Correct Entry to Record a Tool Purchase of $500

Correct Entry to Record a Tool Purchase of $500

When nosotros introduced debits and credits, you learned nearly the usefulness of T-accounts as a graphic representation of any account in the full general ledger. But before transactions are posted to the T-accounts, they are first recorded using special forms known as
journals.

Journals

Accountants apply special forms called
journals
to keep track of their business transactions. A journal is the starting time identify information is entered into the accounting system. A journal is often referred to as the
book of original entry
because it is the place the information originally enters into the system. A journal keeps a historical account of all recordable transactions with which the visitor has engaged. In other words, a journal is like to a diary for a business. When yous enter information into a journal, nosotros say you are
journalizing
the entry. Journaling the entry is the 2nd step in the accounting cycle. Here is a picture of a periodical.



You tin can encounter that a periodical has columns labeled debit and credit. The debit is on the left side, and the credit is on the right. Let’s expect at how we use a journal.

When filling in a journal, there are some rules y’all demand to follow to meliorate journal entry system.

Formatting When Recording Journal Entries

  • Include a date of when the transaction occurred.
  • The debit account title(s) always come first and on the left.
  • The credit account title(s) ever come after all debit titles are entered, and on the correct.
  • The titles of the credit accounts volition be indented beneath the debit accounts.
  • Yous will have at least one debit (maybe more).
  • Yous will always have at least 1 credit (possibly more).
  • The dollar value of the debits must equal the dollar value of the credits or else the equation will get out of balance.
  • You will write a curt description after each journal entry.
  • Skip a infinite after the description before starting the adjacent periodical entry.

An example periodical entry format is as follows. Information technology is not taken from previous examples merely is intended to stand alone.


A journal entry dated April 1, 2018. Debit Cash, 5,000. Credit Common Stock, 5,000. Explanation: “Received cash in exchange for common stock.”

Note that this example has only i debit account and one credit business relationship, which is considered a
unproblematic entry. A
compound entry
is when there is more than one account listed under the debit and/or credit column of a journal entry (as seen in the following).


A journal entry dated April 1, 2018. Debit Cash, 3,000, and Supplies, 2,000. Credit Common Stock, 5,000. Explanation: “Received cash and supplies in exchange for common stock.”

Notice that for this entry, the rules for recording journal entries have been followed. There is a engagement of April 1, 2018, the debit account titles are listed first with Cash and Supplies, the credit account title of Common Stock is indented after the debit account titles, there are at to the lowest degree one debit and one credit, the debit amounts equal the credit amount, and there is a short description of the transaction.

Let’southward now look at a few transactions from Printing Plus and record their journal entries.

Recording Transactions

We at present return to our company example of Printing Plus, Lynn Sanders’ printing service visitor. We will analyze and tape each of the transactions for her business concern and discuss how this impacts the fiscal statements. Some of the listed transactions have been ones nosotros take seen throughout this chapter. More detail for each of these transactions is provided, along with a few new transactions.

  1. On January 3, 2019, problems $twenty,000 shares of common stock for cash.
  2. On Jan 5, 2019, purchases equipment on account for $3,500, payment due within the month.
  3. On January 9, 2019, receives $four,000 cash in accelerate from a client for services non notwithstanding rendered.
  4. On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.
  5. On January 12, 2019, pays a $300 utility bill with greenbacks.
  6. On January fourteen, 2019, distributed $100 greenbacks in dividends to stockholders.
  7. On January 17, 2019, receives $two,800 cash from a customer for services rendered.
  8. On January 18, 2019, paid in full, with greenbacks, for the equipment buy on January 5.
  9. On January twenty, 2019, paid $3,600 cash in salaries expense to employees.
  10. On January 23, 2019, received cash payment in full from the customer on the Jan ten transaction.
  11. On January 27, 2019, provides $one,200 in services to a customer who asks to exist billed for the services.
  12. On January 30, 2019, purchases supplies on account for $500, payment due within 3 months.

