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
.
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