Journal entries are a fundamental aspect of accounting because they track money that is coming and going. Even though the format may vary, every journal entry example will have a statement about debits and credits and the kind of transaction that occurred.

What Is a Journal Entry?

A journal entry is when you make a record of a transaction that happens in connection with your personal or business accounts. You can use this to keep track of money spent and money received. Journal entries are also helpful in organizing accounts payable, accounts receivable, and expenses in connection with inventory. Whether you’re learning about accounting for work or about to go on your first accounting interview, you’ll want to get familiar with journal entries and how they work.

person holding pen writing in notebook, next to person with laptop

How Do You Make a Journal Entry?

There are three basic steps when making a journal entry, and writing the actual entry itself comes last.

1. Specify the Transaction Entered

While this may seem like the easiest step, it is also one that is commonly overlooked. You have to structure your business in a way that identifies each applicable transaction. This involves ensuring that everyone involved in making payments or collecting them has a thorough understanding of which kinds of transactions qualify. 

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For example, should you record if an employee spends US$50 in fuel as they travel to meet with a potential new client? For some businesses, no, but for others it is an essential entry in their accounting journal — for accounting, operational analysis, and tax reporting purposes.

With the help of a spreadsheet or accounting software, you can also use journal entries to track trends relating to money spent and money received. This data can help save money and increase profit margins, but only if you carefully specify which transactions to enter.

2. Analyze Each Transaction

Analyzing each transaction is similar to creating a brief narrative about the impact of the transaction on the company.

For example, if a business purchases three new computers for employees, they may analyze the transaction in this way: “Purchased three PCs using cash and then added to our inventory.”

In this way, you have a concrete description of which assets you reduced and which assets you acquired, as well as the accounts impacted by the transaction. In this case, the asset reduced was cash, the assets acquired were computers, and the accounts impacted were cash and inventory.

3. Journaling the Transaction

When it comes time to journal business transactions, you are, essentially, putting your analysis of each transaction into writing. In addition to including the information ascertained by your analysis, you also put in a brief description of the nature of the transaction. With all of this information combined in one entry, you get a convenient snapshot of the transaction and how it impacted your company’s finances. While most companies prefer to have very brief descriptions of each transaction, there is no hard and fast rule. You can include as much detail as you’d like.

To use the computer example above, the entry may look like this, assuming each of the three computers cost US$1,000:

DateName of AccountDebitCredit
July 30  Cash 

-Inventory
 US$3,000.00   

US$3,000.00
1. To record the purchase of three computers added to inventory.


You could also choose to record a purchase like this using three different journal entries. The following general address have a bit more detail, particularly an inventory number assigned to each computer based on the year acquired and a number.

DateName of AccountDebitCredit
July 30  Cash 

-Inventory
 US$1,000.00   

US$1,000.00
1. To record the purchase of Computer 2022-1 added to inventory.
DateName of AccountDebitCredit
July 30  Cash 

-Inventory
 US$1,000.00   

US$1,000.00
1. To record the purchase of Computer 2022-2 added to inventory.
DateName of AccountDebitCredit
July 30  Cash 

-Inventory
 US$1,000.00   

US$1,000.00
1. To record the purchase of Computer 2022-3 added to inventory.


Also, accounting entries are often organized according to an accounting cycle or accounting period. This makes it easier to identify financial transactions according to the month, year, or fiscal period in which they occurred. When properly organized, journal entries are the foundation of financial statements. 

Journal Entry Examples

Purchasing equipment is only one type of transaction that typically receives a journal entry, so to get a broader view of the different types of journal entries that could appear on your balance sheet, we are going to use a hypothetical business.

A gentleman named Jared is opening a hardware store called Jared’s Construction Corner (JCC). Here is some of what happens during the first year, as recorded in journal entries.

Entry 1: Jared opens the business by forming a corporation. He pays US$15,000.00 for 15,000 shares at US$1 per share of common stock.

DateName of AccountDebitCredit
January 3  Cash 

-Common Stock
 US$15,000.00   
US$15,000.00
2. To record the issuance of common stock.

