Journal Entries

A. Record journal entries for the above transactions

First – answer these questions –

What is the company receiving? asset?
What is the company giving up to get it? asset?
Does the company owe for it? liability?
Was a good or service provided? revenue?
Did the company receive a service or use an asset? expense?

The answers to these questions will be the account name.

Second – Identify what the account name is – an asset, liability, O.E., revenue, or expense

Third – Apply the rules to determine if the account names are debits or credits

Assets & Expenses –

Increases are debits
Decreases are credits

Liabilities, Owner’s Equity, Revenue –

Increases are credits
Decreases are debits

Fourth – Write the journal entry – debit name on top and credit name on the bottom, slightly to the right

Go through the transactions and follow the above steps:

1. Received $150,000 cash from investors for ownership in the company.

Received – Cash
Gave up – Ownership – use the common stock account

Cash is an Asset – increasing – debit
Common Stock is Owner’s Equity – increasing – credit

Cash                    $150,000
Common Stock          $150,000

2. Purchased inventory at a cost of $45,000 on account.

Received – Inventory
Gave up – a liability – accounts payable – “On account” means pay later

Inventory is an Asset – increasing – debit
Accounts payable is a Liability – increasing – credit

Inventory                   $45,000
Accounts Payable      $45,000

3. Paid $5,000 for liability insurance for the entire year.

Received – Insurance coverage – Prepaid Insurance
Gave up – Cash

Prepaid insurance is an asset – increasing – debit
Cash is an asset – decreasing – credit

Prepaid Insurance       $5,000
Cash                               $5,000

4. Purchased office furniture for $13,800 cash

Received – Furniture
Gave up – Cash

Office furniture is an asset – increasing – debit
Cash is an asset – decreasing – credit

Office Furniture          $13,800
Cash                             $13,800

5. Purchased manufacturing equipment that cost $39,000. Paid $7,000 cash and agreed to pay the balance in 6 months.

Received – Equipment $39,000
Gave up – Cash $7,000
Gave up – pay later – S/T Notes Payable

Equipment is an asset – increasing – debit
Cash is an asset – decreasing – credit
S/T Notes Payable is a liability – increasing – credit

Equipment                   $39,000
Cash                               $7,000
S/T Notes Payable      $32,000

You sometimes have more than one debit or credit. Total debit amounts must equal total credit amounts.

6. Hired employees.

Received – nothing yet
Gave up – nothing yet

There is nothing to record until an exchange takes place. This exchange will occur when they work and you or owe them.

7. Paid for the inventory purchased in 2. above

Received – you owe less since you have paid them – reduce amounts payable
Gave up – Cash $45,000

Accounts payable is a liability – decreasing – debit
Cash is an asset – decreasing – credit

Accounts Payable        $45,000
Cash                             $45,000

8. Purchased office supplies for $250.

Received – Office Supplies
Gave up – cash

Office supplies is an asset – increasing – debit
Cash is an asset – decreasing – credit

Office supplies                $250
Cash                                  $250

9. Paid for a trademark for the company at a cost of $1,300

Received – Trademark
Gave up – cash

Trademark is an asset – increasing – debit
Cash is an asset – decreasing – credit

Trademark                     $1,300
Cash                               $1,300

10. Invested $50,000 in a short term certificate of deposit (CD)

Received – S/T Investment
Gave up – cash

S/T Investment is an asset – increasing – debit
Cash is an asset – decreasing – credit

S/T Investment             $50,000
Cash                             $50,000

B. Make a “T” account for the cash account, post the amounts, and balance the cash account.

Put the debit amounts (on top) on the debit side and the credit amounts (on bottom) on the credit side

The numbers come from the journal entries. Amounts on the left were debits to cash. Amounts on the right were credits to cash.

Debits represent cash received and credits represent cash paid, the balance is the difference in what was received and what was paid, which gives you what you now have.

A. Record journal entries for the above transactions

First – answer these questions –

What is the company receiving? asset?
What is the company giving up to get it? asset?
Does the company owe for it? liability?
Was a good or service provided? revenue?
Did the company receive a service or use an asset? expense?

The answers to these questions will be the account name.

Second – Identify what the account name is – an asset, liability, O.E., revenue, or expense

Third – Apply the rules to determine if the account names are debits or credits

Assets & Expenses –

Increases are debits
Decreases are credits

Liabilities, Owner’s Equity, Revenue –

Increases are credits
Decreases are debits

Fourth – Write the journal entry – debit name on top and credit name on the bottom, slightly to the right

Go through the transactions and follow the above steps:

1. Borrowed $150,000 from the bank to be repaid in 3 years.

Received – Cash
Gave up – liability, you owe – L/T notes payable

Cash is an Asset – increasing – debit
L/T notes payable is a liability – increased – credit

Cash                    $150,000
L/T Notes Payable          $150,000

2. Purchased inventory to be sold to customers, $45,000 on account.

Received – Inventory
Gave up – liability, you owe – accounts payable

Inventory is an Asset – increased – debit
Accounts payable is a Liability – increased – credit

Inventory                   $45,000
Accounts Payable      $45,000

3. Sold $15,000 of inventory on account (you have not been paid yet), sales price of $27,500.

Received – a receivable – you have not been paid yet
Earned – provided goods – sales revenue

Used up an asset providing goods – expense – cost of goods sold
Used up an asset – inventory went down

A receivable is an asset – increased – debit
Sales is a revenue – increased – credit

Cost of goods sold is an expense – increased – debit
Inventory is an asset – decreased – credit

