Writing Journal Entries
Five practiced journal entries that cover 80% of what a small company books in a month.
Customer payment received
Customer pays a $5,000 invoice. Debit Cash $5,000. Credit Accounts Receivable $5,000. The receivable goes away, cash arrives.
Payroll run
Gross wages $10,000, taxes withheld $2,500, net pay $7,500. Debit Wages Expense $10,000. Credit Payroll Tax Payable $2,500. Credit Cash $7,500.
Prepaid expense
You pay $12,000 for a 12-month software contract upfront. Debit Prepaid Expenses $12,000. Credit Cash $12,000. Each month, debit Software Expense $1,000 and credit Prepaid Expenses $1,000.
Key takeaways
- Most transactions follow predictable templates.
- Prepaids and accruals are what make books 'accrual-basis.'
- When in doubt, write the entry on paper before touching software.