✍🏻 Posted by Lee Ingram on 9/10/23. ⏱️ Total Reading Time: ~8 minutes
Introduction
Preparing for accounting exams can be nerve-wracking, but—if you can nail the fundamentals—the class is way easier than you’d think. One such fundamental skill is mastering the art of recording journal entries. Journal entries are a critical element of the accounting cycle, setting the stage for everything that follows. Fail to get them right, and you're almost guaranteed to lose points on your exams. To many student’s surprise on Exam 1, professors will require you to write out journal entries by hand (gasp!) — a task most students are woefully unprepared for. That's why the goal of this blog post is simple but vital: to show you the correct format for journal entries and help you cut down on easily avoidable mistakes during exams.
Below, I’ve broken down the 7 Key Rules for Correctly Formatting Journal Entries, which I hope will clear up any confusion you might have about how to record journal entries correctly.
1. Order Matters: Debits First, Credits Second
Contrary to popular belief, the order in which you list your debits and credits is crucial. Always start with the debited accounts and follow them with credited accounts. In exams, reversing this order could cost you valuable points.
Wrong Way:
Also Wrong:
Right Way:
2. Double-Entry Principle: One Debit, One Credit Minimum
A journal entry must have at least one debited account and one credited account. If your entry has only debits or only credits, you've made an error that could lead to significant deductions on your exam.
Wrong Way:
Also Wrong:
Right Way:
3. Keeping the Books Balanced: Debits Must Equal Credits
In any given journal entry, the total debited amount must equal the total credited amount. This maintains the fundamental accounting equation of A = L + E (Assets = Liabilities + Equity).
Wrong Way:
Also Wrong:
Right Way:
4. Skip the Dollar Signs: Unnecessary and Risky
You might feel compelled to include dollar signs next to the amounts. Resist the urge. Professors have been known to deduct points for this mistake.
Wrong Way:
Right Way:
5. Parentheses Are for Financial Statements, Not Journal Entries
Students often use parentheses to denote negative amounts or subtractions, but this practice is not necessary in journal entries.
Wrong Way:
Also Wrong:
Right Way:
- In journal entries, parentheses are not needed to indicate whether an amount is being subtracted.
- Remember, understanding the 5 types of accounts and how debits and credits affect them will clearly indicate whether an amount is being subtracted or added in a journal entry!
- Assets (+/-)
- Liabilities (-/+)
- Equity (-/+)
- Revenues (-/+)
- Expenses (+/-)
6. Negative Signs = Not Needed
Avoid using negative signs in the debit and credit columns. They're not needed in journal entries and can lead to confusion.
Wrong Way:
Also Wrong:
Right Way:
- Remember, understanding the 5 types of accounts and how debits and credits affect them will clearly indicate whether an amount is being subtracted or added in a journal entry!
- Assets (+/-)
- Liabilities (-/+)
- Equity (-/+)
- Revenues (-/+)
- Expenses (+/-)
🚀 For a comprehensive understanding of debits and credits and their impact on the five types of accounts, please refer to the detailed notes provided in the "Items to memorize" section of my Chapter 1 Cheat Sheet.
7. Multiple Accounts: The More, The Merrier
Journal entries may involve various accounts being debited and credited in multiple combinations. As long as the total debits and credits balance, and the entries accurately represent the transaction, you're on the right track.
a) Multiple accounts debited and one account credited:
b) One account debited and multiple accounts credited:
c) Any combination of multiple debited and/or credited accounts:
d) Another example:
Note: if you don’t understand these journal entries yet, no worries. The goal of this blog post is simply to show you the correct format.
Summary and Takeaways
Mastering the art of journal entry formatting is crucial for acing your accounting exams. This blog post has dissected the 7 essential rules you need to know, complete with right and wrong examples to guide your practice. From understanding the order of debits and credits to avoiding common pitfalls like unnecessary dollar signs or parentheses, these insights are designed to help you minimize errors during exams. Alongside my Chapter 1 Cheat Sheet, you've got the tools you need for impeccable journal entries. So, start practicing now and boost your exam performance. You’ve got this!
🤯 Stressed About Your Upcoming Accounting Exam?
Don't worry, you're not alone. Remember, the goal of this blog post was to guide you on the correct format for journal entries so that you can avoid costly mistakes on your exams. With diligent practice, these principles will become like second nature to you. For a deeper dive, make sure to check out my Chapter 1 Cheat Sheet. (It’s free!)
Searching for the ultimate study tools? At SurviveAccounting.com, you’ll find an arsenal of videos, quizzes, practice exams, flashcards, and pro exam tips to help you ace exams, impress your professors, and transform yourself into a journal entry Jedi. Try out my Chapter 1 Exam Prep resources for free and experience the difference for yourself.
There it is—your roadmap to conquering journal entry format and beyond. Internalize these principles, and you're not just passing that introductory accounting exam—you're crushing it. Best of luck, and happy studying!
Your partner in exam domination, Lee
lee@surviveaccounting.com
About the Author
✍🏻 Lee Ingram is the founder of SurviveAccounting.com, your trusted guide to acing your accounting exams. With two accounting degrees and 8+ years of experience, Lee has helped nearly 1,500 students conquer their fears and pass their exams.
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