Recording Transactions

The Grammar of Commerce

Every journal entry answers three questions: what happened, which accounts move, and by how much. Master the pattern for ten common transactions and you can record a hundred — because business events are variations on a small set of themes.

Cash sale: Dr Cash, Cr Sales Revenue. Asset up, revenue up.

Credit sale: Dr Accounts Receivable, Cr Sales Revenue. The asset is a promise to pay, not cash yet — but revenue is recognized at sale, not at collection (the accrual principle: events are recorded when they happen, not when cash moves).

Purchase of inventory on credit: Dr Inventory, Cr Accounts Payable. One asset arrives, one obligation is born.

Payment to supplier: Dr Accounts Payable, Cr Cash. The obligation shrinks, so does the cash.

Receipt from customer: Dr Cash, Cr Accounts Receivable. Cash arrives, the promise is extinguished.

Wages paid: Dr Wages Expense, Cr Cash. An expense is born and cash leaves.

Owner investment: Dr Cash, Cr Share Capital. Cash arrives from outside the firm; equity grows.

Loan received: Dr Cash, Cr Loan Payable. Cash arrives; a liability is born.

Depreciation: Dr Depreciation Expense, Cr Accumulated Depreciation. No cash moves — the entry allocates an asset's cost over its useful life, reducing both the asset's book value and the period's profit.

Dividend payment: Dr Retained Earnings (or Dividends), Cr Cash. Equity shrinks, cash leaves.

$$\text{The accrual principle: record when earned or incurred, not when cash moves.}$$

Notice the accrual principle running through everything: revenue at sale (not collection), expenses at incurrence (not payment), depreciation over the asset's life (not at purchase). Cash-basis accounting waits for the bank statement; accrual-basis accounting tells you what really happened this period, which is why every set of published financial statements uses accrual.

The core entry patterns

Tip: The accrual principle decides the when: revenue at delivery, expense when incurred — cash movement is a separate, later story. Once that clicks, every entry above writes itself.