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Journal Entries All economic transactions are entered in to the accounting system by means of a journal entry.

A journal entry records how each transaction affects either an asset, liability, equity, revenue and/or expense account. Journal entries are made to the General Journal, which is a listing of all economic transactions, in chronological order. Journals entries are made on a two-column journal sheet with the name of the organization and General Journal written on top. The left-hand column is headed Debit and the right-hand column is headed Credit. What are debits and credits? Accountants use these words to describe the left and right sides of a ledger account. An amount recorded on the left side of the account is called a debit whereas an amount recorded on the right side is called a credit. Individuals who are unfamiliar with the language of accounting often have incorrect notions about the meaning of the words debit and credit. For example, they may have the idea that the word credit is more favorable than the word debit (e.g. credit where credit is due). However, in accounting vocabulary this is not true. In accounting, the words debit and credit simply refer to entries on the left and right side respectively for increases or decreases in accounts. When to use a Debit or Credit in a Journal Entry One of the most difficult things to get a handle on when setting up your books is when to use a debit and when to use a credit. Here are some simple rules. If you will follow these rules, it will make your accounting life a lot easier.

You will always use both a debit and a credit for every journal entry. That is what the system of double-entry bookkeeping is based on. You have two columns in your journal entry. Each will have an equal entry - one for a debit, one for a credit. Remember the format of the Accounting Equation where Assets = Liabilities + Owners Equity. The Asset side is the left side of the equation and the Liabilities + Owner's Equity is the right side of the equation. When you need to make a journal entry, refer to your Chart of Accounts to see if the account you need to use falls on the left or right side of the accounting equation. If the account is on the Asset or left side, that is the Debit side. A debit will increase those accounts and a credit will decrease them. If the account is on the Liabilities and Owner's Equity or right side, that is the Credit side. A credit will increase those accounts and a debit will decrease them.

Journal Entries when Accounts have Normal Balances One easy way to remember when to debit and when to credit an account is to remember the normal balances of the five types of accounts on the Chart of Accounts. The normal balance is what the account would have if increases are more than decreases. Here is a list of those accounts and their normal balances. If you remember this list, it will save you a lot of time.

Asset accounts - debit Liability accounts - credit Owner's equity - credit Revenue accounts - credit Expense accounts debit

A simple journal looks like this: Date yyyy Particulars Debit amount amount amount amount Credit

Month Date Account debited Account credited Date Account debited Account credited

A column for posting reference or folio may also be included to facilitate easier tracking and cross-referencing within the accounting system. Also, an explanation of the transaction being recorded may be included below the row for account credited. The journal would then look like this. Date





Month Date Account debited Account credited Explanation or annotation.

ref. # amount ref. # amount