How to Fill Out a General Journal Entry

A general journal serves as the initial record of every financial transaction a business undertakes, making it the “book of original entry.” This fundamental accounting record captures all economic events chronologically, providing a complete history of financial activities. It documents the financial impact of business operations, from sales to expenses, laying the groundwork for accurate financial reporting. This article will guide you through the process of accurately filling out a general journal.

Elements of a Journal Entry

Each general journal entry captures specific transaction details. The date of the transaction is recorded first, ensuring chronological order. This helps in tracking the precise timing of financial activities.

Account titles identify the specific accounts affected, such as Cash, Accounts Receivable, or Sales Revenue. The journal includes distinct columns for recording monetary values: one for debit amounts and another for credit amounts, reflecting the dual impact of every transaction.

A brief explanation accompanies each entry, providing a concise summary of the transaction. This narrative clarifies the nature of the economic event being recorded. A reference or posting reference column is also included, indicating when the entry has been transferred to the general ledger.

The Principles of Debits and Credits

Understanding the principles of debits and credits is foundational to accurate journalizing. The entire system of double-entry accounting is built upon the accounting equation: Assets = Liabilities + Owner’s Equity. Every transaction affects at least two accounts, maintaining this fundamental balance.

Debits are recorded on the left side of an account, and credits on the right. The impact of debits and credits varies depending on the type of account involved. For asset accounts (e.g., Cash, Equipment), a debit increases the balance, while a credit decreases it.

For liability accounts (e.g., Accounts Payable, Notes Payable), a credit increases the balance, and a debit decreases it. Owner’s Equity accounts (e.g., Capital, Retained Earnings) also increase with a credit and decrease with a debit. Revenue accounts (e.g., Sales Revenue) increase with a credit and decrease with a debit.

Expense accounts (e.g., Rent Expense, Utilities Expense) increase with a debit and decrease with a credit. Each account type has a “normal balance,” which is the side where increases are recorded. Assets and expenses have normal debit balances, while liabilities, owner’s equity, and revenue accounts have normal credit balances.

Recording Day-to-Day Transactions

Recording day-to-day transactions in the general journal involves a systematic application of debit and credit rules. The process begins by identifying the specific accounts impacted by the transaction and determining whether each account is increasing or decreasing.

For instance, when a business sells goods for cash, the Cash account (asset) increases, requiring a debit. The Sales Revenue account (equity) also increases, necessitating a credit. The entry shows the date, “Cash” debited, “Sales Revenue” credited (indented), amounts, and a brief explanation like “To record cash sales.”

If a business purchases supplies on credit, the Supplies account (asset) increases, leading to a debit. The Accounts Payable account (liability) increases, requiring a credit. The entry reflects “Supplies” debited and “Accounts Payable” credited, with the amount and description. Paying an expense, like office rent with cash, involves debiting Rent Expense and crediting Cash.

When an owner invests personal funds, the Cash account (asset) increases with a debit, and the Owner’s Capital account (equity) increases with a credit. If an owner withdraws cash for personal use, the Owner’s Drawing account is debited, and the Cash account is credited. Receiving cash from a customer who previously purchased on credit means debiting Cash and crediting Accounts Receivable.

Paying off a previously incurred debt involves debiting Accounts Payable and crediting Cash. For every transaction, total debits must always equal total credits, ensuring the accounting equation remains balanced.

Special Journal Entries

The general journal is also used for special entries, typically made at the end of an accounting period. Adjusting entries recognize revenues and expenses in the period they are earned or incurred, regardless of when cash is exchanged. For example, if interest has accrued on a loan but not yet been paid, an adjusting entry debits Interest Expense and credits Interest Payable. Similarly, if services have been rendered but the client has not yet been billed, an entry would debit Accounts Receivable and credit Service Revenue. Prepaid expenses, like insurance paid in advance, require an adjustment as the coverage period expires; this involves debiting Insurance Expense and crediting Prepaid Insurance. Depreciation, which allocates the cost of a tangible asset over its useful life, is also recorded with an adjusting entry, debiting Depreciation Expense and crediting Accumulated Depreciation.

Following adjusting entries, closing entries transfer the balances of temporary accounts—revenues, expenses, and owner’s drawing—to a permanent equity account, like Owner’s Capital or Retained Earnings. This process prepares the accounts for the next accounting period.

Closing revenue accounts involves debiting each revenue account and crediting an Income Summary account. Expense accounts are closed by debiting the Income Summary account and crediting each expense account. The Income Summary balance, representing net income or loss, is then closed to the Owner’s Capital account. Finally, the owner’s drawing account is closed by debiting Owner’s Capital and crediting Drawing.