Transaction 1:
On January 3, 2019, issues $20,000 shares of common stock for greenbacks.

Analysis:

  • This is a transaction that needs to be recorded, equally Press Plus has received coin, and the stockholders have invested in the firm.
  • Printing Plus now has more cash. Cash is an nugget, which in this instance is increasing. Cash increases on the debit side.
  • When the company problems stock, stockholders buy common stock, yielding a higher common stock effigy than before issuance. The mutual stock account is increasing and affects equity. Looking at the expanded accounting equation, we see that Mutual Stock increases on the credit side.


A journal entry dated January 3, 2019. Debit Cash, 20,000. Credit Common Stock, 20,000. Explanation: “To recognize issuance of common stock.”

Affect on the fiscal statements:
Both of these accounts are balance sheet accounts. Y’all will see total assets increase and total stockholders’ equity volition also increase, both by $20,000. With both totals increasing by $20,000, the accounting equation, and therefore our balance canvass, volition be in rest. In that location is no upshot on the income argument from this transaction as there were no revenues or expenses recorded.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $20,000 under Assets; plus $0 under Liabilities; plus $20,000 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $20,000 equals $0 plus $20,000.

Transaction 2:
On January 5, 2019, purchases equipment on account for $3,500, payment due within the month.

Assay:

  • In this case, equipment is an asset that is increasing. It increases because Printing Plus now has more equipment than it did before. Assets increase on the debit side; therefore, the Equipment account would show a $3,500 debit.
  • The company did not pay for the equipment immediately. Lynn asked to be sent a beak for payment at a futurity date. This creates a liability for Printing Plus, who owes the supplier coin for the equipment. Accounts Payable is used to recognize this liability. This liability is increasing, as the company now owes money to the supplier. A liability account increases on the credit side; therefore, Accounts Payable will increase on the credit side in the corporeality of $3,500.


A journal entry dated January 5, 2019. Debit Equipment, 3,500. Credit Accounts Payable, 3,500. Explanation: “To recognize purchase of equipment on account.”

Impact on the financial statements:
Since both accounts in the entry are balance sheet accounts, yous will see no effect on the income statement.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $3,500 under Assets; plus $3,500 under Liabilities; plus $0 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $3,500 equals $3,500 plus $0.

Transaction 3:
On Jan 9, 2019, receives $4,000 cash in advance from a customer for services not withal rendered.

Analysis:

  • Cash was received, thus increasing the Cash account. Cash is an asset that increases on the debit side.
  • Printing Plus has not yet provided the service, meaning it cannot recognize the revenue equally earned. The company has a liability to the customer until it provides the service. The Unearned Revenue account would be used to recognize this liability. This is a liability the visitor did not have before, thus increasing this account. Liabilities increase on the credit side; thus, Unearned Revenue will recognize the $4,000 on the credit side.


A journal entry dated January 9, 2019. Debit Cash, 4,000. Credit Unearned Revenue, 4,000. Explanation: “To recognize receipt of customer advanced payment for services yet to be rendered.”

Impact on the financial statements:
Since both accounts in the entry are residuum sheet accounts, you will see no effect on the income argument.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $4,000 under Assets; plus $4,000 under Liabilities; plus $0 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $4,000 equals $4,000 plus $0.

Transaction 4:
On January ten, 2019, provides $5,500 in services to a customer who asks to exist billed for the services.

Assay:

  • The company provided service to the client; therefore, the company may recognize the revenue equally earned (acquirement recognition principle), which increases acquirement. Service Revenue is a acquirement account affecting equity. Acquirement accounts increase on the credit side; thus, Service Revenue will show an increase of $v,500 on the credit side.
  • The customer did not immediately pay for the services and owes Printing Plus payment. This money volition be received in the futurity, increasing Accounts Receivable. Accounts Receivable is an asset account. Nugget accounts increase on the debit side. Therefore, Accounts Receivable volition increase for $5,500 on the debit side.


