accounting journal entry
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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 ofbike 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 cashto 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 was used.
9/25 Cash 425
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Accounts Receivable 425
Collected $425 from customer accounts.
9/28 Accounts Payable 500
Cash 500
Paid $500 to suppliers for partsurchased earlier in the month.
General Ledger
The general ledger is a collection of the firm's accounts. While the general journal is organized as a
chronological record of transactions, the ledger is organized by account. In casual use the accounts of
the general ledger often take the form of simple two-column T-accounts. In the formal records of the
company they may contain a third or fourth column to display the account balance after each posting.
Cash
Sep 1 7500
17 40025 425
Sep 15 1000
28 500
Bal. 6825
Accounts Receivable
Sep 17 700 Sep 25 425
Bal. 275
Parts Inventory
Sep 8 2500 Sep 18 275
Bal. 2225
Accounts Payable
Sep 28 500 Sep 8 2500
Bal. 2000
Capital
Sep 1 7500
Bal. 7500
Revenue
Sep 17 1100
Bal. 1100
ExpensesSep 15 1000
Sep 18 275
Bal. 1275
Trial Balance
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If the journal entries are error-free and were posted properly to the general ledger, the total of all of the
debit balances should equal the total of all of the credit balances. If the debits do not equal the credits,
then an error has occurred somewhere in the process. The total of the accounts on the debit and credit
side is referred to as the trial balance.
Once the account balances are known, the trial balance can be calculated as shown:
Account Title Debits Credits
Cash 6825
Accounts Receivable 275
Parts Inventory 2225
Accounts Payable 2000
Capital 7500
Revenue 1100
Expenses 1275
10600 10600