Accounting and Finance for Lawyers

Journal

A journal is a chronological record of changes in a company's assets, liabilities, shareholders' equities, revenues, and expenses. 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?
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.

A journal will include the entries for both the balance sheet and the income statement.