General Journal Entries

Accounting > Journal Entries

General Journal Entries

The journal is the point of entry of business transactions into the accounting system. It is a chronological record of the transactions, showing an explanation of each transaction, the accounts affected, whether those accounts are increased or decreased, and by what amount.

A general journal entry takes the following form:

Date	Name of account being debited	Amount
	Name of account being credited		Amount
	Optional: short description of transaction

Consider the following example that illustrates the basic concept of general journal entries.

Mike Peddler opens a bicycle repair shop. He leases shop space, purchases an initial inventory of bike parts, and begins operations. Here are the general journal entries for the first month:

Date	Account Names & Explanation	Debit	Credit
9/1	Cash	7500
	Capital		7500
	Owner contributes $7500 in cash to capitalize the business.

9/8	Bike Parts	2500
	Accounts Payable		2500
	Purchased $2500 in bike parts on account, payable in 30 days.

9/15	Expenses	1000
	Cash		1000
	Paid first month's shop rent of $1000.

9/17	Cash	400
	Accounts Receivable	700
	Revenue		1100
	Repaired bikes for $1100; collected $400 cash; billed customers for the balance.

9/18	Expenses	275
	Bike Parts		275
	$275 in bike parts were used.

9/25	Cash	425
	Accounts Receivable		425
	Collected $425 from customer accounts.

9/28	Accounts Payable	500
	Cash		500
	Paid $500 to suppliers for parts purchased earlier in the month.

Most of the above transactions are entered as simple journal entries each debiting one account and crediting another. The entry for 9/17 is a compound journal entry, composed of two lines for the debit and one line for the credit. The transaction could have been entered as two separate simple journal entries, but the compound form is more efficient.

In this example, there are no account numbers. In practice, account numbers or codes may be included in the journal entries to allow each account to be positively identified with no confusion between similar accounts.

The journal entry is the first entry of a transaction in the accounting system. Before the entry is made, the following decisions must be made:

which accounts are affected by the transaction, and
which account will be debited and which will be credited.

Once entered in the journal, the transactions may be posted to the appropriate T-accounts of the general ledger. Unlike the journal entry, the posting to the general ledger is a purely mechanical process - the account and debit/credit decisions already have been made.

Accounting > Journal Entries