Understanding Simple Journal Entries
Simple journal entries involve recording financial transactions in the accounting records by debiting and crediting only two accounts. Each transaction affects two accounts in a double-entry bookkeeping system, ensuring that the accounting equation (Assets = Liabilities + Equity) remains balanced.
Key Concepts
- Debit (Dr): An entry on the left side of an account that increases assets or expenses and decreases liabilities, equity, or revenue.
- Credit (Cr): An entry on the right side of an account that increases liabilities, equity, or revenue and decreases assets or expenses.
Examples of Simple Journal Entries
1. Cash Purchase of Supplies
Example: A business purchases office supplies for ₹5,000 in cash on 01-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-07-2023 | Office Supplies | 5,000 | Purchase of office supplies | |
| 01-07-2023 | To Cash | 5,000 | Payment made in cash |
2. Payment of Rent
Example: A business pays rent of ₹20,000 in cash on 05-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 05-07-2023 | Rent Expense | 20,000 | Payment of rent | |
| 05-07-2023 | To Cash | 20,000 | Payment made in cash |
3. Sales Made on Credit
Example: A business sells goods worth ₹50,000 on credit to a customer on 10-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 10-07-2023 | Accounts Receivable | 50,000 | Goods sold on credit | |
| 10-07-2023 | To Sales Revenue | 50,000 | Revenue from credit sales |
4. Receipt of Cash from Customers
Example: A customer pays ₹30,000 in cash for a previous credit sale on 15-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-07-2023 | Cash | 30,000 | Cash received from customer | |
| 15-07-2023 | To Accounts Receivable | 30,000 | Payment for previous credit sale |
5. Payment of Utilities
Example: A business pays ₹10,000 for electricity on 20-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-07-2023 | Utilities Expense | 10,000 | Payment for electricity | |
| 20-07-2023 | To Cash | 10,000 | Payment made in cash |
6. Owner’s Investment in Business
Example: The owner invests ₹100,000 in cash into the business on 25-07-2023.
Journal Entry:
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-07-2023 | Cash | 100,000 | Owner’s investment in the business | |
| 25-07-2023 | To Owner’s Equity | 100,000 | Capital contribution by owner |
Conclusion
Simple journal entries form the foundation of accurate bookkeeping and financial reporting. By recording transactions using debits and credits, businesses can maintain balanced and reliable financial records. These examples demonstrate how to handle common transactions in a straightforward manner.