Basic journal entries are the fundamental building blocks of accounting. These entries record the financial transactions of a business in its general ledger. Below are some common examples of basic journal entries that a business might encounter:
Example 1: Recording a Cash Sale
Your business sells goods for $5,000 cash on January 5, 2024.
Journal Entry on January 5, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-05-2024 | Cash | 5,000 | |
| 01-05-2024 | To Sales | 5,000 |
Explanation:
- Cash is debited because cash is received.
- Sales is credited to recognize the revenue earned from the sale.
Example 2: Purchase of Supplies on Credit
Your business purchases office supplies worth $2,000 on January 10, 2024, on credit.
Journal Entry on January 10, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-10-2024 | Office Supplies | 2,000 | |
| 01-10-2024 | To Accounts Payable | 2,000 |
Explanation:
- Office Supplies is debited to record the increase in supplies.
- Accounts Payable is credited because the business now owes money for the purchase.
Example 3: Payment of Rent
Your business pays $3,000 in rent for the month on January 15, 2024.
Journal Entry on January 15, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 01-15-2024 | Rent Expense | 3,000 | |
| 01-15-2024 | To Cash | 3,000 |
Explanation:
- Rent Expense is debited to recognize the expense incurred.
- Cash is credited to account for the cash outflow.
Example 4: Owner’s Capital Contribution
The business owner invests $20,000 into the business on February 1, 2024.
Journal Entry on February 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-01-2024 | Cash | 20,000 | |
| 02-01-2024 | To Owner’s Equity | 20,000 |
Explanation:
- Cash is debited to reflect the increase in the business’s cash balance.
- Owner’s Equity is credited to recognize the owner’s contribution to the business.
Example 5: Receiving Payment from a Customer
Your business receives a $4,000 payment from a customer on February 10, 2024, for a previous sale made on credit.
Journal Entry on February 10, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 02-10-2024 | Bank | 4,000 | |
| 02-10-2024 | To Accounts Receivable | 4,000 |
Explanation:
- Bank is debited to record the receipt of money from the customer.
- Accounts Receivable is credited to reduce the amount owed by the customer.
Example 6: Payment of a Utility Bill
Your business pays $500 for utilities on March 1, 2024.
Journal Entry on March 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-01-2024 | Utilities Expense | 500 | |
| 03-01-2024 | To Cash | 500 |
Explanation:
- Utilities Expense is debited to recognize the expense.
- Cash is credited to account for the payment made.
Example 7: Borrowing Money from the Bank
Your business borrows $10,000 from the bank on March 15, 2024.
Journal Entry on March 15, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 03-15-2024 | Bank | 10,000 | |
| 03-15-2024 | To Bank Loan Payable | 10,000 |
Explanation:
- Bank is debited to record the increase in Bank from the loan.
- Bank Loan Payable is credited to recognize the liability to the bank.
Example 8: Paying Off a Loan
Your business repays $2,000 of the bank loan on April 1, 2024.
Journal Entry on April 1, 2024:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 04-01-2024 | Bank Loan Payable | 2,000 | |
| 04-01-2024 | To Bank | 2,000 |
Explanation:
- Bank Loan Payable is debited to reduce the outstanding loan balance.
- Bank is credited to account for the payment made.
These basic journal entries provide a foundation for recording everyday financial transactions in your business. Each entry ensures that your financial records remain accurate and up-to-date, helping you maintain a clear view of your company’s financial health.