What are Journal Entries?
A journal entry is the first step in the accounting cycle where all business transactions are recorded. It reflects the dual effect of each transaction (debit and credit) and is written in the journal book (book of original entry).
Components of a Journal Entry
Date – When the transaction occurred.
Accounts – Names of the accounts being debited and credited.
Debit (Dr) – The account that receives the benefit or value.
Credit (Cr) – The account that gives the benefit or value.
Amount – The value of the transaction for both debit and credit.
Narration – A short description or explanation of the transaction.
Format of a Journal Entry
Date
Dr. Account Name ……………… Amount
Cr. Account Name …………….. Amount
(Narration or explanation)
Examples of Journal Entries
1. Capital Introduced
2. Purchase of Goods on Credit
Dr. Purchases A/c ………………. ₹20,000
Cr. Creditor’s A/c ……………….. ₹20,000
(Being goods purchased on credit from XYZ Ltd.)
3. Rent Paid
Dr. Rent A/c ………………………… ₹5,000
Cr. Cash A/c ………………………. ₹5,000
(Being rent paid in cash)
4. Sale of Goods for Cash
5. Salary Paid to Employees
Why Journal Entries Matter
Ensure accurate and complete recording of financial data.
Help track financial activities and maintain accountability.
Form the basis for preparing ledgers, trial balances, and financial statements.