Recording Business Transactions in the Journal

Accounting Terminology

• An account is a detailed record of the changes in a particular asset, liability or owners' equity.
• The ledger is a book containing details of all accounts.
• The journal is a chronological record of the transactions of the business.
• A list of all accounts with their balances from the ledger is the trial balance.

Doube-Entry Accounting

There is always a giving side and a receiving side and at least two accounts are affected by any one transaction.

Examples of Double-Entry Accounting/Bookkeeping:

• Buy Land for Cash, $100,000: Giving Cash, Receiving Land
• Sale Inventory on Account, $20,000: Giving Inventory, Receiving an Account Receivable
• Purchase Equipment for Cash, $250,000: Giving Cash, Receiving Equipment

The t-account is where transactions from the journal are posted. (see video on Rules of Debits and Credits for more on t-accounts and example transactions)

Normal Balance of Accounts

Accounts are said to have a normal balance when the balance is on the side that causes that type of account to increase. Recording Transaction in the Journal: Journalizing

1. Identify each account affected and its type (i.e. assets, liabilities, owners' equity)
2. Determine whether each account is increased or decreased (use the rules of debits and credits)
3. Record the transaction in the journal, including a brief explanation

Journal entry format:

Date            Accounts and Explanation                                     Debit                     Credit
3/4               "Debited Account Title"                                       $ XX                                  
                                    "Credited Account Title"                                                    $ XX          
                    short description/explanation of the transaction 

* Debited accounts are always listed first and Credited accounts (including the dollar amount) are indented.

Journal entry examples:

On April 1, Cougar Cookie Company received $30,000 cash and issued common stock.
4/1                 Cash                                                                   30,000                                  
                                        Common Stock                                                                30,000      
                      Issued stock for cash

On May 15, Cougar Cookie Company paid dividends of $10,000.
5/15               Dividends                                                            10,000                                      
                                        Cash                                                                                10,000        
                      Paid dividends

Recording Business Transactions Review Game

Recording Business Transactions: Rules of Debits and Credits; T-Accounts

Recording Business Transactions: Rules of Debits and Credits; T-Account

There are very few things in accounting that I encourage my students to memorize. However, the rules of debits and credits is one that ultimately comes down to memorization. When learning the rules of debits and credits let's think about the accounting equation: Assets = Liabilities + Owners' Equity. Imagine each category of accounts as a t-account. All assets are increased with debits and decreased with credits. One asset that students sometimes has issues with is Cash. They recall that when they make a deposit into their bank account that the deposit slip states their account was credited for the amount of the deposit. What we have to understand is that the bank is keeping their books, not our books. Therefore, when you give them money, they owe that money back to you; this creates a liabilities for the bank. The account the bank is crediting is an account payable with your name on it.