Basic Journal Entry Examples

Journal Entry Basics:

Definition: A journal entry is the recording of a financial transaction in a company's accounting system. It helps maintain an accurate and organized record of all financial activities.
Double-Entry System: Every journal entry involves at least two accounts - one account is debited (increased), and another is credited (decreased). The total debits must equal the total credits for each transaction.

Basic Journal Entry Structure:

A typical journal entry consists of the following elements:

Date: The date when the transaction occurred.
Accounts: The accounts that are affected by the transaction.
Debit: The amount entered in the debit column.
Credit: The amount entered in the credit column.
Description: A brief description of the transaction.

Examples of Basic Journal Entries:

Cash Sale of Goods:

Date: 2023-01-05
Accounts:

Debit: Cash Account
Credit: Sales Revenue

Description: Sold goods for $1,000 in cash.

Purchase of Equipment on Credit:

Date: 2023-02-10
Accounts:

Debit: Equipment
Credit: Accounts Payable

Description: Purchased equipment worth $5,000 on credit.

Owner's Investment:

Date: 2023-03-15
Accounts:

Debit: Cash Account
Credit: Owner's Equity (Capital)

Description: The owner invested $10,000 of personal funds into the business.

Payment of Rent:

Date: 2023-04-20
Accounts:

Debit: Rent Expense
Credit: Cash Account

Description: Paid monthly rent of $1,200 in cash.

Loan Repayment:

Date: 2023-05-25
Accounts:

Debit: Loan Payable
Credit: Cash Account

Description: Repaid a portion of a bank loan, $2,000.

Accrued Interest Income:

Date: 2023-06-30
Accounts:

Debit: Interest Receivable
Credit: Interest Income

Description: Recorded $500 of accrued interest income.

Depreciation Expense:

Date: 2023-07-10
Accounts:

Debit: Depreciation Expense
Credit: Accumulated Depreciation

Description: Recorded $1,000 in depreciation for the equipment.

Sale of Goods on Credit:

Date: 2023-08-15
Accounts:

Debit: Accounts Receivable
Credit: Sales Revenue

Description: Sold goods on credit for $2,500.

Remember, the fundamental rule of double-entry accounting is that for every debit, there must be an equal and opposite credit. These basic journal entry examples should help you understand how different transactions are recorded in the accounting system. Practice and familiarity with these concepts are essential for mastering accounting principles.

Now lets learn how to create over 100 journal entries for all types of transactions as per Generally Accepted Accounting Principles (GAAP). I shall begin with small examples and provide you with a diverse set of 10 journal entries covering various types of transactions along with explanations. These should give you a good understanding of how different transactions are recorded in accordance with GAAP.

Cash Sale of Goods:

Date: 2023-01-05
Accounts:

Debit: Cash Account
Credit: Sales Revenue

Explanation: This entry records the sale of goods for cash. The debit increases the cash account, and the credit increases the sales revenue account.

Purchase of Inventory on Credit:

Date: 2023-02-10
Accounts:

Debit: Inventory
Credit: Accounts Payable

Explanation: When inventory is purchased on credit, the debit increases the inventory account, and the credit increases the accounts payable liability.

Owner's Equity Investment:

Date: 2023-03-15
Accounts:

Debit: Cash Account
Credit: Owner's Equity (Capital)

Explanation: When the owner invests personal funds into the business, the cash account is debited, and owner's equity (capital) is credited.

Payment of Rent Expense:

Date: 2023-04-20
Accounts:

Debit: Rent Expense
Credit: Cash Account

Explanation: Paying rent reduces the cash account (debit) and recognizes rent expense (credit).

Loan Proceeds Received:

Date: 2023-05-01
Accounts:

Debit: Cash Account
Credit: Loan Payable

Explanation: Receiving a loan increases cash (debit) and creates a liability (loan payable) on the credit side.

Depreciation Expense:

Date: 2023-06-10
Accounts:

Debit: Depreciation Expense
Credit: Accumulated Depreciation

Explanation: Recognizing depreciation expenses reduces net income (debit) and increases the accumulated depreciation contra-asset account (credit).

Sale of Goods on Credit (Accounts Receivable):

Date: 2023-07-15
Accounts:

Debit: Accounts Receivable
Credit: Sales Revenue

Explanation: Selling goods on credit increases accounts receivable (debit) and recognizes sales revenue (credit).

Payment of Employee Salaries:

Date: 2023-08-05
Accounts:

Debit: Salary Expense
Credit: Cash Account

Explanation: Paying employee salaries reduces cash (credit) and recognizes salary expense (debit).

