Journal entries are the first step in the accounting cycle and are used to record financial transactions in a company’s general ledger. A general ledger is a record of all the financial transactions that a company makes, and it is organized by account.
Journal entries are made up of two parts: a debit and a credit. A debit is an entry made on the left side of an account, and it increases the asset or expense account. A credit is an entry made on the right side of an account, and it increases the liability, equity, or revenue account.
For example, if a company buys supplies for $100, the journal entry would include a debit to the supplies account for $100 and a credit to the cash account for $100. This journal entry would be recorded in the company’s general ledger and would be used to update the balances of the supplies and cash accounts.
Journal entries are used to record a wide variety of financial transactions, including sales, purchases, payroll, and payments. They provide a record of a company’s financial activities and are used to create financial statements, such as the balance sheet and income statement.
Here is an example of a journal entry:
Date: January 1, 2022
Description: Purchased supplies for $100
Debit Credit
Supplies $100
Cash $100
In this example, the company has recorded a purchase of supplies for $100, which is recorded as a debit in the supplies account and a credit in the cash account. This journal entry would be used to update the balances of the supplies and cash accounts in the company’s general ledger.