Journal Entries – More than one debit / credit

Imagine the following scenario:

Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.

How would you record this journal entry? Let's go phrase-by-phrase and figure out!

Phrase-by-phrase

Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.

What this tells me right here is that we're making a sale, which will result in our Sales Revenue account increasing. Remember, a revenue account increasing results in a credit to it! (See the normal balance table below.)

Account Type	Normal Balance	Increases with a...	Decreases with a...
Asset	Debit	Debit	Credit
Liability	Credit	Credit	Debit
Equity	Credit	Credit	Debit
Revenue	Credit	Credit	Debit
Expense	Debit	Debit	Credit

Therefore, we'll place Sales Revenue into our journal entry like so:

Transaction	Debit	Credit
???	???
???	???
Sales Revenue		???

What amount will we credit Sales Revenue by? $50, since that's how much the hoodie cost!

Transaction	Debit	Credit
???	???
???	???
Sales Revenue		$50

Transaction	Debit	Credit
???	???
???	???
Sales Revenue		$50

Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.

Okay word, so Johnny is dishing us $20 right now for this hoodie. That means that we're going to increase our Cash account, which means we'll debit it since it's an asset! (See the normal balance table below.)

Account Type	Normal Balance	Increases with a...	Decreases with a...
Asset	Debit	Debit	Credit
Liability	Credit	Credit	Debit
Equity	Credit	Credit	Debit
Revenue	Credit	Credit	Debit
Expense	Debit	Debit	Credit

This'll look like so in our journal entry!

Transaction	Debit	Credit
Cash	???
???	???
Sales Revenue		$50

By how much should we debit Cash? $20, since that's how much Johnny is giving us in cash at the time of purchase!

Transaction	Debit	Credit
Cash	$20
???	???
Sales Revenue		$50

Transaction	Debit	Credit
Cash	$20
???	???
Sales Revenue		$50

Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.

Okay, this ones a little tricky. What account are we going to use here, if we're getting paid at a later date?

Accounts Receivable to the rescue!

Use Accounts Receivable whenever a customer promises to pay back at a later date (a.k.a. makes the purchase on credit).

If you remember from Assets, Liabilities & Equity, Accounts Receivable is an asset. The promise from a customer to pay us back at a later date is something that provides us with economic value.

Johnny promising to pay us at a later date increases our Accounts Receivable, which means we'll debit it, since it's an asset! (Remember, assets have a normal debit balance!)

That'll look like so in our journal entry:

Transaction	Debit	Credit
Cash	$20
Accounts Receivable	???
Sales Revenue		$50

Now, how much are we going to debit Accounts Receivable? Well, Johnny is promising to pay us $30 back in the future, therefore we'll debit Accounts Receivable by that amount!

Transaction	Debit	Credit
Cash	$20
Accounts Receivable	$30
Sales Revenue		$50

Transaction	Debit	Credit
Cash	$20
Accounts Receivable	$30
Sales Revenue		$50

Ensuring debits equal credits

Before moving on, let's verify that the sum of our debits and credits in this journal entry still equal each other:

Transaction	Debit	Credit
Cash	$20
Accounts Receivable	$30
Sales Revenue		$50
Total	$50	$50

Awesome, this is a good indicator that we've successfully written this journal entry!

Compound journal entries

This journal entry, since it's debiting two accounts (Cash & Accounts Receivable), is what we call a "compound journal entry".

A compound journal entry is one in which there are more than one debits or credits occuring in the same transaction. The sum of the debits and credits for the transaction still must equal each other!