A journal entry is a record of transactions that includes the date of each transaction, the account numbers, account names, and amounts to be debited and credited. When an accountant looks at a journal entry, she can decipher what happened in that transaction.
Here are a couple of practice questions to test whether you can translate a journal entry into English.
Practice questions
A company records the following journal entry: cash, $5,000; sales revenue, $5,000. Provide a narrative description for the transaction.
A company records the following journal entry: cost of goods sold, $5,000; inventory, $5,000. Provide a narrative description for the transaction.
Answers and explanations
The company made a $5,000 cash sale.
Debit to cash increases cash. Therefore, cash was received. Credit to revenues increases revenues, so a sale was made.
The company sold $5,000 of product and recorded a decrease in inventory and an increase in cost of goods sold.
Credit to inventory decreases the balance and a debit to an expense (cost of goods sold) increases the amount of the expense. Thus, the company sold $5,000 of its inventory.
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