Purchase of Equipment (Cash):

Date: 2023-09-10
Accounts:

Debit: Equipment
Credit: Cash Account

Explanation: Buying equipment with cash reduces cash (credit) and increases the equipment asset (debit).

Bad Debt Write-Off:

Date: 2023-10-20
Accounts:

Debit: Bad Debt Expense
Credit: Accounts Receivable

Explanation: Writing off a bad debt expense reduces accounts receivable (credit) and recognizes a bad debt expense (debit).

These entries cover a range of transactions you might encounter in accounting, from basic revenue and expense recognition to more complex transactions like depreciation and bad debt write-offs. They adhere to the principles of double-entry accounting as per GAAP, ensuring that each entry maintains the fundamental accounting equation (Assets = Liabilities + Equity).

journal entries based on Australian accounting standards (Australian Accounting Standards Board – AASB)

Goods and Services Tax (GST) on Sales:

Date: 2023-11-05
Accounts:

Debit: Cash Account
Credit: Sales Revenue
Credit: GST Payable

Explanation: In Australia, businesses often need to account for GST on their sales. This entry records a cash sale, with the credit side splitting the amount between sales revenue and GST payable.

Purchase of Inventory Including GST:

Date: 2023-12-10
Accounts:

Debit: Inventory
Debit: GST Input Tax Credit
Credit: Accounts Payable

Explanation: When purchasing inventory that includes GST, you debit the inventory cost, debit the GST Input Tax Credit (an asset account), and credit accounts payable.

Dividend Declaration:

Date: 2023-12-15
Accounts:

Debit: Retained Earnings
Credit: Dividends Payable

Explanation: Declaring a dividend reduces retained earnings (debit) and creates a liability for dividends payable (credit), which will be paid to shareholders.

Asset Revaluation:

Date: 2024-01-10
Accounts:

Debit: Asset Revaluation Surplus (Equity)
Credit: Asset (e.g., Land)

Explanation: If an asset's fair value increases, you can revalue it upwards. This entry increases the asset's book value (credit) and recognizes the revaluation surplus (debit), which goes under equity.

Income Tax Expense:

Date: 2024-02-20
Accounts:

Debit: Income Tax Expense
Credit: Income Tax Payable

Explanation: As per Australian standards, companies need to recognize income tax expenses. This entry records the expense (debit) and the liability to the tax authority (credit).

These additional entries reflect some unique aspects of Australian accounting standards, such as the Goods and Services Tax (GST) and the revaluation of assets. They ensure compliance with Australian Accounting Standards (AASB) while accurately reflecting various business transactions.

Basic Pension Journal Entries That A Company Might Make Regarding Its Pension Plan During The Year

Initial Pension Plan Setup:

Date: January 1, 2023
Accounts:

Debit: Pension Liability
Credit: Pension Asset (if overfunded) or Prepaid Pension Cost (if underfunded)

Explanation: Records the initial setup of the pension plan, establishing the pension liability and asset or prepaid pension cost.

Employer Contribution to Pension Plan:

Date: Monthly or as applicable
Accounts:

Debit: Pension Expense
Credit: Cash Account

Explanation: Recognizes the employer's contributions to fund the pension plan.

Employee Contribution to Pension Plan:

Date: Monthly or as applicable
Accounts:

Debit: Pension Expense
Credit: Employee Contribution Payable

Explanation: Records the deductions from employee salaries for their pension contributions.

Recognition of Pension Expense:

Date: Monthly or as applicable
Accounts:

Debit: Pension Expense
Credit: Accrued Pension Liability

Explanation: Recognizes the cost of providing pension benefits to employees.

Interest Cost on Pension Liability:

Date: At the end of the fiscal year
Accounts:

Debit: Pension Expense
Credit: Accrued Interest on Pension Liability

Explanation: Reflects the interest cost on the outstanding pension liability.

Actuarial Gain or Loss:

Date: At the end of the fiscal year
Accounts:

Debit or Credit: Accumulated Other Comprehensive Income (AOCI)
Debit or Credit: Pension Expense (if significant)

Explanation: Recognizes actuarial gains or losses that impact the funded status of the plan.

Pension Benefit Payment to Retirees:

Date: As benefits are paid to retirees
Accounts:

Debit: Accrued Pension Liability
Credit: Cash Account

Explanation: Records the actual payment of pension benefits to retired employees.

