Step two in the accounting cycle is journalizing transactions. This is the process whereby financial
transactions are recorded into the accounting records of a company.
Transactions are recorded with a journal entry,
These journal entries become the chronological list of all the transactions
and that list is known as the general journal.
Journal entries have four parts:
a date of the transaction;
the account debited and the dollar amount debited;
the account credited and the dollar amount of the credit; and finally a brief explanation of the transaction.
This slide is a visual example of a journal entry.
You can see the date section, where the accounts are listed,
the debit and credit column, and finally, where the explanation is shown.
So let's look at the three transactions we previously analyzed to see if we can journalize them.
In this example, a company buys supplies on account for $500 on August 3.
When we analyze this transaction we determine that supplies, an asset account is the increased with a debit.
And accounts payable, a liability acount, is increased with a credit.
So first we enter the date,
August 3rd.
Then we list the debit account first, so we enter supplies.
It wouldn't techhnically be wrong to list the credit account first, but it would look wrong to every
practicing accountant, so always enter the debit accounts first.
Then we would record $500 in the debit column.
Next, we enter accounts payable as the credit account.
Normally we indent credits, as you can see here,
and finally we enter $500 into the credit column.
We enter the description of the transaction at the bottom.
Often in accounting homework you won't need to enter a description but you should be aware that in
real life, journal entries always have at least this type of documentation.
And now we're done. We've entered this transaction into the general journal by completing the journal entry.
Let's look at another example.
A company performs service on account for $2500 on August 9th.
We analyze this transaction and determine that accounts receivable, an asset account, is increased with a debit.
Service revenue, a revenue account, is increased with a credit.
So, we'll enter the date, August 9th.
We will then list the debit account, so we enter accounts receivable and in the debit column we enter $2500.
Next, we'll enter service revenue as the credit account.
We'll want to indent the credit.
And then enter $2500 in the credit column.
Finally, we would enter the transaction and we're done. We've entered this transaction into the general journal.
The last example, a company pays a utility bill for $200, on August 15th.
When we analyze this transaction we determine the cash, an asset account, is decreased with a credit,
and utilities expense, an expense account, is the increased with a debit.
So, we'll enter the day August 15th, we will then list the debit account first, so we will enter utilities expense
and then $200 in the debit column.
Next, we enter cash in the credit account, we'll want to indent cash as you can see here,
and then $200 in the credit column.
Finally, we would enter a description for this transaction.
And we've now entered this transaction into the general journal.
I hope these brief examples have helped you understand the journalizing transaction step in the accounting cycle.
One hint I would like you to remember,
once you've analyzed the transaction, you don't need to re-analyze them when you jounalize them.
Just enter the date, the debit account and amount, the credit account and amount,
and the description if the problem asks for it.
No additional analysis is needed.