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| Journal Entries for Bookkeeping |
Journal Entries
Here are 20 common journal entries with detailed explanations, categorized by transaction type.
Cash & Bank Transactions
- Issue of Share Capital for Cash
- A company issues 10,000 shares at $10 each.
- Journal Entry:
- Debit Cash: $100,000 (10,000 shares x $10)
- Credit Share Capital: $100,000
- Explanation: The company's Cash (an asset) increases, so it's debited. The Share Capital (an equity account) also increases, so it's credited.
- Purchase of Machinery with a Loan
- A company buys machinery for $50,000 by taking a bank loan.
- Journal Entry:
- Debit Machinery: $50,000
- Credit Bank Loan: $50,000
- Explanation: The Machinery (an asset) increases, so it's debited. The Bank Loan (a liability) also increases, so it's credited.
- Payment of Rent Expense
- A company pays $2,000 in rent for the month.
- Journal Entry:
- Debit Rent Expense: $2,000
- Credit Cash: $2,000
- Explanation: Rent Expense increases, so it's debited. Cash (an asset) decreases, so it's credited.
- Collection from a Customer
- A company receives $5,000 cash from a customer who previously bought goods on credit.
- Journal Entry:
- Debit Cash: $5,000
- Credit Accounts Receivable: $5,000
- Explanation: Cash (an asset) increases. Accounts Receivable (an asset) decreases as the debt is settled.
Sales & Purchases
- Credit Sale of Goods
- A company sells goods worth $10,000 on credit to a customer.
- Journal Entry:
- Debit Accounts Receivable: $10,000
- Credit Sales Revenue: $10,000
- Explanation: Accounts Receivable (an asset) increases as the customer now owes the company money. Sales Revenue (a revenue account) also increases, so it's credited.
- Purchase of Inventory on Credit
- A company buys inventory worth $5,000 on credit from a supplier.
- Journal Entry:
- Debit Inventory: $5,000
- Credit Accounts Payable: $5,000
- Explanation: The Inventory (an asset) increases. The Accounts Payable (a liability) increases as the company now owes the supplier money.
- Sales with Cost of Goods Sold
- A company sells goods for $1,000 that cost $600 to produce.
- Journal Entry (Part 1 - Sale):
- Debit Cash or Accounts Receivable: $1,000
- Credit Sales Revenue: $1,000
- Journal Entry (Part 2 - COGS):
- Debit Cost of Goods Sold: $600
- Credit Inventory: $600
- Explanation: The first entry records the sale, increasing an asset and revenue. The second entry records the cost of the sale, increasing Cost of Goods Sold (an expense) and decreasing Inventory (an asset).
- Prepaid Expense Amortization
- A company paid $12,000 for one year of insurance on January 1. On March 31, it must recognize three months of insurance expense.
- Journal Entry:
- Debit Insurance Expense: $3,000 ($12,000 / 12 months * 3 months)
- Credit Prepaid Insurance: $3,000
- Explanation: Insurance Expense (an expense account) increases. Prepaid Insurance (an asset) decreases as the benefit is used up.
- Accrued Salaries
- Employees earned $5,000 in salaries, but they have not been paid yet.
- Journal Entry:
- Debit Salary Expense: $5,000
- Credit Salaries Payable: $5,000
- Explanation: The Salary Expense (an expense) has been incurred, so it's debited. A Salaries Payable (a liability) is created to show the amount owed.
- Depreciation
- Machinery with a cost of $50,000 has a useful life of 10 years, and a salvage value of $0.
- Journal Entry:
- Debit Depreciation Expense: $5,000 ($50,000 / 10 years)
- Credit Accumulated Depreciation - Machinery: $5,000
- Explanation: Depreciation Expense (an expense) increases. Accumulated Depreciation is a contra-asset account, so an increase is a credit. It reduces the book value of the asset over time.
- Accrued Revenue
- A company completed a service for a client worth $2,000, but has not yet billed the client.
- Journal Entry:
- Debit Accounts Receivable: $2,000
- Credit Service Revenue: $2,000
- Explanation: Accounts Receivable(an asset) is debited because the company has a right to receive money. Service Revenue(a revenue account) is credited because the revenue has been earned.
- Purchase of Land for Cash
- A company buys land for $200,000 cash.
- Journal Entry:
- Debit Land: $200,000
- Credit Cash: $200,000
- Explanation: The Land (an asset) increases. Cash (an asset) decreases.
- Receipt of a Utility Bill
- A company receives a $500 utility bill that will be paid next month.
- Journal Entry:
- Debit Utility Expense: $500
- Credit Accounts Payable: $500
- Explanation: The Utility Expense has been incurred, so it's debited. Accounts Payable (a liability) is credited because the company now owes the utility company.
- Owner's Drawings
- The owner of a sole proprietorship withdraws $1,000 for personal use.
- Journal Entry:
- Debit Drawings: $1,000
- Credit Cash: $1,000
- Explanation: The Drawings account (a contra-equity account) increases, reducing owner's equity. Cash (an asset) decreases.
- Payment of an Account Payable
- A company pays a supplier $5,000 it owed.
- Journal Entry:
- Debit Accounts Payable: $5,000
- Cash: $5,000
- Explanation: Accounts Payable (a liability) decreases, so it's debited. Cash (an asset) decreases, so it's credited.
- Bad Debt Expense
- A company determines a $200 account receivable is uncollectible.
- Journal Entry:
- Debit Bad Debt Expense: $200
- Credit Allowance for Doubtful Accounts: $200
- Explanation: Bad Debt Expense (an expense) increases. The Allowance for Doubtful Accounts is a contra-asset account that reduces the net value of Accounts Receivable.
- Receipt of a Customer Refund
- A company refunds $50 to a customer for returned goods.
- Journal Entry:
- Debit Sales Returns and Allowances: $50
- Credit Cash: $50
- Explanation: Sales Returns and Allowances (a contra-revenue account) increases, reducing total sales. Cash (an asset) decreases.
- Issuance of a Promissory Note
- A company borrows $10,000 from a bank and signs a promissory note.
- Journal Entry:
- Debit Cash: $10,000
- Credit Notes Payable: $10,000
- Explanation: Cash(an asset) increases. Notes Payable (a liability) also increases.
- Interest Accrual on a Loan
- A company owes $500 in interest on a loan, but it hasn't been paid yet.
- Journal Entry:
- Debit Interest Expense: $500
- Credit Interest Payable: $500
- Explanation: The Interest Expense (an expense) has been incurred, so it's debited. An Interest Payable (a liability) is created.
- Payment of Dividends
- A company declares and pays $5,000 in dividends to shareholders.
- Journal Entry:
- Debit Retained Earnings or Dividends: $5,000
- Credit Cash: $5,000
- Explanation: Retained Earnings (an equity account) decreases, or a temporary Dividends account (which will close to Retained Earnings) is debited. Cash (an asset) decreases.
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