Accounts Receivable       $27,500
Sales                               $27,500

Cost of Goods Sold          $15,000
Inventory                        $15,000

4. Purchased office furniture for $6,000 cash

Received – Furniture
Gave up – Cash

Office furniture is an asset – increased – debit
Cash is an asset – decreased – credit

Office Furniture          $6,000
Cash                             $6,000

5. Rented warehouse space, $5,000 was paid for this month and $10,000 was paid for the following 2 months.

Incurred – the use of space, they were provided a service – rent expense
Received – the benefit of being able to use the space in the future – prepaid
Gave up – Cash

Rent expense is an expense – increased – debit
Prepaid rent is an asset – increased – debit
Cash is an asset – decreased – credit

Rent Expense                   $5,000
Prepaid Rent                    $10,000
Cash                                   $15,000

6. Paid $4,000 for salaries to employees who worked this month.

Received/incurred – a service was provided to them – salary expense
Gave up – cash

Salary expense is an expense – increased – debit
Cash is an asset – decreased – credit

Salary Expense               $4,000
Cash                                    $4,000

7. Purchased equipment costing $30,000 by paying $18,000 cash down and agreeing to pay the balance in 2 years.

Received – Equipment
Gave up – Cash
Gave up – will pay later, incur a liability – L/T notes payable

Cash is an asset – decreased – credit
Equipment is an asset – increased – debit
L/T notes payable is a liability – increased – credit

Equipment                $30,000
Cash                              $18,000
L/T Notes Payable     $12,000

8. Paid $700 for advertising run this month.

Received – was provided a service – advertising expense
Gave up – cash

Advertising expense is an expense – increased – debit
Cash is an asset – decreased – credit

Advertising Expense          $700
Cash                                    $700

9. Received and paid a $100 utility bill for this month.

Received/incurred – was provided a service – utility expense
Gave up – cash

Utilities expense is an expense – increased – debit
Cash is an asset – decreased – credit

Utilities Expense               $100
Cash                                 $100

10. Collected $7,500 owed from customers in 3) above.

Received – cash
Gave up – the customers do not owe you this amount – accounts receivable

Cash is an asset – increased – debit
Accounts Receivable is an asset – decreased – credit

Cash                                       $7,500
Accounts Receivable          $7,500

B. Make a “T” account for the cash account, record the entries, and balance the cash account.

Put the debit amounts (on top) on the debit side and the credit amounts (on bottom) on the credit side

 

A. Record journal entries for the above transactions

Follow the steps given in practice problems 1 and 2

Go through the transactions and follow the above steps:

1. Borrowed $100,000 from the bank to be repaid in 3 years.

Get – Cash
Give up – liability – L/T notes payable

Cash is an Asset – increasing – debit
L/T notes payable is a liability – increased – credit

Cash                    $100,000
L/T Notes Payable          $100,000

2. Rented office space for this month and paid $2,000.

Get – a service was provided to them – rent expense
Gave up – cash

Rent expense is an expense – increased – debit
Cash is an asset – decreased – credit

Rent Expense                   $2,000
Cash                                  $2,000

3. Received a bill for utilities for this month for $800.

Get – a service was provided – utilities expense
Give up – a liability – accounts payable – no cash was paid yet

Utilities expense is an expense – increased – debit
Accounts payable is a liability – increased – credit

Utilities Expense                 $800
Accounts Payable               $800

4. Employees worked this month and will be paid $4,900

Get – a service was provided – salaries expense
Gave up – a liability – salaries payable – no cash was paid yet

Salaries expense is an expense – increased – debit
Salaries payable is a liability – increased – credit

Salaries Expense               $4,900
Salaries Payable                $4,900

5. Provided services to customers for the amount of $19,000, the customers will pay in 30 days.

Gave up – earned – provided a service – service revenues
Get – customer will pay later – accounts receivable

Service revenues is a revenue – increased – credit
Accounts receivable is an asset – increased – debit

Accounts Receivable         $19,000
Service Revenues               $19,000

6. Purchased office furniture for $6,900.

Get – office furniture
Give up – cash

Office furniture is an asset – increased – debit
Cash is an asset – decreased – credit

Office Furniture               $6,900
Cash                                  $6,900

7. Purchased computer equipment for $1,350 on account

Get – computer equipment
Give up – liability – accounts payable

Computer equipment is an asset – increased – debit
Accounts payable is a liability – increased – credit

Computer equipment         $1,350
Accounts Payable                 $1,350

8. Collected $18,100 from customers

Get – cash
Give up – accounts receivable – they don’t owe you anymore

Cash is an asset – increased – debit
Accounts receivable is an asset – decreased – credit

Cash                               $18,100
Accounts Receivable           $18,100

9. Paid for the computer equipment purchased above.

Get – owe less – reduce accounts payable
Give up – cash

Accounts payable is a liability – decreased – debit
Cash is an asset – decreased – credit

Accounts Payable         $1,350
Cash                            $1,350

10. Collected rent from a company leasing extra office space, $650

Received – cash
Gave up – earned – provided the service of letting someone use the space – rent revenue

Cash is an asset – increased – debit
Rent revenue is a revenue – increased – credit

Cash                                      $650
Rent Revenue                      $650

11. Collected interest from the bank on excess cash in your account, $206

Received – cash
Gave up – earned – provided the service of letting someone use your money – interest revenue

Cash is an asset – increased – debit
Interest revenue is a revenue – increased – credit

Cash                                      $206
Interest Revenue             $206

12. Paid interest on the notes payable, $345

Received – was provided a service of using money – interest expense
Gave up – cash

Interest Expense is an expense – increased – debit
Cash is an asset – decreased – credit

Interest Expense            $345
Cash                                  $345