How JOURNAL ENTRIES Work (in Accounting)

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 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'd be getting those positive comments from you guys so far so thank you I really appreciate it I'm glad these videos can help you out if you missed out on any there's a link to them in the description below I'm gonna 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 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 organized 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 the T accounts are impractical so we can 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 that I promised at the start in last week's video I start in my own no 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 20 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 and 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 or we just learn their 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 using 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 and what accounting software are you using as I mentioned at 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 will you two come and join us now it's all for today good luck with those journals and see you next week [Music]

Channel: Accounting Stuff

Views: 588,246

Keywords: accounting, accounting basics, journal entries, journal entry, journal entries accounting, journal entry accounting, accounting tutorial, accounting journal entries, accounting for beginners, accounting journal, journal entry in accounting, accounting journal entry, accounting journals, journal entries tutorial, journals accounting, journal accounting, journal entry explained, journal entries explained, journal entry examples, accounting stuff, journal in accounting, debit

Id: Y-_Q3rANyxU

Length: 6min 48sec (408 seconds)

Published: Thu Sep 20 2018