A journal entry dated January 10, 2019. Debit Accounts Receivable, 5,500. Credit Service Revenue, 5,500. Explanation: “To recognize revenue earned, billed customer.”

Touch on the financial statements:
You lot take revenue of $v,500. Acquirement is reported on your income statement. The more acquirement you lot have, the more than internet income (earnings) you will take. The more earnings you lot take, the more retained earnings you volition keep. Retained earnings is a stockholders’ equity account, so total disinterestedness will increase $5,500. Accounts receivable is going up so total assets volition increase past $v,500. The accounting equation, and therefore the residual canvas, remain in rest.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $5,500 under Assets; plus $0 under Liabilities; plus $5,500 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $5,500 equals $0 plus $5,500.

Transaction v:
On Jan 12, 2019, pays a $300 utility beak with cash.

Analysis:

  • Cash was used to pay the utility bill, which ways cash is decreasing. Greenbacks is an asset that decreases on the credit side.
  • Paying a utility bill creates an expense for the company. Utility Expense increases, and does and so on the debit side of the accounting equation.
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A journal entry dated January 12, 2019. Debit Utility Expense, 300. Credit Cash, 300. Explanation: “Paid utility bill with cash.”

Impact on the fiscal statements:
You have an expense of $300. Expenses are reported on your income statement. More expenses lead to a subtract in net income (earnings). The fewer earnings you have, the fewer retained earnings you will end upward with. Retained earnings is a stockholders’ equity account, so total equity volition subtract by $300. Cash is decreasing, and so total assets volition decrease past $300, impacting the rest sheet.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: minus $300 under Assets; plus $0 under Liabilities; minus $300 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $300 equals $0 plus $300.

Transaction half dozen:
On January 14, 2019, distributed $100 cash in dividends to stockholders.

Analysis:

  • Cash was used to pay the dividends, which means cash is decreasing. Cash is an nugget that decreases on the credit side.
  • Dividends distribution occurred, which increases the Dividends account. Dividends is a role of stockholder’s equity and is recorded on the debit side. This debit entry has the effect of reducing stockholder’due south equity.


A journal entry dated January 14, 2019. Debit Dividends, 100. Credit Cash, 100. Explanation: “Paid dividends with cash.”

Impact on the financial statements:
You accept dividends of $100. An increment in dividends leads to a decrease in stockholders’ equity (retained earnings). Greenbacks is decreasing, so total assets volition decrease by $100, impacting the balance sheet.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: minus $100 under Assets; plus $0 under Liabilities; minus $100 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $100 equals $0 plus $100.

Transaction 7:
On January 17, 2019, receives $two,800 cash from a customer for services rendered.

Analysis:

  • The customer used greenbacks as the payment method, thus increasing the corporeality in the Greenbacks account. Cash is an asset that is increasing, and it does and then on the debit side.
  • Printing Plus provided the services, which means the visitor can recognize revenue as earned in the Service Acquirement business relationship. Service Revenue increases equity; therefore, Service Revenue increases on the credit side.


A journal entry dated January 17, 2019. Debit Cash, 2,800. Credit Service Revenue, 2,800. Explanation: “Collected cash for services rendered.”

Impact on the financial statements:
Revenue is reported on the income statement. More revenue will increase internet income (earnings), thus increasing retained earnings. Retained earnings is a stockholders’ equity account, so total equity will increase $two,800. Cash is increasing, which increases full avails on the rest sheet.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $2,800 under Assets; plus $0 under Liabilities; plus $2,800 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $2,800 equals $0 plus $2,800.

Transaction viii:
On January eighteen, 2019, paid in full, with cash, for the equipment purchase on January 5.

Assay:

  • Cash is decreasing considering it was used to pay for the outstanding liability created on January 5. Cash is an asset and will decrease on the credit side.
  • Accounts Payable recognized the liability the company had to the supplier to pay for the equipment. Since the company is at present paying off the debt it owes, this will decrease Accounts Payable. Liabilities subtract on the debit side; therefore, Accounts Payable will decrease on the debit side by $3,500.


