Accounting and Finance for Lawyers

Journal


A journal is a chronological record of changes in a company's assets, liabilities, and shareholders' equities. These can then be added up to make a balance sheet.

To make a double-entries in a general journal, the three questions are:

  1. What has happened?
  2. Which accounts are affected?
  3. In which direction are the affected accounts?

Assets are increased by numbers in the left column and decreased by numbers in the right.

Liabilities and equities are decreased by numbers in the left column and increased by numbers in the right.

Example

E.g., if someone contributes $5,000 in exchange for stock, and $2,000 is used to buy supplies, half on credit:

Account Debit Credit
Cash 5000
O/E 5000
     
Supplies 2000
Cash 1000
A/P 1000

O/E means owner's equity.

A/R means accounts receivable.

N/R means notes receivable.