Entry 2: Word about the business, which will be opening soon, spreads throughout the community, and Jared’s Construction Corner grabs the attention of some commercial construction crews. The company takes out a bank loan to fund the expansion of their storage space in order to accommodate larger orders from these accounts. The expansion will cost US$75,000, and Jared agrees to pay US$1,500 every month on the loan.

While the loan payments themselves will not get an entry in this journal, the acquisition of the funds, their purpose, and the date it happened all go in the journal.

DateName of AccountDebitCredit
January 25 Warehouse Improvements 

-Long-term liabilities
 US$75,000    

US$75,000
3. To record a loan originated for expanding the warehouse.


Entry 3: Jared’s Construction Corner opens for its first day of official business. Their first sale is a hammer. The hammer cost JCC US$5 and sold for US$10.

This journal entry example is going to include the amount of money the company earned off the sale (US$10), the cost of goods sold (US$5), an entry for the revenue earned, and one for the impact the sale had on inventory.

DateName of AccountDebitCredit
February 5 
Cash
Cost of Goods Sold 


-Revenues 
-Inventory
US$10
US$5
   




US$10.00
US$5.00
1. To record the sale of inventory.


Entry 4: JCC then sells three pallets of concrete mix to a contractor. Even though there were three different items sold, they will all get recorded in the same journal entry — specifically because they occurred as part of the same transaction. The cost of the three pallets was US$500, and they cost JCC US$300 to acquire.

DateName of AccountDebitCredit
February 6 Cash

Cost of Goods Sold
 
-Revenues 
-Inventory
US$500.00
US$300.00
   



US$500.00
US$300.00
1. To record the sale of inventory.


Entry 5: Business is going very well, and during the holiday season, there’s a spike in sales. Immediately after Thanksgiving, JCC sells out of a few key items. They need to purchase replacement inventory quickly, and the company decides to use a combination of cash and credit. Specifically, they need to purchase ten new air compressors. Each one costs them US$300 for a total of US$3,000. For the purpose of this journal entry example, all compressors are entered into one entry.

DateName of AccountDebitCredit
November 2 
Cash

Accounts payable 

-Inventory
US$1,000.00
US$2,000.00
   




US$3,000.00
1. To record the purchase of ten new air compressors, with a combination of cash and credit, that were added to inventory.


Entry 6: JCC needs to purchase some basic supplies for use around the store, such as pens, printer paper, and staples. Their accountant has set up a separate account for these kinds of purchases called Supplies Expenses. This is what the journal entry could look like:

DateName of AccountDebitCredit
November 5  Supplies Expenses 

-Cash
 US$100.00   

US$100.00
1. To record the purchase of store supplies.


Entry 7: As the holiday season continues to ramp up, Jared realizes he needs to hire another worker. He hires a new customer service representative at a rate of US$700 per week. Because this is most likely only a seasonal hire, Jared doesn’t want to include it in his regular payroll accounting. Therefore, he decides to create a new accounting category called Seasonal Hires. Below is the journal entry for the first payment Jared makes for his new, seasonal service representative.

DateName of AccountDebitCredit
November 18  Seasonal Hires 

-Cash
 US$700.00   

US$700.00
1. To record the pay of seasonal employee.


Entry 8: JCC has to make a payment on the loan he took out for the warehouse improvements. Even though the total amount owed is US$75,000, that information is not included in this journal entry because this entry focuses on the cash used to make this single payment. Because this is a loan, the business has to pay US$35 in interest as well. Therefore, they make a compound entry in the journal to make it clear that both interest and principal are being paid.

DateName of AccountDebitCredit
November 21 Long-term liabilities

Interest expense 

-Cash
US$1,500.00
US$35.00
   



US$1,535.00
1. To record the payment of a bank loan and interest.


Entry 9: Even though Jared is doing very well with general contractors, he wants to encourage more business from homeowners. So he decides to offer classes that teach homeowners how to do simple repairs and maintenance around the house, such as basic plumbing, caulking, and yard work. People come in on Saturdays and pay US$15 each to take the classes. Below is the journal entry for his first class taught. It includes the payments of ten different homeowners, equaling US$150.