A journal entry dated January 18, 2019. Debit Accounts Payable, 3,500. Credit Cash, 3,500. Explanation: “Paid liability for equipment in full.”

Impact on the fiscal statements:
Since both accounts in the entry are balance sail accounts, you will see no effect on the income statement.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: minus $3,500 under Assets; minus $3,500 under Liabilities; plus $0 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $3,500 equals $3,500 plus $0.

Transaction 9:
On January 20, 2019, paid $three,600 cash in salaries expense to employees.

Assay:

  • Cash was used to pay for salaries, which decreases the Cash account. Cash is an asset that decreases on the credit side.
  • Salaries are an expense to the business organization for employee work. This volition increase Salaries Expense, affecting disinterestedness. Expenses increase on the debit side; thus, Salaries Expense volition increase on the debit side.


A journal entry dated January 20, 2019. Debit Salaries Expense, 3,600. Credit Cash, 3,600. Explanation: “Paid employee salaries.”

Impact on the fiscal statements:
Yous accept an expense of $3,600. Expenses are reported on the income statement. More expenses lead to a decrease in net income (earnings). The fewer earnings you accept, the fewer retained earnings you lot volition end up with. Retained earnings is a stockholders’ disinterestedness account, so total disinterestedness volition decrease by $3,600. Cash is decreasing, so total assets volition decrease by $three,600, impacting the balance sheet.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: minus $3,600 under Assets; plus $0 under Liabilities; minus $3,600 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $3,600 equals $0 plus $3,600.

Transaction 10:
On January 23, 2019, received cash payment in full from the customer on the January 10 transaction.

Analysis:

  • Cash was received, thus increasing the Cash account. Cash is an asset, and avails increase on the debit side.
  • Accounts Receivable was originally used to recognize the time to come client payment; now that the customer has paid in full, Accounts Receivable will subtract. Accounts Receivable is an asset, and assets decrease on the credit side.


A journal entry dated January 23, 2019. Debit Cash, 5,500. Credit Accounts Receivable, 5,500. Explanation: “Received customer payment from January 10.”

Impact on the fiscal statements:
In this transaction, there was an increment to one nugget (Cash) and a decrease to another nugget (Accounts Receivable). This means total avails change past $0, considering the increment and decrease to assets in the same amount cancel each other out. There are no changes to liabilities or stockholders’ disinterestedness, so the equation is notwithstanding in balance. Since there are no revenues or expenses afflicted, in that location is no effect on the income argument.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $5,500 and minus 5,500 under Assets; plus $0 under Liabilities; plus $0 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $0 equals $0 plus $0.

Transaction eleven:
On January 27, 2019, provides $1,200 in services to a client who asks to be billed for the services.

Assay:

  • The customer does not pay immediately for the services but is expected to pay at a future appointment. This creates an Accounts Receivable for Printing Plus. The customer owes the money, which increases Accounts Receivable. Accounts Receivable is an nugget, and avails increase on the debit side.
  • Press Plus provided the service, thus earning revenue. Service Revenue would increase on the credit side.


A journal entry dated January 27, 2019. Debit Accounts Receivable, 1,200. Credit Service Revenue, 1,200. Explanation: “Billed customer for services rendered.”

Touch on the financial statements:
Revenue is reported on the income statement. More than revenue volition increase net income (earnings), thus increasing retained earnings. Retained earnings is a stockholders’ equity account, so full equity will increase $1,200. Cash is increasing, which increases total avails on the balance sheet.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $1,200 under Assets; plus $0 under Liabilities; plus $1,200 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $1,200 equals $0 plus $1,200.

Transaction 12:
On Jan 30, 2019, purchases supplies on business relationship for $500, payment due inside three months.

