Journal Entries

Business Event (Transaction)

A business event is a measurable occurrence that affects the financial position of a company. This includes activities such as buying goods, selling services, receiving payments, or making payments. Each event changes the value of assets, liabilities, or equity.

Journal Entry

A journal entry is the initial recording of a business transaction. It uses debits on the left and credits on the right to ensure the accounting equation (Assets = Liabilities + Equity) remains balanced. It includes the date, accounts affected, and a brief description.

Debit

Debit refers to the left side of a journal entry. Debits increase the balance of asset and expense accounts, while decreasing the balance of liability, equity, and revenue accounts. The term 'debit' does not inherently mean increase or decrease but depends on the type of account.

Credit

Credit refers to the right side of a journal entry. Credits increase the balance of liability, equity, and revenue accounts, while decreasing the balance of asset and expense accounts. Like 'debit,' the effect of a credit depends on the account type.

DEALER (Acronym)

DEALER is a mnemonic to remember which accounts increase with a debit versus a credit. It stands for Dividends, Expenses, and Assets increase with a Debit; Liabilities, Equity, and Revenue increase with a Credit.

D - Dividends

Dividends are distributions of a company's earnings to its shareholders. They reduce retained earnings (equity) and are increased with a debit entry.

E - Expenses

Expenses are costs incurred by a business in its operations to generate revenue. They are increased with a debit entry in the accounting records.

A - Assets

Assets are resources owned by a company that have future economic value. Examples include cash, accounts receivable, inventory, and equipment. Asset accounts increase with a debit entry.

L - Liabilities

Liabilities are obligations of a company to external parties. Examples include accounts payable, salaries payable, and loans. Liability accounts increase with a credit entry.

E - Equity

Equity represents the owners' stake in the company's assets after deducting liabilities. It includes common stock, retained earnings, and additional paid-in capital. Equity accounts increase with a credit entry.

R - Revenue

Revenue is income earned by a company from its business activities, such as selling goods or providing services. Revenue accounts increase with a credit entry.