Bookkeeping Journal Entries Explained

Bookkeeping Journal Entries Explained

A journal entry is a fundamental record in accounting where all business transactions are recorded for the first time. It ensures that each transaction is accurately documented in the company’s financial records. Each journal entry must have at least one debit and one credit entry, and the total debits must equal the total credits.

Components of a Journal Entry

1. Date: The date of the transaction.
2. Accounts: The accounts involved in the transaction.
3. Debit Amount: The amount debited to an account.
4. Credit Amount: The amount credited to another account.
5. Description: A brief description of the transaction.

Example 1: Sales Entry

Let's start with a basic sales entry. Imagine you own a small business in India and made a sale worth ₹50,000 on June 10, 2024.

Journal Entry:

Date: June 10, 2024
Accounts:
    - Debit: Accounts Receivable ₹50,000
    - Credit: Sales Revenue ₹50,000
Description: Recorded a sale of goods worth ₹50,000 on credit.

Explanation:

• Accounts Receivable (Debit): This account increases because you expect to receive ₹50,000 from the customer.
• Sales Revenue (Credit): This account increases because you have made a sale and earned ₹50,000.

Example 2: Purchase Entry

Next, let's consider a purchase entry. On June 12, 2024, you bought office supplies worth ₹10,000 in cash.

Journal Entry:

Date: June 12, 2024
Accounts:
    - Debit: Office Supplies ₹10,000
    - Credit: Cash ₹10,000
Description: Purchased office supplies worth ₹10,000 in cash.

Explanation:

• Office Supplies (Debit): This account increases because you now have additional supplies worth ₹10,000.
• Cash (Credit): This account decreases because you paid ₹10,000 in cash.

Example 3: Salary Payment Entry

Consider a salary payment entry. On June 15, 2024, you paid salaries worth ₹30,000 to your employees.

Journal Entry:

Date: June 15, 2024
Accounts:
    - Debit: Salaries Expense ₹30,000
    - Credit: Cash ₹30,000
Description: Paid ₹30,000 in salaries to employees.

Explanation:

• Salaries Expense (Debit): This account increases because the company has incurred a salary expense of ₹30,000.
• Cash (Credit): This account decreases because ₹30,000 has been paid out in cash.

Example 4: Rent Payment Entry

Another basic entry involves rent payment. On June 18, 2024, you paid ₹20,000 for office rent.

Journal Entry:

Date: June 18, 2024
Accounts:
    - Debit: Rent Expense ₹20,000
    - Credit: Cash ₹20,000
Description: Paid ₹20,000 for office rent.

Explanation:

• Rent Expense (Debit): This account increases because the expense of ₹20,000 has been incurred.
• Cash (Credit): This account decreases because ₹20,000 has been paid out in cash.

Example 5: Sales Entry (Varied Example)

To illustrate another sales entry with different details, consider this scenario: On June 20, 2024, you made a sale worth ₹75,000.

Journal Entry:

Date: June 20, 2024
Accounts:
    - Debit: Accounts Receivable ₹75,000
    - Credit: Sales Revenue ₹75,000
Description: Recorded a sale of goods worth ₹75,000 on credit.

Example 6: Common Basic Entries

Here are a few more common journal entries to cover basic transactions:

Entry for Receiving Cash from a Customer

Date: June 22, 2024
Accounts:
    - Debit: Cash ₹25,000
    - Credit: Accounts Receivable ₹25,000
Description: Received ₹25,000 from a customer for a previous sale.

Explanation:

• Cash (Debit): This account increases because you received ₹25,000 in cash.
• Accounts Receivable (Credit): This account decreases because the customer has settled their debt.

Entry for Owner's Capital Investment

Date: June 25, 2024
Accounts:
    - Debit: Cash ₹1,00,000
    - Credit: Owner's Capital ₹1,00,000
Description: Owner invested ₹1,00,000 into the business.

Explanation:

• Cash (Debit): This account increases because the business received ₹1,00,000 in cash.
• Owner's Capital (Credit): This account increases because the owner's equity in the business has increased by ₹1,00,000.