Analysis:

  • The company purchased supplies, which are assets to the business organisation until used. Supplies is increasing, because the company has more supplies than it did earlier. Supplies is an asset that is increasing on the debit side.
  • Printing Plus did not pay immediately for the supplies and asked to be billed for the supplies, payable at a after engagement. This creates a liability for the company, Accounts Payable. This liability increases Accounts Payable; thus, Accounts Payable increases on the credit side.


A journal entry dated January 30, 2019. Debit Supplies, 500. Credit Accounts Payable, 500. Explanation: “Purchased supplies on account.”

Bear upon on the financial statements:
There is an increment to a liability and an increase to assets. These accounts both impact the balance sheet simply non the income statement.


Heading: Assets equal Liabilities plus Stockholders’ Equity. Below the heading: plus $500 under Assets; plus $500 under Liabilities; plus $0 under Stockholders’ Equity. Next: horizontal lines under Assets, Liabilities, and Stockholders’ Equity. A final line of totals: $500 equals $500 plus $0.

The complete journal for these transactions is as follows:


A journal entry dated January 3, 2019. Debit Cash, 20,000. Credit Common Stock, 20,000. Recognize issue of common stock. January 5, 2019. Debit Equipment, 3,500. Credit Accounts Payable, 3,500. Recognize purchase of equipment on account. January 9, 2019. Debit Cash, 4,000. Credit Unearned Revenue, 4,000. Received advanced payments for services yet rendered. January 10, 2019. Debit Accounts Receivable, 5,500. Credit Service Revenue, 5,500. Revenue earned, billed customer. January 12, 2019. Debit Utility expense, 300. Credit Cash, 300. Paid utility bill. January 14, 2019. Debit Dividends, 100. Credit Cash, 100. Paid out dividends. January 17, 2019. Debit Cash, 2,800. Credit Service Revenue, 2,800. Collected cash for services rendered. January 18, 2019. Debit Accounts Payable, 3,500. Credit Cash, 3,500. Paid liability for equipment in full. January 20, 2019. Debit Salaries expense, 3,600. Credit Cash, 3,600. Paid employee salaries. January 23, 2019. Debit Cash, 5,500. Credit Accounts Receivable, 5,500. Received customer payment from January 10. January 27, 2019. Debit Accounts Receivable, 1,200. Credit Service Revenue, 1,200. Billed customers for services rendered. January 30, 2019. Debit Supplies, 500. Credit Accounts Payable, 500. Purchased supplies on account.

We at present await at the adjacent step in the bookkeeping cycle, stride 3: post journal information to the ledger.

Continuing Awarding

Colfax Market

Colfax Market
is a small corner grocery store that carries a variety of staple items such equally meat, milk, eggs, staff of life, and so on. As a smaller grocery store,
Colfax
does not offering the variety of products institute in a larger supermarket or chain. However, it records journal entries in a like way.

Grocery stores of all sizes must buy product and rails inventory. While the number of entries might differ, the recording procedure does non. For example,
Colfax
might purchase nutrient items in 1 big quantity at the kickoff of each calendar month, payable past the terminate of the month. Therefore, it might only have a few accounts payable and inventory periodical entries each month. Larger grocery chains might have multiple deliveries a week, and multiple entries for purchases from a variety of vendors on their accounts payable weekly.

This similarity extends to other retailers, from clothing stores to sporting appurtenances to hardware. No matter the size of a company and no matter the product a company sells, the fundamental accounting entries remain the aforementioned.

Posting to the General Ledger

Recollect that the general ledger is a record of each account and its balance. Reviewing journal entries individually can exist tedious and time consuming. The full general ledger is helpful in that a visitor can easily extract business relationship and balance information. Here is a modest section of a general ledger.


A General Ledger titled “Cash Account No. 101” with four columns labeled from left to right: Date, Description, Reference, Debit, Credit, Balance. Date 2019. Remaining columns are blank.

You can see at the elevation is the proper noun of the business relationship “Cash,” as well as the assigned business relationship number “101.” Remember, all asset accounts will start with the number 1. The date of each transaction related to this business relationship is included, a possible description of the transaction, and a reference number if available. There are debit and credit columns, storing the financial figures for each transaction, and a balance column that keeps a running total of the residuum in the account subsequently every transaction.

