How to build a journal entry

Build the journal entry only after deciding what happened, when it happened, and which accounts changed. Debits and credits record the completed analysis rather than replacing it.

Work from the event to the entry

For an unfamiliar transaction, make the same four decisions used in Chapter 1:

1. Identify the event to record and its date.
2. Identify the accounts that changed and classify each account.
3. Determine whether each account increased or decreased.
4. Choose debit or credit and confirm that total debits equal total credits.

When you write the entry, enter the debits first. Put the credits below the debits and indent the credit account names.

Start with the account class

On November 1, Alder receives $6,000 for 6 months of support. Alder has the cash but still owes the service. Cash, an asset, increases. Unearned Revenue, a liability, also increases.

Assets increase with debits. Liabilities increase with credits:

The entry records the receipt and the obligation on the date both arose.

A balanced entry can use the wrong accounts

This entry also balances:

It is still wrong on November 1. Alder has not yet provided all 6 months of support. Crediting Service Revenue would omit the liability and report revenue before Alder earns it.

The debit-credit check answers one question: do total debits equal total credits? It does not establish that the date, accounts, or amount describe the event.

Quick checkWhich fact requires Alder to credit Unearned Revenue rather than Service Revenue on November 1?

Answer: Alder still owes future support. That obligation is a liability until Alder provides the service.

One event can affect more than 2 accounts

Double-entry accounting requires equal debit and credit totals. It does not require exactly 2 account lines.

Suppose a business buys $10,000 of equipment, pays $3,000 cash, and agrees to pay the remaining $7,000 later:

The equipment account records the full resource acquired. The credits show how the purchase was financed: $3,000 was paid in cash, and $7,000 is still owed. The single debit equals the combined credits.

Check the entry before posting

Review each proposed entry against the event and its evidence:

• Does the entry use the date the event occurred?
• Does every account describe an actual effect of the event?
• Does the debit or credit match the account class and direction of change?
• Does the amount agree with the supporting evidence?
• Do total debits equal total credits?

All 5 checks matter. Equal totals do not correct an unsupported date, account, or amount.

The worked example Mixed events journalized uses a separate set of amounts for a longer journal-entry practice set.