Trending October 2023 # Journal Entries In Accounting: How To Make Entries (Examples) # Suggested November 2023 # Top 10 Popular

You are reading the article Journal Entries In Accounting: How To Make Entries (Examples) updated in October 2023 on the website Nhunghuounewzealand.com. We hope that the information we have shared is helpful to you. If you find the content interesting and meaningful, please share it with your friends and continue to follow and support us for the latest updates. Suggested November 2023 Journal Entries In Accounting: How To Make Entries (Examples)

What is a Journal Entry in Accounting?

Consider the following diagram

Journal Entry Diagram

You’ll notice the above diagram shows the first step as “Source Documents”. Source documents are things such as receipts, invoices, bank statements and credit card statements that are collected during the year so that we have all the information we need when the time comes for us do our accounting/bookkeeping. Obviously, in this tutorial, we won’t be asking you to go out and collect invoices and receipts, so we’ll conveniently “skip” that step for now.

Types of Journal Entries

Following are types of journal entries in accounting

Opening entries

Transfer entries

Closing entries

Compound entries

Adjusting entries

Reversing entries

Journal Entries Example

Everything we do from this point on will be stuff that real accountants and bookkeepers are doing in their offices at this very moment. That means this lesson will be a little more technical than the previous ones. Don’t let that spook you though. You’ll be surprised at how simple it can be! Now would be a good time for us to lay out the steps in the accounting/bookkeeping process:

Imagine having a large stack of receipts and invoices from different shops, suppliers, and customers. All the information you need is there, but it’s useless when it’s all messed up like that! Journal entries help us sort all this into meaningful information.

Format of a Journal Entry

Transaction: Pay an expense of $100.

Dr Expense $100

Cr Bank $100

Let’s take a look at what this means.

First of all, Dr and Cr are simply abbreviations for Debit and Credit.

Every single transaction consists of two movements: a debit movement and a credit movement. Be careful not to confuse this with the debit and credit sides. These are two different things.

Debit and credit movements are used in accounting to show increases or decreases in our accounts. Therefore instead of saying there has been an increase or a decrease in an account, we say there has been a debit movement or a credit movement.

For example, in the previous tutorial we learned to show the above transaction like this:

DEBIT SIDE CREDIT SIDE

Account

Amount

Account Amount

Expense

+$100

Bank

-$100

Expenses

$100

Bank

$100

The nature of each movement is explained below:

(Assets, Expenses, Drawings)

CREDIT SIDE

(Liabilities, Revenue, Owner’s Equity)

Increase

Debit movement

Credit movement

Decrease

Credit movement

Debit movement

Let’s apply this to our example:

When we pay expenses that means our expenses have increased. Also, when we pay expenses, our bank account is obviously going to go down.

So, in summary, we need to record a transaction that will increase expenses and decrease bank.

Referring back to our matrix, we can see that to increase expenses we require a debit movement.

DEBIT SIDE

(Assets, Expenses, Drawings)

CREDIT SIDE

(Liabilities, Revenue, Owner’s Equity)

Increase

Debit movement

Credit movement

Decrease

Credit movement

Debit movement

We can also see that decreasing our bank requires a credit movement:

DEBIT SIDE

(Assets, Expenses, Drawings)

CREDIT SIDE

(Liabilities, Revenue, Owner’s Equity)

Increase

Debit movement

Credit movement

Decrease

Credit movement

Debit movement

Expenses

$100

Bank

$100

Now it’s your turn. Have a go at writing journal entries for the transactions we’ve had in the previous lessons. The first one has been done for you.

Bank

Rent

Loan

Service Income

(Assets, Expenses, Drawings)

(Liabilities, Revenue, Owner’s Equity)

Increase

Drag & Drop blocks here

Decrease

Drag & Drop blocks here

Example 1

You decide to start a business. To start the business off, you deposit $10,000 of your savings into the business bank account.

$10000

$-10000

$10000

$-10000

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Owners Equity

Drag & Drop blocks here

Example 2

You buy your trusty iPhone off eBay for $500

$500

$-500

$500

$-500

Drag & Drop blocks here

Bank

Drag & Drop blocks here

iPhone

Drag & Drop blocks here

Example 3

You take out a business loan of $10,000.

$10000

$-10000

$10000

$-10000

Drag & Drop blocks here

Loan

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Example 4

You put another $5,000 of your own money into the business.

$5000

$-5000

$5000

$-5000

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Owner’s Equity

Drag & Drop blocks here

Example 5

You pay back $1,000 of the loan (no interest).

$1000

$-1000

$1000

$-1000

Drag & Drop blocks here

Loan

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Problem 6

You purchase a computer for $1,500.

$1500

$-1500

$1500

$-1500

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Computer

Drag & Drop blocks here

Problem 7

You purchase your Bakemaster Oven for $2,000

$2000

$-2000

$2000

$-2000

Drag & Drop blocks here

Oven

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Problem 8

You buy some cake mix for your store for $3,000

$3000

$-3000

$3000

$-3000

Drag & Drop blocks here

Bank

Drag & Drop blocks here

CakeMix

Drag & Drop blocks here

Problem 9

You pay interest on the loan of $1,000

$1000

$-1000

$1000

$-1000

Drag & Drop blocks here

Interest

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Problem 10

You sell a box of cakes for $1000.

$1000

$-1000

$1000

$-1000

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Sales

Drag & Drop blocks here

Exercise 11

You pay your telephone bill of $300

$300

$-300

$300

$-300

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Telephone Expense

Drag & Drop blocks here

Exercise 12

You sell another box of cakes for $2,000

$2000

$-2000

$2000

$-2000

Drag & Drop blocks here

Sales

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Exercise 13

Your computer breaks. You pay a repairman $50 to fix it.

$50

$-50

$50

$-50

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Repairs

Drag & Drop blocks here

Exercise 14

As the owner of the business, you withdraw $1,000 in cash for a personal holiday.

$1000

$-1000

$1000

$-1000

Drag & Drop blocks here

Bank

Drag & Drop blocks here

Drawings

Drag & Drop blocks here

Exercise 15

You purchase a car from Johns Car Shop for $3,000. You purchase the car on credit, meaning you will pay for it in full next month.

$3000

$-3000

$3000

$-3000

Drag & Drop blocks here

Car

Drag & Drop blocks here

John’s Car Shop

Drag & Drop blocks here

What is the difference between the debit and credit side and debit and credit movements?

Debit Side Vs Credit Side

Debit side Credit Side

The debit side is the left side of the accounting equation.

The credit side is the right side of the accounting equation.

The accounts of the debit side are ASSETS, EXPENSES, AND DRAWINGS. These are known as debit accounts.

The accounts of the credit side are LIABILITIES, REVENUE AND OWNER’S EQUITY. These are known as credit accounts.

Debit movements Vs Credit movements

For every transaction that occurs, two accounts will change. These two changes are known as a debit movement and a credit movement. The effects of these movements are shown below.

Debit movements Credit movements

Increase the debit side

Increase the credit side

Decrease the credit side

Decrease the debit side

It is important you do not think of debit movements and credit movements as “pluses and minuses” or “good and bad”. This line of thinking is incorrect. Using the above chart, you can see that a debit movement has the ability to both increase and decrease an account, as does a credit movement.

Therefore try and focus on the actual effect each movement has on the different accounts.

You're reading Journal Entries In Accounting: How To Make Entries (Examples)

Update the detailed information about Journal Entries In Accounting: How To Make Entries (Examples) on the Nhunghuounewzealand.com website. We hope the article's content will meet your needs, and we will regularly update the information to provide you with the fastest and most accurate information. Have a great day!