Journal Entries
Practice As You Learn
Practice As You Learn
Transactions can be summarized this way
1) You get something (asset) and you give up something to get it (an asset or a liability)
2) You provide goods or services in exchange for an asset
3) You are provided services (expense) that you pay for now or will pay for later (liab)
4) You use an asset (expense) in your day to day business to get revenues
There are always at least two things changing for each transaction
Each asset, liability, owner’s equity, revenue, and expense account gets a “T” account. It is called a “T” account because you draw a T first.
Debit is always on the left.
Credit is always on the right.
Assets & Expenses —
Increases are debits
Decreases are credits
First — decide what account is being affected and what type of account it is
Second — decide if that account is increasing or decreasing
Third – use the previous guidelines to determine if the change is a debit or a credit
Write the journal entry to show the accounts that are changing:
Debit account name $XXX
Credit account name $XXX
A company had the following transactions during the first month of operations:
- Received $150,000 cash from investors for ownership in the company.
- Purchased inventory at a cost of $45,000 on account.
- Paid $5,000 for liability insurance for the entire year.
- Purchased office furniture for $13,800 cash
- Purchased manufacturing equipment that cost $39,000. Paid $7,000 cash and agreed to pay the balance in 6 months.
- Hired employees.
- Paid for the inventory purchased in 2. above
- Purchased office supplies for $250.
- Paid for a trademark for the company at a cost of $1,300
- Invested $50,000 in a short term certificate of deposit (CD)
A. Record journal entries for the above transactions
B. Make a “T” account for the cash account, post the journal entry amounts in the T account, and balance the cash account.
Check Your Answer
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 company had the following transactions for the first month of operations:
- Borrowed $150,000 from the bank to be repaid in 3 years.
- Purchased inventory to be sold to customers, $45,000 on account.
- Sold $15,000 of inventory on account (you have not been paid yet), sales price of $27,500.
- Purchased office furniture for S6,000 cash
- Rented warehouse space, $5,000 was paid for this month and $10,000 was paid for the following 2 months.
- Paid $4,000 for salaries to employees who worked this month.
- Purchased equipment costing $30,000 by paying $18,000 cash down and agreeing to pay the balance in 2 years.
- Paid $700 for advertising run this month.
- Received and paid a $100 utility bill for this month.
- Collected $7,500 owed from customers in 3) above.
A. Record journal entries for the above transactions
B. Make a “T” account for the cash account, record the entries, and balance the cash account.
Check Your Answer
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 company had the following transactions for the first week of operations:
- Borrowed $100,000 from the bank to be repaid in 3 years.
- Rented office space for this month and paid $2,000
- Received a bill for utilities for this month for $800
- Employees worked this month and will be paid $4,900
- Provided services to customers for the amount of $19,000, the customers will pay in 30 days.
- Purchased office furniture for $6,900 cash
- Purchased computer equipment for $1,350 on account
- Collected $18,100 from customers
- Paid for the computer equipment purchased above
- Collected rent from a company leasing extra office space, $650
- Collected interest from the bank on excess cash in your account. $206
- Paid interest on the notes payable, $345
A. Record journal entries for the above transactions
Check Your Answer
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