In this video I want to show you how easily you can write a journal entry
in just five steps. Before we get into these five steps, let's take an example and see how
they're used.
Say we're recording transactions for a doctor's office. We'll analyze a typical
transaction and come up with a journal entry.
Our doctor's office is open and a patient comes in who isn't feeling well. The doctor examines the patient, tells the
patient what's wrong and prescribes some medicine. At this point the doctor has
earned his revenue. He charges a fee, say, $100, and the patient pays in cash.
Now we're ready for our five steps. Step 1: we need a date, the date that the transaction occurred.
Step 2: we need at least 1 debit. Step 3: we need at least one credit. Step 4: the
total of the dollar amounts of the debits must equal the total of the dollar amounts of
the credits. And finally, Step 5: we need an explanation as to why we're writing the
journal entry. Let's write this journal entry. Step 1: the date. Let's say this
transaction occurred on July 1st.
Step 2: we need at least one debit. In this case, cash increased. Cash is an asset.
When cash increases we debit the account
Cash. In this case, will debit the account for $100. Step 3: we need at least one
credit. The doctor earned his revenue. We'll credit the Revenue account.
When revenue increases, the revenue account is credited, in this case for $100. Step 4: the total of
our debits, in this case there's only one for $100, equals the only $100 credit. And Step 5:
to record fees earned and cash received. That's our explanation.
Notice that the credits are indented to the right. This is proper form for any
journal entry. Also know which accounts increase with debits and which accounts
increase with credits. When the doctor receives cash, the account Cash is debited.
When the doctor earns more revenue, the account Fee Revenue is credited. Cash has a
normal debit balance. Revenue has a normal credit balance.
Check your accounting textbook for more information on this. And finally, all journal entries have a reference.
In this case we'll call this entry, General Journal Entry
#1. Are you ready to record an expense? Let's say we still have our same doctor and as with any doctor's office, he has
expenses. Let's say he's paying his telephone bill for the month of July. He'll cut
a check or give cash. Let's record this journal entry. Say the doctor is cutting his check on July 30th
and the telephone bill is for the month of July. We'll put July 30. We'll debit telephone expense for $60.
Let's say the bill came out to $60. We'll credit cash for $60 because cash decreased. $60
= $60. Our debts equal our credits. Our journal entry balances. And finally our explanation, to record telephone expenses.
Let's review this journal entry. Step 1, we gave it a date. Step 2, we debited at least one account. We debited Telephone Expenses. Step 3, we need
at least one credit, in this case we credited Cash. Step 4, our debit of $60 equals
our credit of $60. And Step 5, our explanation. In this case, we had to know which accounts increased with debits and which accounts decreased with credits.
When the doctor pays with cash, the Cash account is credited. When the doctor's office incurs an expense, the
expense account is debited. Expenses have a normal debit balance. Cash has a normal debit. Again,
check your textbook for more information. And there you have it: five steps to write a journal entry.
Thanks for watching.