<aside> 💡 In accounting, a journal entry is used to record a business transaction in the company's general ledger. Each journal entry affects at least two accounts and maintains the accounting equation of Assets = Liabilities + Owner's Equity.

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Definition and basic examples

A typical journal entry consists of the following:

1. Date of the transaction
2. Account titles and amounts to be debited
3. Account titles and amounts to be credited

The debit and credit amounts must be equal to keep the accounting equation in balance.

Examples:

1. Purchasing inventory on credit: Dr. Inventory $5,000 Cr. Accounts Payable $5,000
2. Recording cash sales revenue: Dr. Cash $2,500 Cr. Revenue $2,500
3. Paying rent expense: Dr. Rent Expense $1,200 Cr. Cash $1,200
4. Owner investing capital: Dr. Cash $20,000 Cr. Owner's Capital $20,000

Journal entries are the first step in the accounting cycle and provide an audit trail for all transactions. Proper use of journal entries is crucial for accurate bookkeeping and financial reporting.

More Complex Journal Entries