Basic Components Of Journal Entry

By Author: Ann Davis
Total Articles: 6
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Accounting is a wonderful career to choose. It is ultimately required in your daily life. It will be existing until we exchange things with cash. It is a clear method that helps us to maintain a frequent cash flow and identifies the ineffective usage of money. The aim of this article is to help the accounting students with the basic components of journal entry and making them to understand the basic tips.

Journal Entry:

Basically, journal entry depends on five components. They play a significant role in the entire accounting activities. They are date, account, dollar amount, description of the transaction and debit versus credit. Let us go through the meaning of the above five terms in detail.

Date: It is the day on the transaction takes place. This is the date when we have received or gave money in any format such as cash, cheque or draft etc. Sometimes, the date will be backdated to the last day of the previous month in order to adjust the journal entries. Many accounting software allows the option of adjusting the date and allows us to set up recurring journal entry. Hence, the adjusted journal entries ...
... will be programmed to post on the last day of each month.

Account: Account is the specific format of asset, liability, expense, revenue or equity account. Journal entries should be done under the appropriate accounts according to the type of transaction has taken place. For instance, if you received money through the sales you made, it should be entered under the revenue account.

Debit versus credit: The immutable laws of accounting states that assets and expenses are always debited to add to them and credited to subtract to them where as liability, revenue and equity accounts are opposite to them always. This is an unchanging rule in accountancy. All the records should be maintained respect to this rule and there is no exception.

Dollar amount: It is nothing but accounting the amount of money that is changing hands or under the accrual method being accounted for.

Description: While entering the transaction, you are suppose to write a relevant description stating the purpose of the transaction. This is mandatory for you to understand why you are spending money. It will be required while preparing the financial documents and filing income tax.

A perfect journal entry shows the debit first. For instance, on May 23rd a retail company purchases the inventory from xyz inc., The total amount of purchase was $700 and they paid $300 in cash and the rest of $400 was charged on account. Now let us see how the journal entry will look like:

Date: May 23rd
Debit: Merchandise Inventory $700.00
Credit: Cash $300.00
Credit: Accounts Payable $400
Description: To record merchandise inventory purchase from xyz Inc.

Ultimately debits should satisfy the credits. It should be equal to the credit. These are all tips that you need to follow while doing journal entries.

Ann Davis is working as an online bookkeeper. Integra online bookkeeping provides online bookkeeping services for the companies all over the world. Please visit integraonlinebookkeeping.com for more details.