Journal Entries
Analyzing transactions and recording them as journal entries is the first step in the accounting cycle. It begins at the start of an accounting period and continues during the whole period. Transaction analysis is a process which determines whether a particular business event has an economic effect on the assets, liabilities or equity of the business. It also involves ascertaining the magnitude of the transaction i.e. its currency value.
After analyzing transactions, accountants classify and record the events having economic effect via journal entries according to debit-credit rules. Frequent journal entries are usually recorded in specialized journals, for example, sales journal and purchases journal. The rest are recorded in a general journal.
The following example illustrates how to record journal entries:
Example
Company A was incorporated on January 1, 2010 with an initial capital of 5,000 shares of common stock having $20 par value. During the first month of its operations, the company engaged in following transactions:
The following table shows the journal entries for the above events.
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