Recording transactions in General Journal

The General Journal is the first place where financial transactions are formally recorded in accounting. It's like your business's diary, documenting every financial event in chronological order. Think of it as the initial step before information is summarized and moved to other ledgers.

What is the General Journal?

The General Journal is a chronological record of all financial transactions. It uses the double-entry bookkeeping system, meaning every transaction affects at least two accounts, with debits always equaling credits. This ensures the accounting equation (Assets = Liabilities + Owner's Equity) remains balanced.

Format of the General Journal

A typical General Journal entry looks like this:

Date	Account Title and Explanation	Debit	Credit
YYYY-MM-DD	Account Name (Debit)	$Amount
	Account Name (Credit)		$Amount
	Brief explanation of the transaction

Steps to Record a Transaction

1. Identify the Transaction: Determine what happened. What was bought, sold, paid, or received?

2. Analyze the Impact: Figure out which accounts are affected and whether they increase or decrease. Use the Golden Rules of Accounting (Real, Nominal, Personal) to determine whether each account is debited or credited.

3. Write the Journal Entry:

   • Start with the date.
   • Write the name of the account to be debited on the first line, followed by "Dr." and the amount.
   • Write the name of the account to be credited on the second line, followed by "Cr." and the amount.
   • Write a brief explanation of the transaction on the third line. This helps provide context.

4. Ensure Balance: Double-check that the total debits equal the total credits.

Example Transactions and Journal Entries

1. Owner invests cash:

• Transaction: Owner invests $10,000 cash into the business.
• Analysis: Cash (Asset) increases, Owner's Capital (Equity) increases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-01	Cash	$10,000
	Owner's Capital		$10,000
	Owner's initial cash investment

2. Purchase equipment:

• Transaction: Business buys equipment for $5,000 cash.
• Analysis: Equipment (Asset) increases, Cash (Asset) decreases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-05	Equipment	$5,000
	Cash		$5,000
	Purchase of equipment

3. Purchase supplies on credit:

• Transaction: Business buys $2,000 of supplies on credit (meaning they will pay later).
• Analysis: Supplies (Asset) increase, Accounts Payable (Liability) increases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-08	Supplies	$2,000
	Accounts Payable		$2,000
	Purchase of supplies on credit

4. Provide services for cash:

• Transaction: Business provides services for $3,000 cash.
• Analysis: Cash (Asset) increases, Service Revenue (Revenue) increases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-12	Cash	$3,000
	Service Revenue		$3,000
	Services provided for cash

5. Pay rent:

• Transaction: Business pays $1,000 for rent.
• Analysis: Rent Expense (Expense) increases, Cash (Asset) decreases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-15	Rent Expense	$1,000
	Cash		$1,000
	Payment of rent

6. Receive payment from a customer:

• Transaction: Business receives $500 from a customer who owed them money.
• Analysis: Cash (Asset) increases, Accounts Receivable (Asset) decreases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-18	Cash	$500
	Accounts Receivable		$500
	Cash received from customer

7. Owner withdraws cash:

• Transaction: Owner withdraws $1,500 cash for personal use.
• Analysis: Owner's Drawings (Equity) increases, Cash (Asset) decreases.
• Journal Entry:

Date	Account Title and Explanation	Debit	Credit
2024-01-22	Owner's Drawings	$1,500
	Cash		$1,500
	Owner's cash withdrawal

Why is the General Journal important?

• Chronological Record: It provides a complete and chronological history of all financial transactions.
• Double-Entry Bookkeeping: It enforces the double-entry system, ensuring balance and accuracy.
• Foundation for other ledgers: The information in the General Journal is used to create other ledgers and financial statements.