Step two in the accounting cycle is journalizing transactions. This is the process whereby financial transactions are recorded into the accounting records of a company.
Transactions are recorded with a journal entry.
These journal entries become the chronological list of all the transactions and that list is known as the general journal.
Journal entries have four parts:
Date of the transaction
The account debited and the dollar amount debited
The account credited and the dollar amount of the credit
Lastly, a brief explanation of the transaction.
So let's look at a transaction to see if we can journalize it.
In this example, a company buys supplies on account for $500 on August 3.
When we analyze this transaction we determine that supplies, an asset account is the increased with a debit.
And accounts payable, a liability acount, is increased with a credit.
So first we enter the date, August 3rd.
Then we list the debit account first, so we enter supplies.
It wouldn't techhnically be wrong to list the credit account first, but it would look wrong to every practicing accountant, so always enter the debit accounts first.
Then we would record $500 in the debit column.
Next, we enter accounts payable as the credit account. Normally we indent credits.
Then we enter $500 into the credit column.
Lastly, we enter the description of the transaction at the bottom.
And now we're done. We've entered this transaction into the general journal by completing the journal entry.
One hint I would like you to remember, once you've analyzed the transaction, you don't need to re-analyze them when you jounalize them. Just enter the date, the debit account and amount, the credit account and amount, and the description. No additional analysis is needed.