Journal Entries Made Easy

Step 1: Determine the accounts that are affected by the transactions

Step 2: Determine how the accounts are affected by the transaction (increase or

decrease)

Step 3: Determine the type of account (asset, liability, revenue, etc.) in Step 1 and

translate Step 2 into Debit and Credit entries

Helpful tips:

1. Paid something and it does not say on account assume it was paid in cash
2. Receive something and it does not say on account assume cash was received
3. If you pay on account it is Accounts Payable (you will pay them cash later)
4. If someone pays you on account it is Accounts Receivable (you will receive cash

from them later)

Example 1: Paid ABC Company for monthly rent of $600.

Step 1: The accounts that are affected are Cash and Rent Expense

Step 2: Cash decreases (since it was paid out) and Rent Expense increases (since

you are paying for rent month after month)

Step 3: Classification: Cash is an asset and Rent Expense is an expense

Translation:

Assets decrease with credits and Expenses increase with debits (see chart if needed)Rent Expense

Cash

600

600

Example 2: Received cash from Mary Palmer on account for $400

Step 1: The accounts that are affected are Cash and Accounts Receivable

Step 2: Cash increases (since it was received) and Accounts Receivable decreases (since the customer is paying you back she no longer owes you money)

Step 3: Classification: Cash is an asset and Accounts Receivable is an asset

Translation:

Assets increase with debits and Assets decrease with credits (see chart if needed)

Journal entry:

Cash

400

Accounts Receivable-Mary Palmer

400

Reference table:

Classification

Asset

Liability

Owner's Equity-Capital

Owner's Equity-Draw

Revenue

Expense

Normal

Balance

Debit

Credit

Credit

Debit

Credit

Debit

Increase

Debit

Credit

Credit

Debit

Credit

Debit

Decrease

Credit

Debit

Debit

Credit

DebitCreditFormulas:

Assets-Liabilities + Owner's Equity

Debits=Credits

The two equations stay in balance because Assets have debit balances and

Liabilities and Owner's Equity have credit balances