Today, you’ll learn general journal entries in accounting.
Journal entries in the general journal encompass transactions that are not recorded in specialized journals such as the Cash Receipt Journal, Cash Disbursement Journal, Sales Journal, or Purchase Journal.
Here are usually the common general journal entries in accounting:
Depreciation is the systematic allocation of the cost of a long-term asset over its useful life.
It reflects the reduction in the value of an asset due to wear and tear, obsolescence, or other factors.
- Debit: Depreciation Expense (an income statement account)
- Credit: Accumulated Depreciation (a contra-asset account on the balance sheet)
Let’s say the monthly depreciation is $2,000. The entry would be:
- Debit: Depreciation Expense $2,000
- Credit: Accumulated Depreciation $2,000
This entry spreads the cost of the machinery over its useful life, reflecting the reduction in its value as it is used to generate revenue.
Accumulated Depreciation is a cumulative account that keeps track of the total depreciation expense recognized over the machine’s life.
Adjusting Entries for Errors in Recording
These entries are made to correct errors in the accounting records.
Errors can include mistakes in recording transactions, incorrect account balances, or other inaccuracies.
Let’s consider an example where a company discovers an error in recording an expense.
Suppose there was an overstatement of $1,000 in the Utilities Expense account.
The entry to adjust for this error would be:
Adjusting Entry for Overstated Utilities Expense with Cash Payment:
- Debit: Cash (or Accounts Payable, depending on the situation)
- Credit: Utilities Expense (to decrease the expense)
Assuming the company initially recorded a $5,000 payment for utilities but should have been $4,000:
- Debit: Cash $1,000 (if it was a cash payment) or Debit: Accounts Payable $1,000 (if it was initially recorded as accounts payable)
- Credit: Utilities Expense $1,000
This entry corrects the error by reducing the Utilities Expense account and adjusting the Cash or Accounts Payable accordingly.
Adjusting Entries for Unrecorded Transactions:
These entries are made to account for transactions that occurred but were not initially recorded.
For example, if a service was provided but payment hasn’t been received or recorded, an adjusting entry may be needed.
Let’s consider an example where a company discovers an error in recording revenue, in the next ensuing month.
Suppose $5,000 of revenue was mistakenly not recorded when it should have been.
The entry to correct this error would be:
Correcting Entry for Unrecorded Revenue:
- Debit: Accounts Receivable (or Cash, depending on the nature of the transaction)
- Credit: Revenue
Let’s break down the numbers:
- Debit: Accounts Receivable $5,000 (or Cash $5,000)
- Credit: Revenue $5,000
This entry rectifies the omission of the $5,000 revenue in the initial recording, ensuring that the financial statements accurately reflect the company’s earnings.
The correction is made by debiting the appropriate asset account (Accounts Receivable or Cash) and crediting the Revenue account.
Adjusting Entries for Setting Up Receivables (Previously unrecorded in Sales Journal)
This suggests adjustments related to recognizing and accounting for accounts receivable.
Accounts receivable represent amounts owed to a company by customers for goods or services provided on credit.
Let’s say a company provides services to a customer on credit, in prior months, and as a result, needs to set up accounts receivable.
The entry to record the creation of accounts receivable would be:
Setting Up Receivables Entry:
- Debit: Accounts Receivable
- Credit: Service Revenue (or Sales, depending on the nature of the transaction)
For example, if the company provided services worth $1,000 on credit, the entry would be:
- Debit: Accounts Receivable $1,000
- Credit: Service Revenue $1,000
This entry reflects the increase in the amount owed to the company by the customer (Accounts Receivable) and recognizes the revenue earned from providing services (Service Revenue).
It is a common practice to establish receivables when goods or services are provided on credit, and the company expects to collect payment at a later date.
Adjusting Entries for Setting Up Payables
This indicates adjustments related to recognizing and accounting for accounts payable.
Accounts payable represent amounts a company owes to its suppliers or creditors for goods and services received on credit.
Let’s say a company realizes that it failed to record an expense of $1,000 for services received in the previous month, and it needs to set up payables for this unrecorded transaction.
The adjusting entry would be:
Adjusting Entry for Setting Up Payables for Previous Month’s Transactions:
- Debit: Expense Account (reflecting the nature of the service received)
- Credit: Accounts Payable
For example, if the company received services worth $1,000 in the previous month but did not initially record the expense, the adjusting entry would be:
- Debit: Expense Account (e.g., Consulting Expense) $1,000
- Credit: Accounts Payable $1,000
This entry reflects the recognition of the expense in the correct period and establishes the liability in the form of accounts payable for the amount owed to the service provider.
Adjusting entries are made to ensure that the financial statements accurately represent the company’s financial position and performance at the end of an accounting period.