Return on Pension Plan Assets:

Date: At the end of the fiscal year
Accounts:

Debit or Credit: Pension Asset (if positive) or Pension Expense (if negative)

Explanation: Reflects the return (interest, dividends, gains, or losses) on pension plan assets.

Amortization of Prior Service Costs:

Date: At the end of the fiscal year
Accounts:

Debit: Pension Expense
Credit: Accumulated Other Comprehensive Income (AOCI)

Explanation: Amortizes any prior service costs incurred due to changes in the pension plan.

Pension Plan Settlement or Curtailment:

Date: Date of settlement or curtailment event
Accounts:

Debit: Pension Liability (if settlement) or Pension Expense (if curtailment)
Credit: Cash Account (if settlement) or Pension Asset (if curtailment)

Explanation: Records the financial impact of pension plan settlement or curtailment events.

These journal entries help a company maintain accurate records of its pension plan activities throughout the year, ensuring compliance with accounting standards and transparency in financial reporting. Note that the specific accounts used may vary based on a company's individual accounting policies and the nature of its pension plan.

Solved sample example of journal entry homework problem:

Need help with journal including journal entries for the first two months of operations. At least 40 is required. 2. General ledger. Include any necessary subsidiary leger for jobs, customers, and suppliers Hi, so this is my part for a group project. I’m stuck on the journal entries, were doing a notebook company so far i have the basic journal entries like rent expense ink and paper inventory. Thanks, if anybody can just give me a some examples of transaction entries or journal entries in general that would be great.

STEP BY STEP ANSWERS AND EXPLANATION

Since you mentioned basic journal entries like rent expense and inventory, I'll expand on those and include additional transactions that a notebook company might encounter:

Month 1 Journal Entries:

Initial Investment by Owner:

Debit: Cash or Bank Account
Credit: Owner's Equity (Capital)
Explanation: The owner invests capital to start the business.

Purchase of Office Supplies on Credit:

Debit: Office Supplies
Credit: Accounts Payable
Explanation: Buying office supplies on credit to use in daily operations.

Purchase of Equipment on Credit:

Debit: Equipment
Credit: Accounts Payable
Explanation: Acquiring equipment for manufacturing notebooks.

Rent Expense:

Debit: Rent Expense
Credit: Cash or Bank Account
Explanation: Paying monthly rent for the office or manufacturing space.

Purchase of Paper Inventory for Cash:

Debit: Paper Inventory
Credit: Cash or Bank Account
Explanation: Buying paper for notebook production with cash.

Employee Salary Payment:

Debit: Salary Expense
Credit: Cash or Bank Account
Explanation: Paying employee salaries for the month.

Manufacturing Costs (e.g., labor and utilities):

Debit: Manufacturing Expenses
Credit: Cash or Bank Account
Explanation: Recording manufacturing costs incurred during production.

Sales of Notebooks on Credit:

Debit: Accounts Receivable (Customers)
Credit: Sales Revenue
Explanation: Selling notebooks to customers on credit.

Payment to Suppliers (for paper and ink):

Debit: Accounts Payable (Suppliers)
Credit: Cash or Bank Account
Explanation: Settling accounts payable for materials purchased.

Month 2 Journal Entries:

Purchase of Ink Inventory for Cash:

Debit: Ink Inventory
Credit: Cash or Bank Account
Explanation: Buying ink for notebook production with cash.

Additional Sales of Notebooks on Credit:

Debit: Accounts Receivable (Customers)
Credit: Sales Revenue
Explanation: Recording more notebook sales to customers on credit.

Write-off of Bad Debt (if applicable):

Debit: Bad Debt Expense
Credit: Accounts Receivable (Customers)
Explanation: If a customer defaults on payment, you may need to write off the bad debt.

Depreciation Expense on Equipment:

Debit: Depreciation Expense
Credit: Accumulated Depreciation
Explanation: Allocating a portion of the equipment's cost as an expense over time.

Interest Expense (if you have a business loan):

Debit: Interest Expense
Credit: Interest Payable
Explanation: Recording interest expense on a business loan.

Purchase Returns (if any defective materials):

Debit: Accounts Payable (Suppliers)
Credit: Inventory (for returned items)
Explanation: Returning defective materials to suppliers.

These journal entries cover a range of transactions that your notebook company might encounter during its first two months of operations. Make sure to adapt them to your specific circumstances and accounting practices. Additionally, you may need to create subsidiary ledgers for customers and suppliers to track individual transactions and balances with these entities, as well as job cost ledgers if you have specific projects or orders to track.

