Journal Entries
Record transactions the right way: the anatomy of a journal entry and how compound entries work.
TL;DR
- Record each transaction as a
journalEntryin date order. - List
debitsfirst, then credits, and make the two totals match. - Use a
compoundEntrywhen a transaction touches three or more accounts.
Anatomy of an Entry
DateWhen the transaction happened.
Entries run in date orderAccountsWhich accounts the event touches.
At least one debit, one creditAmountsThe dollar figure on each side.
Debit column, credit columnDescriptionA short note on what and why.
Explain it in a lineThe Rules
Debits FirstList the debited accounts on top.
Debit lines up topCredits IndentedCredited accounts follow, usually indented.
Credit lines belowTotals MatchTotal debits must equal total credits.
Debits = creditsOne Event, One EntryEach transaction gets a single entry.
One event = one entryCompound Entries
Three or MoreAn entry can touch several accounts.
Beyond two accountsStill BalancedAll debits together equal all credits.
Sum both sides, they matchSplit PaymentsPart cash, part financed is one entry.
Cash + loan for one purchasePayroll ExampleWages, taxes, and net pay in one entry.
One expense, several creditsCommon Entries
Cash SaleCash comes in and revenue is earned.
Dr Cash / Cr RevenueBuy SuppliesSupplies rise as cash falls.
Dr Supplies / Cr CashPay RentAn expense is recorded and cash leaves.
Dr Rent Expense / Cr CashBill a ClientA receivable rises before cash arrives.
Dr Receivable / Cr RevenueTips
- Write a short description under every
entryexplaining what happened, so the reason is clear months later at tax time or in an audit. - Post entries as transactions occur, keeping the
journalin true date order rather than reconstructing it from memory later.
Warnings
- An
entrywhose debits do not equal its credits is invalid, so never record a one-sided or unbalanced entry. - Vague descriptions turn a clear
journalinto a mystery, so name the who and why, not just the amount.
In Practice
Record a purchase paid partly in cash and partly financed, in one balanced entry.
Your business buys $5,000 of equipment, paying $2,000 in cash and financing the other $3,000 with a loan.
- Equipment rises, so debit Equipment $5,000.
- Cash falls, so credit Cash $2,000.
- A loan is taken on, so credit Loans Payable $3,000.
- Debits $5,000 equal credits $2,000 + $3,000 = $5,000.
Debit Equipment $5,000; credit Cash $2,000 and Loans Payable $3,000.
An entry can touch several accounts, as long as debits equal credits.
FAQ
A journal entry is the record of a single transaction in the journal, the book of original entry. It captures the date, the accounts affected, the amounts, and which side each is on, debit or credit, plus a short description. Every transaction becomes a journal entry before it is posted to the individual accounts.
List the debited account first with its amount in the debit column, then the credited account, usually indented, with its amount in the credit column. Add the date and a brief description. The core rule is simple: the total debits must equal the total credits, or the entry is not valid.
One that affects more than two accounts. For example, buying $5,000 of equipment by paying $2,000 cash and financing $3,000 debits one account and credits two. It is still a single entry, and the rule is unchanged: all the debits together must equal all the credits together.
The journal is where transactions are first recorded, in date order, as entries. The ledger is where those entries are then sorted by account, so each account shows its own running balance. You journalize first, then post to the ledger; the journal is the diary, the ledger is the sorted file.