DateName of AccountDebitCredit
December 4 Cash

-Homeowner class income
 US$150.00   


US$150
1. To record income received form teaching homeowner classes.

Entry 10: JCC has more sales totaling US$5,500, and the cost of goods sold was US$5,100. This shows the power of an accounting journal when it comes to business analysis. This data can be very useful, especially because it may reveal that the cost of goods sold in this situation was a little bit too high.

Jared could use this data in the future while analyzing his profit margins, as well as other factors impacted by the cost of goods sold. Also, because every journal entry includes a date, Jared can compare the cost of goods sold in two different time periods using this information and determine if they’ve gotten any better when it comes to running a lean, efficient business.

DateName of AccountDebitCredit
December 8 Cash

Cost of Goods Sold


 -Revenues 

-Inventory
US$5,500.00
US$5,100.00 





US$5,500.00

US$5,500.00
1. To record income received form teaching homeowner classes.

Entry 11: Jared decides to take a dividend in the amount of US$2,000 at the end of the year. He does this instead of paying himself, which reduces his overall tax liability. Being married, he files jointly with his wife, whose income pays the majority of their personal expenses, making it unnecessary for Jared to collect a regular paycheck from the business this year.

In this situation, the journal entry can help Jared and his wife analyze their financial situation in the future, as well as provide documentation to the IRS if necessary.  

DateName of AccountDebitCredit
December 16  Dividends 

-Cash
 US$2,000.00   

US$5,500.00
1. To record a dividend payment made in December


Entry 12: Another kind of journal entry is an accrued expense. These commonly occur when a payment must occur outside the regular payment period, such as at the close of a year or fiscal period. In Jared’s situation, he pays around US$1,000 every month in utilities. The payment is due on the 15th of each month, but the year ends on December 31, and Jared has to close out his books. In this case, an accrued expense journal entry is the easiest way to document this payment. Because the month is only half over, Jared will only be paying US$500 of the usual US$1,000.

DateName of AccountDebitCredit
December 31 Utilities Expense 

-Accrued Liabilities: Utilities
 US$500.00   

US$500.00
1. To record the accrual of a utility expense

Entry 13: Journal entries can also document depreciation. Depreciation refers to the loss in value of an asset as time goes by. In Jared’s situation, JCC has a forklift that cost the business US$15,000 when purchased at the beginning of year. Jared estimates that the forklift will last about 15 years, and at the end of 15 years it will be worth nothing. This means the forklift depreciates in value US$1,000 every year. To reflect this in his accounting journal, Jared may make an entry like this:

DateName of AccountDebitCredit
December 31 Depreciation Expense 

-Accumulated Depreciation
 US$1,000.00    

US$1,000.00
1. To record the depreciation expense of a forklift purchased in January


Entry 14: Jared finds a new supplier for air compressors. He decides to purchase 20 of them to take advantage of what seems like a very good deal. Each compressor costs US$250 for the business, and he can sell them for the same amount he was charging for the compressors from the previous supplier. He will be paying US$5,000 total. He decides to pay for them using the same combination of cash and credit that he used with the other compressors he bought: US$1,000 with cash and the rest, US$4,000, with credit.

In the future, Jared can look back at this journal entry, compare it with the one outlining the previous compressor purchase, and take note of how this decision improved his bottom line.

DateName of AccountDebitCredit
January 6 Cash

Accounts payable 

-Inventory
US$1,000.00
US$4,000.00
   




US$5,000.00
1. To record the purchase of 20 new air compressors, with a combination of cash and credit, that were added to inventory


After making your journal entries, you can then move on to recording the transactions in ledger accounts, which is the following step in the accounting cycle. To learn more about how to use accounting to succeed in business, check out Accounting 101: What You Need to Know for a Successful Business. To launch your accounting career or take it to the next level, you can use Udemy’s comprehensive catalog of courses.

Page Last Updated: November 2021

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