Journal Entries

Journal Entries

Analyzing transactions and recording them as journal entries is the first step in the accounting cycle. It begins at the start of an accounting period and continues during the whole period. Transaction analysis is a process which determines whether a particular business event has an economic effect on the assets, liabilities or equity of the business. It also involves ascertaining the magnitude of the transaction i.e. its currency value.

After analyzing transactions, accountants classify and record the events having economic effect via journal entries according to debit-credit rules. Frequent journal entries are usually recorded in specialized journals, for example, sales journal and purchases journal. The rest are recorded in a general journal.

The following example illustrates how to record journal entries:

Example

Otto Repair Shop was organized on January 1, 2015 with an initial capital of P100,000. During the first month of its operations, the company engaged in following transactions:

Date	Transaction
Jan 1	R. Papa invested P100,000 in cash to capitalize the business.
Jan 2	An amount of P12,000 was paid as rent for the month of January.
Jan 3	Paid P60,000 cash on the purchase of equipment costing P80,000. The remaining amount was recognized as a one year note payable with interest rate of 9%.
Jan 4	Purchased office supplies costing P17,600 on account.
Jan 13	Provided services to its customers and received P28,500 in cash.
Jan 13	Paid the accounts payable on the office supplies purchased on January 4.
Jan 14	Paid wages to its employees for first two weeks of January, aggregating P19,100.
Jan 18	Provided P54,100 worth of services to its customers. They paid P32,900 and promised to pay the remaining amount.
Jan 23	Received P15,300 from customers for the services provided on January 18.
Jan 25	Received P4,000 as an advance payment from customers.
Jan 26	Purchased office supplies costing P5,200 on account.
Jan 28	Paid wages to its employees for the third and fourth week of January: P19,100.
Jan 31	Withdraw P5,000 cash for personal use.
Jan 31	Received electricity bill of P2,470.
Jan 31	Received telephone bill of P1,494.
Jan 31	Miscellaneous expenses paid during the month totaled P3,470

The following table shows the journal entries for the above events.

Date	Account	Debit	Credit
Jan 1	Cash	100,000
	R.Papa, Capital		100,000
Jan 2	Rent Expense	12,000
	Cash		12,000
Jan 3	Equipment	80,000
	Cash		60,000
	Notes Payable		20,000
Jan 4	Office Supplies	17,600
	Accounts Payable		17,600
Jan 13	Cash	28,500
	Service Revenue		28,500
Jan 13	Accounts Payable	17,600
	Cash		17,600
Jan 14	Wages Expense	19,100
	Cash		19,100
Jan 18	Cash	32,900
	Accounts Receivable	21,200
	Service Revenue		54,100
Jan 23	Cash	15,300
	Accounts Receivable		15,300
Jan 25	Cash	4,000
	Unearned Revenue		4,000
Jan 26	Office Supplies	5,200
	Accounts Payable		5,200
Jan 28	Wages Expense	19,100
	Cash		19,100
Jan 31	R. Papa, Drawing	5,000
	Cash		5,000
Jan 31	Electricity Expense	2,470
	Utilities Payable		2,470
Jan 31	Telephone Expense	1,494
	Utilities Payable		1,494
Jan 31	Miscellaneous Expense	3,470
	Cash		3,470