Capital Project Funds and Debt Service Fund Journal Entries

What is an example of a specific capital projects fund? Give an example of the journal entries to record it. What is an example of a debt service fund? Given an example of the journal entries to record it.

ANSWER: Capital Projects Funds and Debt Service Funds are both specialized funds used in governmental accounting to track and manage specific financial activities. Let's explore examples of each and the associated journal entries:

Capital Projects Fund:

Example: Building a New Public Library

Journal Entries for the Capital Projects Fund:

Initial Funding for the Project:

Debit: Cash
Credit: Fund Balance - Unassigned
Explanation: To start the project, the government transfers funds from its general fund or other sources to the Capital Projects Fund.

Expenditure for Land Purchase:

Debit: Land
Credit: Cash or Accounts Payable
Explanation: Records the purchase of land for the library project.

Expenditure for Architectural Services:

Debit: Architectural Services Expense
Credit: Cash or Accounts Payable
Explanation: Records expenses for architectural services related to the library project.

Expenditure for Construction Costs:

Debit: Construction Expense
Credit: Cash or Accounts Payable
Explanation: Records expenses for the actual construction of the library.

Transfer of Funds Back to the General Fund (if needed):

Debit: Fund Balance - Unassigned
Credit: Cash
Explanation: If there are excess funds in the Capital Projects Fund after completing the project, they may be transferred back to the general fund.

Debt Service Fund:

Example: Repaying a Municipal Bond Issuance

Journal Entries for the Debt Service Fund:

Issuance of Municipal Bonds:

Debit: Cash
Credit: Bonds Payable
Explanation: Records the receipt of cash from the issuance of municipal bonds.

Recording Interest Expense:

Debit: Interest Expense
Credit: Cash
Explanation: Records interest payments on the municipal bonds.

Amortization of Bond Principal:

Debit: Bond Principal Expense
Credit: Cash or Investments (if invested)
Explanation: Records the repayment of the bond principal, either from cash on hand or investments.

Transfer from the General Fund (if necessary):

Debit: Cash
Credit: Fund Balance - Unassigned
Explanation: If there's insufficient cash in the Debt Service Fund to cover debt service payments, a transfer from the general fund may be necessary.

Transfer to Debt Service Fund Sinking Fund (if used):

Debit: Sinking Fund Cash or Investments
Credit: Cash
Explanation: If a sinking fund is used to set aside money for future debt service payments, a transfer to this fund is recorded.

These journal entries illustrate how Capital Projects Funds are used to finance and manage capital projects like building a library, while Debt Service Funds are used to handle the repayment of debt, such as municipal bonds. These funds help governments segregate and track resources for specific purposes and ensure that funds are used as intended. The specific accounts and amounts will vary depending on the details of the project or debt issuance.

Pension Expense Pension-related asset/liability

Journal Entries Date Heads Debit amount $ Credit amount $ Year 1 Pension Expense Pension-related asset/liability To record pension expense for the year. 1,180 1,180 Year 1 Pension-related asset/liability Cash To record contribution to the pension fund for the year. 1,050 1,050 The pension expense will be reported in the income statement and the pension related asset/liability will be reported in the balance sheet. It is given in the sum that the contribution to the pension fund is $1,050. But how do I get pension expense? See below.

ANSWER with explanation:

It seems like you have already recorded two journal entries related to pension accounting. To calculate the pension expense, you typically follow a multi-step process, which involves various components like service cost, interest cost, expected return on plan assets, amortization of prior service cost, and gains/losses. Here's a breakdown of how you can calculate the pension expense:

Pension Expense Calculation for Year 1:

Service Cost: This is the cost of providing pension benefits to employees for their service during the year.

Debit: Pension Expense
Credit: Pension-related asset/liability

Interest Cost: This represents the interest on the beginning-of-year projected benefit obligation (PBO).

Debit: Pension Expense
Credit: Pension-related asset/liability

Expected Return on Plan Assets: If you have plan assets, you subtract the expected return on those assets.

Debit: Pension-related asset/liability
Credit: Pension Expense

Amortization of Prior Service Cost: If there have been any changes in the pension plan that result in prior service cost, you amortize this cost over the expected future service years of employees.

Debit: Pension Expense
Credit: Pension-related asset/liability

Recognize Gains or Losses: If there are any actuarial gains or losses or other changes in assumptions, these need to be recognized over time.

Debit or Credit: Pension Expense (depending on gain/loss direction)
Debit or Credit: Pension-related asset/liability (opposite of gain/loss direction)

After you calculate these components and make the necessary journal entries, you will arrive at the total pension expense for the year. This total expense should match the amount that you've recorded in your first journal entry.

