We often record our day to day expenses in our diary. So, to record all the legal and financial transactions made during the month or year, we record journal entries. Journal entries are one of the easiest ways to record all the day to day financial transactions in your book records.
Journal entries are the first step in accounts to get all the details about our business transactions. For Example. When the company purchases any new vehicle, the company account is get debited, and the creditor account is credited example the car company. The same has to be recorded in the form of journal entries.
How to Make a Journal Entries Format?
There are three steps in which we explained the things we need to prepare journal entries.
- Identify Transactions
- Analyze Transactions
- Journalizing Transactions
#1 Identify Transactions:
The first step of yours will be the identification of any business transaction. It is evident if you don’t about the transaction like when it happened or done, how can you record it as an entry? You can take the help of the example we listed above and that is if the company purchases a new vehicle, then the same should add in the list of account assets of the company.
#2 Analyze Transactions:
It depends upon the event. Example, if you purchase a new vehicle, it should add in the list of your assets, but the cash is gone. The same we have to add in assets. Because usually what we have done is converted our money to vehicle. So, the total assets of ours are decreased and increased as well, somehow. Therefore, we must analyze the transaction of how it should take place in accounts.
#3 Journalizing Transactions:
After all the things and transaction identified and analyzed the last step of our is to record it as a journal entry. Journal entries use debits and credits to record and financial business transaction that takes place.
There are many types of the business transaction, so to be instance accountant usually categorized them. Example Cash transactions should take place in cash journal entries.
Problem & Solution:
We are showing equations of the even where Mr. John opened a guitar shop and how the events of the transaction take place.
Entry #1: Mr. John forms the corporation by purchasing 10,000 shares of $1 par stock.
So the entry will be like:
Cash account Dr: 10000
To common stock account cr: 10000
Entry #2 PGS takes out a bank loan to renovate the new store location for $100,000 and agrees to pay $1,000 a month. He spends all of the money on improving and updating the store’s fixtures and looks.
So the entry will be like:
Leasehold improvements account Dr: 100000
To Long Term Liabilities account Cr: 100000
That is how financial transactions take place in the journal entries. Maintaining journal entries is essential for every company, and they can not do by themselves, so, usually, they hire an accountant for the same. Journal Entries shows us a clear picture of our business transactions.