JOURNAL ENTRIES Explained | Accounting Basics

JOURNAL ENTRIES Explained | Accounting Basics

Today’s video is all about Journal Entries.
You know sometimes those T Accounts just don’t cut it. I’m gonna explain why, show you an
alternative and take you through an example that will make this all seem like a walk in
the park. [Music] Hey guys, I’m James and welcome back to another episode of Accounting Stuff. Today’s video
is the fourth in the series that I’m creating on Accounting Basics. I’ve be getting loads
of positive comments from you guys so far so thank you, I really appreciate it, and
I’m glad these videos could help you out. If you missed out on any there’s a link to
them in the description below. I’m going to start putting these videos up on a weekly
basis, so if you haven’t already, hit that BIG SUBSCRIBE button so you don’t miss out
on the next one. So… what are Journal Entries? Let’s find out.
In the previous video, I showed you that a T Account is a visual representation of an
account, and how to record transactions using them. However in day-to-day life T Accounts
aren’t that practical to use as they take up lots of space and it’s easy to miss a
side of a transaction. We need another, more efficient method for recording our transactions.
But, why is it important to record our transactions? First, you can use Financial Reports to measure
the performance of your business to see if you’re doing well or badly.
Second, it enables you to manage your cash flow so that you don’t run out of it.
Third, it’s helpful to keep things organised. It’s also useful at tax time to avoid missing
out on any deductions. And finally, if your business were to get
Audited, it’s handy to have that paperwork ready.
In fact, the process of recording all Financial Transactions is so important that we have
a word for it… Bookkeeping. Bookkeeping can be done on any budget, no
matter how big your business is. Here are a few examples of some different Accounting
Software packages that you can use on different budgets. I will throw the links to a few of
these in the description below. Now that we know why Bookkeeping is important
we need a method to record transactions. Earlier I said that T Accounts are impractical so
we’re going to have to try out something else. Journal Entries
So what are Journal Entries? A Journal Entry, or “JE” when abbreviated,
is a record of a financial transaction, and it looks like this.
First, we have the journal number. This is a unique reference number that is used to
identify the journal. Then, there is the journal entry date. This
is the date that the journal is posted in the General Ledger. It’s important, because
it affects the Accounting Period that the transaction is going to show up in.
Next, we have the names of the Accounts that are impacted by the journal.
In this case… Cash and Owner’s Equity Notice that Owner’s Equity is indented? We
indent the name of the Account that is getting credited, so that it is easier to see.
Then we have separate columns for all of the Debit and Credit entries.
And finally, there is the journal description below. It’s good practice to give a solid
explanation here since you may need to refer back to the journal in the future, and a good
description will make it much easier to remind yourself why you entered it in the first place.
Remember, we’re talking Double-Entry Bookkeeping, so there must be at least two sides to the
journal, and the totals of those Debit and Credit columns must match each other exactly,
because the Accounting Equation always balances. If you’re using Accounting Software like QuickBooks
or any of those other ones that I mentioned to you previously, it usually won’t let you
post the journal unless the Debits and Credits match each other exactly, since this is a
key control. However if you’re using Sheets or Excel, then
you’re on your own and you’ll need to watch out for this.
There are two types of journal Automatic journals and Manual journals
Automatic journals only exist when you’re using Accounting Software. These can save
you loads of time by posting automatically behind the scenes as you enter invoices and
receive payments. On the other hand, Manual journals are typically
only used for adjusting entries and unique transactions.
You need to fill out all the fields in a template like the one I showed you earlier by yourself.
Right, I think it’s time for that example I promised at the start. In last week’s video,
I started my own Window Cleaning business. It’s been up and running for a week now and
it’s going well but my equipment is getting all gross and dirty so I need to go get it
cleaned. I take it to the Laundry, and they charge
me twenty dollars. I pay them in cash
In order to do this, we’re going to need one of those journal templates.
First we need a unique journal entry number so that we can identify this transaction.
We discussed our first five transactions in the previous video, so let’s call this one
number six. The journal entry date should be today, the
21st of September, since that is when the equipment was cleaned.
So this transaction is going to show up in the September Accounting Period.
Next, we need the account names that are impacted by this journal.
In this case, we’re talking Laundry Costs and Cash
Laundry Costs are an Expense. That’s the first E in DEALER, so Debits increase
it. They charged me $20, so I need to put this
number in the Debit column. Cash is an Asset, that’s the A in DEALER,
so Credits decrease it. We need to indent the account description
for Cash to help us identify it as a Credit and we’re going to need to put $20 in the
Credit column. Finally, we need to give this journal a description.
Let’s call it “Laundry Costs – Week One”. Great, so now that journal is all prepped
up, it’s ready to be posted in the General Ledger.
Our work here is done. Let’s recap what we just learned there.
Bookkeeping is the recording of all financial transactions in a business.
A Journal is a record of a financial transaction. The totals of the Debit and Credit columns
always match. Automatic journals are used in Accounting
Software to save you time. And finally, Manual journals are used for
adjusting entries and unique transactions. Question of the day… if you’ve got a Start
Up or you’re running a Small Business then what Accounting Software are you using?
As I mentioned in the beginning I appreciate all your comments, so thank you again.
If you found this one useful, hit that Like button and don’t forget to Subscribe, I would
love for you to come and join us. That’s all for today, good luck with those
journals and see you next week! [Music]

81 thoughts on “JOURNAL ENTRIES Explained | Accounting Basics

  1. That makes sense. Just wondering if the cash element then needs another journal entry somewhere else to make everything match up in the big picture?

