Bookkeeping Example - journals, ledgers and report
We, the bookkeeper, look at the cash deposit slip and the purchase receipt in the folder.
We enter the transactions into the books in the following order:
Journals and ledgers are books used in the double-entry method of bookkeeping.
The Cashbook topic is covered further down this page.
1. General Journal Bookkeeping Example
Journals are always done first before ledgers.
Journals show which ledger accounts will be changed by the transaction.
The source of information for the journal is the document; in this example it is the deposit slip and invoice for the income, and the General Store receipt for the expense.
Transactions are entered in date order going down the page of a journal book.
There is always a one-line gap between transactions.
When the page is full, turn the page over and carry on.
Every transaction has:
- a debit entry
- a credit entry, and
- a description line
…all placed one line under the other with no line spaces.
Some transactions might have more than one debit entry if one payment made covers different types of expenses.
Some transactions might have more than one credit entry if one payment received covers different types of income.
This bookkeeping example is just for one type of income and one type of expense.
The one income journal is split into two ledgers.
The one expense journal is split into two ledgers.
Income Transaction in the Journal
- The first line is the for the debit entry – the account that the money came out of to pay for the expense. In this bookkeeping income example, it is $100 to the Bank.
- The second line is for the credit entry – the account that the expense is allocated to. In this bookkeeping example, it is $100 to the Sales account. This entry in the Details column is indented which gives us the idea that it goes on the right-hand side of a ledger (when we get there).
- The third line is for the description of the income transaction. In this bookkeeping example it is a brief description of who paid, and the invoice number paid and payment method.
Expense Transaction in the journal
- The first line is the for the debit entry – the account that the expense is allocated to. In this bookkeeping expense example, it is $25.00 allocated to the Purchases account.
- The second line is for the credit entry – the account that the money came out of to pay for the expense. In this bookkeeping example it is $25.00 from the Bank account. Once again, this credit entry in the Details column is indented so that it is easy to see compared to the debit entry and so we know it goes on the right-hand column of the ledger.
- The third line is for the description of the expense transaction. In this bookkeeping example it is a brief description of the item purchased and from where, along with method of payment.
So, you can see from this journal bookkeeping example that the Bank entry is flipped from a debit entry on the income transaction, to a credit entry on the expense transaction.
How do you know when to debit an account or when to credit it?
You can check how from our topic on debits and credits and get a cheat sheet.