Journal Entry Example Top 10 Accounting Journal Entries Examples

For depreciation expense, depreciation expense is debited, and the accumulated depreciation account is credited. In the case of payroll expenses, the wages expense, these accounts are debited, and the cash account is credited. For additional practice in preparing journal entries, here are some more examples of business transactions along with explanations on how their journal entries are prepared. The reason is that these more common transactions have a system of controls built up around them that is designed to detect a variety of issues. Conversely, there are fewer controls over journal entries, which makes it easier for someone to create a fraudulent transaction.

The below image is helpful to understand the format of a journal entry. Knowing which account to debit and which to credit is crucial. Small Finance International Ltd was incorporated in April 2019 with the capital initially of 10,000 common stocks of $ 10 each.

Common Journal Entry Questions

Let’s look at a payment of $1,000 with $800 going towards the loan balance and $200 being interest expense. There is usually a debt to the bank fees account, Office Supplies Account, Interest Account, etc., to recognize charges made by the bank, with a credit to the cash account. This happens when the debit or credit amount is made up of multiple lines. Think of the double-entry bookkeeping method as a GPS showing you both your origin and your destination. It will show you where the money is coming from and where it’s going to.

The company received supplies thus we will record a debit to increase supplies. By the terms “on account”, it means that the amount has not yet been paid; and so, it is recorded as a liability of the company. This is useful when journal entries are being researched at a later date, and especially when they are being reviewed by auditors. You will have no trouble as long as you know how to use debits and credits and what accounts to record.

Journal Entry Rules

Credits (abbreviated as CR) refer to any money that flows out of an account. Debits (abbreviated as DR) refer to any money that flows into an account. Purchase Returns are the goods returned by the company to the seller or creditors. Example – Goods worth 200 sold on credit are returned by XYZ Ltd. Sales returns are the goods returned by customers or debtors to the company.

Purchased inventory costing $90,000 for $10,000 in cash and the remaining $80,000 on the account. On the way back from meeting with your client, you stopped to pick up $100 worth of office supplies. Debit notes that $600 is being added to your cash account. Drawings are goods or cash withdrawn by a proprietor for their personal use from the business.

1. In a smaller accounting environment, the bookkeeper may record journal entries.
2. In this case, the applicable expense is debited, and accrued expense is credited.
3. An accounting journal entry is the method used to enter an accounting transaction into the accounting records of a business.
4. This means a new asset must be added to the accounting equation.

Sales Revenue Journal

By now you’d feel more confident in preparing journal entries. Feel free to refer back to the examples above should you encounter similar about schedule a form itemized deductions transactions. Journal entries are recorded in the “journal”, also known as “books of original entry”.

Entry #9 — PGS purchases supplies to use around the store. All transactions are assumed and simplified for illustration purposes. For account titles, we will be using the chart of accounts presented in an earlier lesson.

That is why we credited Accounts Payable (a liability account) in the above entry. The journal entry shows that the company received computer equipment worth $1,200. Now that these transactions are recorded in their journals, they must be posted to the T-accounts or ledger accounts in the next step of the accounting cycle.

A journal entry is made up of at least one account that is debited and at least one account credited. In the above example, computer equipment is an asset account. However, there is a decrease in cash because we paid for the computer equipment. The above information is an overview of how journal entries work if you do your bookkeeping manually. But most people today use accounting software to record transactions.

An easy way to understand journal entries is to think of Isaac Newton’s third law of motion, which states that for every action, there is an equal and opposite reaction. So, whenever a transaction occurs within a company, there must be at least two accounts affected in opposite ways. In an accounting career, journal entries are by far one of the most important skills to master. Without proper journal entries, companies’ financial statements would be inaccurate and a complete mess. Just as every action has an equal and opposite reaction, every credit has an equal and opposite debit. Since we credited the cash account, we must debit the expense account.

Example – Goods worth 100 purchased on credit from HM Ltd. returned by us. Generally, interest unbalanced balance sheet on capital is an appropriation of profit, which means in case of loss, no interest is to be provided. Hence, debit the Profit and loss appropriation A/C and credit Interest on capital A/C at the time of transferring Interest on Capital. Amortization is the same as depreciation but is charged as an expense only on intangible assets. Example Part 1 – Interest income of 2,500 related to the current year is due on the balance sheet date.