![]() Traditional journal entry format dictates that debited accounts are listed before credited accounts. Journal entries use debits and credits to record the changes of the accounting equation in the general journal. Total assets increased and decreased by the same amount, but an economic transaction still took place because the cash was essentially transferred into a vehicle.Īfter the business event is identified and analyzed, it can be recorded. Both of these accounts are asset accounts, so the overall accounting equation didn’t change. When the company purchased the vehicle, it spent cash and received a vehicle. This means a new asset must be added to the accounting equation.Īfter an event is identified to have an economic impact on the accounting equation, the business event must be analyzed to see how the transaction changed the accounting equation. In this case, the company purchased a vehicle. Using our vehicle example above, you must identify what transaction took place. Obviously, if you don’t know a transaction occurred, you can’t record one. ![]() First, the business transaction has to be identified. There are generally three steps to making a journal entry. ![]() Here are the steps to making an accounting journal entry. ![]() For example, when the company spends cash to purchase a new vehicle, the cash account is decreased or credited and the vehicle account is increased or debited. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation. Journal entries are the first step in the accounting cycle and are used to record all business transactions and events in the accounting system. ![]()
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