANY HELP WILL BE APPRECIATED.. THANK YOU!
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=39665#respond)

Line says
January 12, 2016 at 9:53 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-42111)

ask ko lang po if ano yung journal entry po regarding pag-ibig loans everytime po na
ibabawas po yung bayad ng loan sa salary po ng employees. thank you.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=42111#respond)

Leira says
June 6, 2016 at 6:32 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-43535)
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pag magpapasweldo ka sa employee ang rst entry Debit Salaries, Credit
HDMF Loan at Credit Cash, pag ibabayad na sa pag-ibig ung loan ang entry mo
Debit HDMF Loan, Credit Cash
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=43535#respond)

Renette Layson says


June 3, 2016 at 7:46 am (https://businesstips.ph/how-to-make-accounting-journal-
entries/#comment-43490)

good day! Sir , can I ask you a question? How will I treat the allowance of on the job
trainee students who is taking their ojt curriculum. If I have 20 students and they
are receiving an allowance of 200 Pesos each. What is my entry? and it is not
taxable.
thank you.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=43490#respond)

IdaLim says
August 23, 2017 at 12:50 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-48019)

Debit “Allowances”, Credit “Cash in Bank”


Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=48019#respond)

Ruby (http://www.pacioli.com.ph/) says


November 23, 2016 at 5:18 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-45439)

For anyone like me who is not familiar with accounting rules, you have the option to
make everything much easier and work smarter with your accounts by the use of a
computerized accounting system. Time saving, stress free. You can focus more on
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building up your business and understanding more on BIR matters than just
focusing your entire time doing your manual bookkeeping.
You may contact us for more details and we’ll be happy to assist.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=45439#respond)

anonymous says
July 27, 2017 at 11:51 am (https://businesstips.ph/how-to-make-accounting-journal-
entries/#comment-47764)

hi po. good day. ask ko lang po wala po ba itong sample ng T Account? salamat po!
additional po
mali po yung captcha dito
seven – ve = two
hnd po
seven – ve = 2
hehe salamat po
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=47764#respond)

nicole says
November 25, 2017 at 2:48 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-49649)

sir, paano po ba ang accounting entry sa excess na withholding tax compensation


after annualized
hoping for your reply.
Thanks.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=49649#respond)

Business Tips says


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December 5, 2017 at 5:06 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-49784)

Hello. What do you mean by excess withholding tax? Di you deduct excess
withholding tax from your employee and remit them to the BIR? If that’s the case,
you have to give tax refund to the employee.
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=49784#respond)

Anonymous says
January 30, 2018 at 10:08 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-50551)

Is this correct?
(Rental + VAT)=Basis of 5 % WTax Expanded
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=50551#respond)

gadiel says
March 20, 2018 at 11:45 am (https://businesstips.ph/how-to-make-accounting-
journal-entries/#comment-50971)

5% expanded withholding tax should be base on rental rate.


rent x 5% = expanded wtax
rent x 12% vat = vat
if you will base your 5% expanded on rent with vat, that would mean double
taxation..
Reply (https://businesstips.ph/how-to-make-accounting-journal-entries/?
replytocom=50971#respond)

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