So, if you've already recorded the following entries:

Year 1: Pension Expense

Debit: Pension Expense $1,180
Credit: Pension-related asset/liability $1,180

And you have a contribution to the pension fund of $1,050, it's likely that the difference ($1,180 - $1,050 = $130) represents the net effect of other components like interest cost, return on plan assets, and amortization of prior service cost. These components collectively make up the pension expense reported in your income statement.

Let's continue with the calculation of the pension expense and explain the remaining components:

Net Gains or Losses from Changes in Assumptions: If there are net gains or losses from changes in actuarial assumptions, you should include or amortize them over time.

Debit or Credit: Pension Expense (depending on net gain/loss direction)
Debit or Credit: Pension-related asset/liability (opposite of net gain/loss direction)

Any Additional Components: Depending on the specific pension plan and accounting standards in use, there may be additional components to consider, such as changes in the discount rate, differences between expected and actual returns on plan assets, or other actuarial adjustments.

The total of all these components will give you the pension expense for the year. It's essential to follow accounting standards (such as GAAP or IFRS) and actuarial guidance when calculating pension expense to ensure accuracy and compliance.

In your example, you've recorded a pension expense of $1,180 and a contribution to the pension fund of $1,050. This means that $1,180 represents the total pension expense for the year, and it includes all the components mentioned above. The contribution to the pension fund covers part of this expense, and any remaining balance would typically be accrued and paid over time to cover the full pension cost.

It's important to work closely with your company's actuaries or accounting experts to accurately calculate and report pension expenses in accordance with accounting standards and regulations.

SAMPLE HOMEWORK PROBLEM for BASIC JOURNAL ENTRIES

The following information is related to Lexington Real Estate Agency. Oct. 1 Diane Lexington begins business as a real estate agent with a cash investment of $20,000 in exchange for common stock. 2 Hires an administrative assistant. 3 Purchases office furniture for $2,300, on account. 6 Sells a house and lot for N. Fennig; bills N. Fennig $3,600 for realty services performed. 27 Pays $850 on the balance related to the transaction of October 3. 30 Pays the administrative assistant $2,500 in salary for October. Prepare the debit-credit analysis for each transaction. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Debit-Credit Analysis Oct. 1 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 1 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 1 $enter a dollar amount Oct. 2 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 2 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 2 $enter a dollar amount Oct. 3 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 3 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 3 $enter a dollar amount Oct. 6 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 6 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 6 $enter a dollar amount Oct. 27 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 27 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 27 $enter a dollar amount Oct. 30 Debits select an effect on a basic account type : Debit enter an account title for the journal entry on October 30 $enter a dollar amount Credits select an effect on a basic account type : Credit enter an account title for the journal entry on October 30

ANSWER WITH EXPLANATION

I can help you prepare the debit-credit analysis for each transaction in which these are the journal entries for each of the transactions:

Oct. 1:

Debit: Cash (increase in assets)
Credit: Common Stock (increase in equity)

Oct. 2:

Debit: Administrative Expense (expense incurred)
Credit: Cash (decrease in assets)

Oct. 3:

Debit: Office Furniture (increase in assets)
Credit: Accounts Payable (liability created due to purchase on account)

Oct. 6:

Debit: Accounts Receivable (increase in assets)
Credit: Realty Service Revenue (revenue earned)

Oct. 27:

Debit: Accounts Payable (decrease in liabilities)
Credit: Cash (decrease in assets)

Oct. 30:

Debit: Administrative Expense (expense incurred)
Credit: Cash (decrease in assets)

Now, you can fill in the dollar amounts for each transaction based on the information provided in the original transactions.

Let's complete the debit-credit analysis by adding the dollar amounts for each transaction based on the information you provided:

Oct. 1:

Debit: Cash $20,000
Credit: Common Stock $20,000

Oct. 2:

Debit: Administrative Expense $0 (No entry required as it's just hiring an assistant)
Credit: Cash $0 (No payment made on this date)

Oct. 3:

Debit: Office Furniture $2,300
Credit: Accounts Payable $2,300

Oct. 6:

Debit: Accounts Receivable $3,600
Credit: Realty Service Revenue $3,600

Oct. 27:

Debit: Accounts Payable $850
Credit: Cash $850

Oct. 30:

Debit: Administrative Expense $2,500
Credit: Cash $2,500

These entries reflect the dollar amounts for each transaction. Please note that for some transactions, there might not be an entry, as indicated in the original information.

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Basic Journal Entry Examples