  2. Hope you found this short intro to Journal Entries useful! If you run a Startup or Small Business, what Accounting Software are you using? I would like to make more videos to help people bookkeep for themselves so any recommendations would be appreciated

  3. Hey , please make more videos on journal entries. How can we easily crack it.I m always scared whenever I need to do so.

  4. I'm studying Amalgamation of ltd companies in my college. So I want to ask you that what's the difference between Equity Shareholders A/c and equity share capital A/c.

    And In which category does the equity shareholders A/c come in???

  5. Your series is incredible. It's well organized, concise and very informative. I really appreciate you making these videos and subscribed after seeing your first one!

  6. Bruh I wish you were posting these last semester in my Accounting 201…. Cant wait till you get into more deeper, complex chapters! It'd help a lot tbh…

  7. @AccountingStuff…Thank you so much for making your accounting tutorials! I finally understand accounting better thanks to you!

  8. Is it possible to do a video on suspense accounts? Thank you so much for these videos!! You explain things in a practical yet simple way. Cheers.

  9. I've watched 2 of your videos and already understand more than reading entire chapters in my accounting book. Thank you for breaking it down so we can all understand! Now I have hope for passing my accounting class!

  10. Firstly, thanks a lot. I'm trying to transition into accounting and book-keeping with an unrelated degree and these videos are very helpful in making me feel less like a gorilla just banging on a table.

    I am wondering here, though, as in the last example, both transactions are on the Asset side of The Equation, isn't there also something happening in the Liabilities or Equities and would that require its whole own journal entry?

  11. Can you please do a video on account for leases! And how the dates play a factor in doing the journal entries! I’m struggling with differentiation between lease started in the 30th paid on the 30th
    Lease started on the 1st July paid on the 1st July
    Lease started on 30th June paid on 1st July
    Lease started 1st July paid 30th July
    Both from the lessee lessor point of view! The table is easy to construct but I’m struggling with journalising the entries ! Someone please help

  12. I have a presentation on journal entries tomorrow and this video made me get pointers on how to explain this topic thanks!!!

  13. Hey Accounting Stuff!

    Forgot What Most Of This Meant Which Is Horrible Since My Exam Is Tomorrow.
    Watching Your Videos And Remembered Alot!


  14. You deserve a lot more views. Only 10k subs and such high quality content. As a newbie in accounting your videos are a great help. Thanks man

  15. Thank you!! I was looking for a channel to make the accounting clear to me in easy and understandable ways. You are perfectly did that👏🏻

  16. Hey! Do you by any chance have a video on explaining 'balance brought forward' and 'balance carried forward'? I can't seem to find one. I just know you will explain it well.

  17. Thee videos are very helpful! Being a senior high student taking up ABM, we need to study the lessons beforehand rather than doing it during class. Our book was great. But words just keeps swirling and I needed a fast learning to keep up. I found your vids weeks ago and it helped me since then. I hope that you'll get even more successful and help more people taking up ACCTG. Thank you and Godbless!

  18. Thank you so much. Your so clear and precise and i am so bad in accounting but i understand you. I wish you make more videos.

  19. your videos are really helpful and easy to understand for the beginners, looking forward for your accounting videos

  20. Hi James, I really find your explanations made life easy. Do you have a video showing inventory more specifically Perpetual Inventory System and the Periodic Inventory System?

  21. Your videos have been identified as the go-to videos for students taking Principles of Accounting at WGU. Thank you for creating these videos.

  22. I am having a retake from accounting at my first year at uni and you are giving me hope to pass it ! Everything is explained so clear and perfect.. I am amazed, I don't know what would I do without you.. Bunch of Credits!!! AND PLEASE KEEP GOING WITH NEW STUFF!!! YOU ARE THE BEST!

  23. Thank you so much. My entire accounting class is struggling and I think you just saved me. Will definitely share with the rest of these poor students!

  24. Your video's are brilliant 👌 Very helpful in making sure I establish a healthy bookkeeping regime for my new business. I found your video explaining T accounts especially useful and easy to understand – Thank you! And I am watching this exactly 1 year later on 20 Sep 2019, found that amusing. Keep it up!

  25. hey quick question , since cash is an asset doest debit increase it and credits decrease . shouldn't it be on the debit side not credit.

  26. I have been using your videos supplementally to my school accounting classes. I have watched them before and after each of my classes… your videos have further helped me understand the basics of accounting. Thank you for sharing your knowledge and helping everyone that watches these videos. You're awesome!

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