Journal Entries Cheatsheet

Cheatsheet Content

1. The Accounting Equation Assets = Liabilities + Equity This equation must always balance. Every transaction affects at least two accounts. 2. Debits and Credits Debit (Dr): Left side of a T-account. Credit (Cr): Right side of a T-account. Total Debits must always equal Total Credits for every journal entry. 2.1. Normal Balances Account Type Increase By Decrease By Normal Balance Assets Debit Credit Debit Expenses Debit Credit Debit Dividends/Drawings Debit Credit Debit Liabilities Credit Debit Credit Equity (Owner's Capital) Credit Debit Credit Revenue Credit Debit Credit 3. Steps for Recording Journal Entries Identify Accounts: Determine which accounts are affected by the transaction. Classify Accounts: Identify the type of each account (Asset, Liability, Equity, Revenue, Expense). Determine Effect: Decide if each account is increasing or decreasing. Apply Debit/Credit Rules: Use the normal balance rules to determine if a debit or credit is needed. Record Entry: Write the journal entry with debits first, then credits (indented). Add Explanation: Briefly describe the transaction. 4. Common Journal Entry Examples 4.1. Cash Sales/Services Cash Dr. XXX Sales Revenue Cr. XXX (To record cash sales) 4.2. Credit Sales/Services Accounts Receivable Dr. XXX Sales Revenue Cr. XXX (To record sales on account) 4.3. Purchase of Supplies (Cash) Supplies Dr. XXX Cash Cr. XXX (To record cash purchase of supplies) 4.4. Purchase of Supplies (On Account) Supplies Dr. XXX Accounts Payable Cr. XXX (To record purchase of supplies on account) 4.5. Payment of Expense (Cash) Rent Expense Dr. XXX Cash Cr. XXX (To record cash payment for rent) 4.6. Receipt of Cash from Accounts Receivable Cash Dr. XXX Accounts Receivable Cr. XXX (To record cash received from customer) 4.7. Payment of Accounts Payable Accounts Payable Dr. XXX Cash Cr. XXX (To record cash payment to supplier) 4.8. Owner Investment (Cash) Cash Dr. XXX Owner's Capital Cr. XXX (To record owner's initial investment) 4.9. Owner Withdrawal/Dividends (Cash) Owner's Drawings Dr. XXX Cash Cr. XXX (To record owner's cash withdrawal) 4.10. Purchase of Equipment (Cash) Equipment Dr. XXX Cash Cr. XXX (To record cash purchase of equipment) 5. Adjusting Entries (Accrual Basis) Made at the end of an accounting period to ensure revenues and expenses are recognized in the correct period. Never involve cash accounts directly. 5.1. Prepaid Expenses (e.g., Insurance) Insurance Expense Dr. XXX Prepaid Insurance Cr. XXX (To record expired insurance) 5.2. Unearned Revenue (e.g., Services Paid in Advance) Unearned Revenue Dr. XXX Service Revenue Cr. XXX (To record revenue earned from unearned amount) 5.3. Accrued Expenses (e.g., Salaries Payable) Salaries Expense Dr. XXX Salaries Payable Cr. XXX (To record accrued salaries) 5.4. Accrued Revenue (e.g., Interest Receivable) Accounts Receivable Dr. XXX Service Revenue Cr. XXX (To record accrued revenue not yet billed) 5.5. Depreciation Expense Depreciation Expense Dr. XXX Accumulated Depreciation Cr. XXX (To record depreciation for the period) 6. Closing Entries Transfer temporary account balances (Revenues, Expenses, Dividends/Drawings) to a permanent equity account (Retained Earnings/Owner's Capital). Reduce temporary accounts to zero for the next accounting period. 6.1. Close Revenue Accounts Revenue Account(s) Dr. XXX Income Summary Cr. XXX (To close revenue accounts) 6.2. Close Expense Accounts Income Summary Dr. XXX Expense Account(s) Cr. XXX (To close expense accounts) 6.3. Close Income Summary (Net Income) Income Summary Dr. XXX Owner's Capital Cr. XXX (To close net income to capital) 6.4. Close Income Summary (Net Loss) Owner's Capital Dr. XXX Income Summary Cr. XXX (To close net loss to capital) 6.5. Close Dividends/Drawings Owner's Capital Dr. XXX Owner's Drawings Cr. XXX (To close drawings account)