Journal Entries: Shorthand for Posting Transactions

Now, writing out T-accounts and posting takes a lot of paper and a lot of work! Accounting software allows us to record our debits and credits in shorthand, and it posts the T-accounts for us. We never even see the T-accounts! We call this shorthand a journal entry. Journal entries are how we send information to accounting software on (1) what accounts we want to change and (2) the financial impact ($$) of the change. So, you see, journal entries are change makers—they modify balances on the financial statements!

Journal entry structure is important so that your boss or client can read the journal entry and quickly make sense of it. Also, you’ll need to use proper structure in your assignments and exams to get full marks for your work. So, pay attention.

1. Record the transaction date.
2. On the next line, write DR followed by the name of the debited account.
3. Record the credit on the next line, as a CR. Credits are always indented. In other words, the entire line is shifted over to the right.
4. Write a description of the transaction underneath. The description is the only part that you can get creative with (so long as it accurately represents the transaction). Every other aspect has a precise right-or-wrong answer, similar to a math class.

As an example, here are Simply Bricks’ April journal entries:

It is your turn to give journal entries a go. Let’s get back to Merry Mattresses:

Try another one to really master journal entries.

Almost there! Try recording these transactions without using T-accounts.

Before we start the next chapter, I have something important to share with you. Remember how used the Retained Earnings account for all incomeIncome:
Profit-increasing peripheral items such as interest income. Also used to describe calculated net amounts on the Income Statement, where the amount is positive, such as operating income and net income.– and expense- related transactions such as sales and cost of inventory sold, or buying office supplies? This was a simplification because we only know the Statement of Financial Position at this point! Going forward, there’s an entire set of income statement accounts that we will use in place of Retained Earnings when recording these transactions. So, let’s start the next chapter where the Income StatementIncome Statement:
One of the four financial statements prepared by companies in their reporting cycle. It tells users how much value has been created by the company through profits during the period. Also called Statement of Income, Profit and Loss Statement, P&L, Statement of Earnings, and Statement of Financial Performance. See also: Single-step and Multiple-step Income Statement. fun begins…