This post gives you a primary tenants of accounting, i.e. journal entry.
Journal Entry:
Basically, journal entry depends on five components. Journal is foundation on which your accounting stands. The main components in a journal include
Let us go through the components in detail:
Date:
It is the date of the transaction. This is the date when you've received or gave money (cash, check or draft) etc. Sometimes, you don't pay money immediately, in such cases you put a backdated to the last day of the previous month in order to adjust the journal entries.
Accounting software gives you the option of adjusting the date and allows you to set up recurring journal entry. Hence, the adjusted journal entries will be programmed to post on the last day of each month.
Account:
Account is the specific format of asset, liability, expense, revenue or equity account. Journal entries should be done under the appropriate accounts according to the type of transaction has taken place. For instance, if you received money through the sales you made, it should be entered under the revenue account.
Debit versus credit:
The vital law of accounting states that assets and expenses are always debited to add to them and credited to subtract to them where as liability, revenue and equity accounts are opposite to them always. This is an unchanging rule in accountancy. All the records should be maintained respect to this rule and there is no exception.
Dollar amount:
You should account for the amount of money that is changing hands or you should account for the amount accounted for(accrual method).
Description:
While entering the transaction, you are suppose to write a relevant description stating the purpose of the transaction. This is mandatory for you to understand why you are spending money. It will be required while preparing the financial documents and filing income tax.
A perfect journal entry shows the debit first. For instance, on Jan 1st a retail company purchases the inventory from Abc corp., The total amount of purchase was $1000 and they paid $400 in cash and the rest of $600 was charged on account. Now let us see how the journal entry will look like:
Date: Jan 1st
Debit: Merchandise Inventory $1000.00
Credit: Cash $400.00
Credit: Accounts Payable $600
Description: To record merchandise inventory purchase from Abc corp.
Finally the totality of accounting is accomplished when the debits satisfy the credits. This balancing act of every credit for every debit and vice versa will help you to accomplish fullness in your accounting.
Journal Entry:
Basically, journal entry depends on five components. Journal is foundation on which your accounting stands. The main components in a journal include
- Date
- Account
- Dollar amount
- Description of the transaction
- Entry (debit versus credit)
Let us go through the components in detail:
Date:
It is the date of the transaction. This is the date when you've received or gave money (cash, check or draft) etc. Sometimes, you don't pay money immediately, in such cases you put a backdated to the last day of the previous month in order to adjust the journal entries.
Accounting software gives you the option of adjusting the date and allows you to set up recurring journal entry. Hence, the adjusted journal entries will be programmed to post on the last day of each month.
Account:
Account is the specific format of asset, liability, expense, revenue or equity account. Journal entries should be done under the appropriate accounts according to the type of transaction has taken place. For instance, if you received money through the sales you made, it should be entered under the revenue account.
Debit versus credit:
The vital law of accounting states that assets and expenses are always debited to add to them and credited to subtract to them where as liability, revenue and equity accounts are opposite to them always. This is an unchanging rule in accountancy. All the records should be maintained respect to this rule and there is no exception.
Dollar amount:
You should account for the amount of money that is changing hands or you should account for the amount accounted for(accrual method).
Description:
While entering the transaction, you are suppose to write a relevant description stating the purpose of the transaction. This is mandatory for you to understand why you are spending money. It will be required while preparing the financial documents and filing income tax.
A perfect journal entry shows the debit first. For instance, on Jan 1st a retail company purchases the inventory from Abc corp., The total amount of purchase was $1000 and they paid $400 in cash and the rest of $600 was charged on account. Now let us see how the journal entry will look like:
Date: Jan 1st
Debit: Merchandise Inventory $1000.00
Credit: Cash $400.00
Credit: Accounts Payable $600
Description: To record merchandise inventory purchase from Abc corp.
Finally the totality of accounting is accomplished when the debits satisfy the credits. This balancing act of every credit for every debit and vice versa will help you to accomplish fullness in your accounting.
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