Arab British Academy for Higher Education. General Journal Entries
The journal is the point of entry of business transactions into the accounting system. It is
a chronological record of the transactions, showing an explanation of each transaction,
the accounts affected, whether those accounts are increased or decreased, and by what
amount.
A general journal entry takes the following form:
Date
Amount
Name of account being debited
Name of account being credited
Optional: short description of transaction
Amount
Consider the following example that illustrates the basic concept of general journal
entries.
Mike Peddler opens a bicycle repair shop. He leases shop space, purchases an initial
inventory of bike parts, and begins operations. Here are the general journal entries for the
first month:
Date
9/1
9/8
9/15
9/17
Account Names & Explanation
Cash
Capital
Owner contributes $7500 in cash
to capitalize the business.
Debit
7500
Credit
7500
Bike Parts
Accounts Payable
Purchased $2500 in bike parts
on account, payable in 30 days.
2500
Expenses
Cash
Paid first month's shop rent of $1000.
1000
2500
Cash
Accounts Receivable
Revenue
1000
400
700
1100
1 www.abahe.co.uk Arab British Academy for Higher Education. Repaired bikes for $1100; collected $400
cash; billed customers for the balance.
9/18
9/25
9/28
Expenses
Bike Parts
$275 in bike parts were used.
275
Cash
Accounts Receivable
Collected $425 from customer accounts.
425
Accounts Payable
Cash
Paid $500 to suppliers for parts
purchased earlier in the month.
500
275
425
500
Most of the above transactions are entered as simple journal entries each debiting one
account and crediting another. The entry for 9/17 is a compound journal entry, composed
of two lines for the debit and one line for the credit. The transaction could have been
entered as two separate simple journal entries, but the compound form is more efficient.
In this example, there are no account numbers. In practice, account numbers or codes
may be included in the journal entries to allow each account to be positively identified
with no confusion between similar accounts.
The journal entry is the first entry of a transaction in the accounting system. Before the
entry is made, the following decisions must be made:


which accounts are affected by the transaction, and
which account will be debited and which will be credited.
Once entered in the journal, the transactions may be posted to the appropriate T-accounts
of the general ledger. Unlike the journal entry, the posting to the general ledger is a
purely mechanical process - the account and debit/credit decisions already have been
made.
2 www.abahe.co.uk