Journal Entries and Trial Balance in Accounting

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: Financial Statement Ratios: Determining Company Performance

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
 Replay
Your next lesson will play in 10 seconds
  • 0:01 Journal Entries
  • 1:00 Importance of Journal Entries
  • 2:07 The Trial Balance
  • 3:29 Example Trial Balance
  • 3:54 Lesson Summary
Add to Add to Add to

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Login or Sign up

Timeline
Autoplay
Autoplay
Create an account to start this course today
Try it free for 5 days!
Create An Account

Recommended Lessons and Courses for You

Lesson Transcript
Instructor: Rebekiah Hill

Rebekiah has taught college accounting and has a master's in both management and business.

There are several concepts that make up an accounting cycle. In this lesson, you will learn about two of those - journal entries and the trial balance.

Journal Entries

Have you ever heard the old saying that there's a place for everything and everything in its place? There is no industry where that saying is more appropriate than accounting. Every single transaction that occurs in the life of a business is written down in a special book called a journal. The journal is also known as the book of original entry. The entries made in the journal are appropriately named journal entries.

Transactions are recorded in chronological order and always have both a debit and a credit line. Why two lines for every one transaction? Because the form of accounting used most often in the accounting industry in called double entry accounting. Double entry accounting requires that for every one transaction that occurs in a business, there are at least two accounts that are affected. One account is debited, and one account is credited. A debit is an entry on the left side of an account, while a credit is an entry on the right side of an account.

Importance of Journal Entries

Why are journal entries important? Since journal entries involve at least two accounts, that means at least two accounts have a change in their balances. When account balances change, then so do the overall finances of the business. Let's look at an example.

Joe is a mechanic. On February 1st, he bought a new alternator to repair a car in his shop. The cost of the alternator was $249.00. This is a business transaction that needs to be journalized. The journal entry will look like this:

Example journal entry
example journal entry

Now, notice the form of the journal entry. The date is always listed first, followed on the same line by the name of the account that is debited and the amount of the debit. On the line underneath this, the name of the account that is credited is listed along with the amount of the credit. The credit line is always indented below the debit line. The third line of the journal entry is a brief description of the transaction.

Once each transaction has been journalized in the journal, the entries are posted, or transferred to the general ledger. The general ledger is the listing of all transactions of a company that are itemized by the specific account. The general ledger is also known as the book of final entry.

The Trial Balance

At the end of an accounting period, after all the journal entries have been made, accounting professionals create what's called a trial balance. A trial balance is a list of all the accounts of a business and their balances. Since each business account falls into one of three major categories - asset, liability or owner's equity - they each have what's called a normal balance. Asset accounts are those accounts that are related to items that the business owns, such as supplies, inventory, buildings, and equipment. These types of accounts normally have a debit balance.

Liability accounts are those accounts that are related to items that a company owes, such as utilities expense, payroll expense, and loans payable. Liability accounts normally have credit balances.

Owner's equity accounts are accounts that are related to personal investments that are made by owners of the business, such as the owner's capital account and stockholder's equity accounts. These types of accounts, like liability accounts, normally have a credit balance.

To unlock this lesson you must be a Study.com Member.
Create your account

Register for a free trial

Are you a student or a teacher?
I am a teacher

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back

Earning College Credit

Did you know… We have over 160 college courses that prepare you to earn credit by exam that is accepted by over 2,000 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it free for 5 days!
Create An Account
Support