Let’s look at 1 of the journal entries from Printing Plus and fill up in the respective ledgers.


A journal entry dated January 3, 2019. Debit Cash., 20,000. Credit Common Stock, 20,000. Explanation: Received cash in exchange for common stock. Below the journal entry is a General Ledger titled “Cash Account No. 101” with six columns, from left to right: Date; 2019, January 3. Description; Cash for Common Stock. Debit; 20,000. Balance; 20,000. Below is a General Ledger titled “Common Stock Account No. 301”. Date; 2019, January 3. Description; Cash for common stock. Credit; 20,000. Balance; 20,000.

Every bit y’all tin see, there is one ledger account for Cash and another for Common Stock. Cash is labeled account number 101 because it is an asset business relationship type. The appointment of January 3, 2019, is in the far left column, and a description of the transaction follows in the side by side column. Cash had a debit of $20,000 in the journal entry, so $xx,000 is transferred to the full general ledger in the debit column. The balance in this business relationship is currently $xx,000, because no other transactions have affected this account still.

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Common Stock has the same appointment and clarification. Common Stock had a credit of $20,000 in the journal entry, and that data is transferred to the general ledger account in the credit column. The residuum at that time in the Common Stock ledger business relationship is $20,000.

Another primal chemical element to understanding the general ledger, and the third step in the bookkeeping cycle, is how to calculate balances in ledger accounts.

Calculating Account Balances

When calculating balances in ledger accounts, i must take into consideration which side of the account increases and which side decreases. To find the account balance, yous must discover the divergence between the sum of all figures on the side that increases and the sum of all figures on the side that decreases.

For instance, the Cash account is an nugget. We know from the accounting equation that assets increase on the debit side and decrease on the credit side. If there was a debit of $5,000 and a credit of $3,000 in the Cash account, we would find the deviation between the 2, which is $two,000 (5,000 – three,000). The debit is the larger of the two sides ($5,000 on the debit side as opposed to $three,000 on the credit side), so the Cash account has a debit residual of $two,000.

Another example is a liability account, such as Accounts Payable, which increases on the credit side and decreases on the debit side. If at that place were a $4,000 credit and a $2,500 debit, the deviation between the two is $one,500. The credit is the larger of the 2 sides ($4,000 on the credit side as opposed to $ii,500 on the debit side), so the Accounts Payable account has a credit balance of $one,500.

The following are selected periodical entries from Printing Plus that affect the Cash account. Nosotros volition employ the Cash ledger account to calculate account balances.


A journal entry dated January 3, 2019. Debit Cash, 20,000. Credit Common Stock, 20,000. Recognize issue of common stock. January 9, 2019. Debit Cash, 4,000. Credit Unearned Revenue, 4,000. Received advanced payments for services yet rendered. January 12, 2019. Debit Utility expense, 300. Credit Cash, 300. Paid utility bill. January 14,2019. Debit Dividends, 100. Credit Cash, 100. Paid out dividends. January 17, 2019. Debit Cash, 2,800. Credit Service Revenue, 2,800. Collected cash for services rendered. January 18, 2019. Debit Accounts Payable, 3,500. Credit Cash, 3,500. Paid liability for equipment in full. January 20, 2019. Debit Salaries expense, 3,600. Credit Cash, 3,600. Paid employee salaries. January 23, 2019. Debit Cash, 5,500. Credit Accounts Receivable, 5,500. Received customer payment from January 10.

The general ledger business relationship for Cash would look like the following:


A General Ledger titled “Cash Account No. 101” with six columns labeled left to right: Date, Item, Reference, Debit, Credit, Balance. Date: 2019, January 3; Item: Cash for common stock; Debit: 20,000; Balance: 20,000. Date: January 9; Item: Payment from client; Debit: 4,000; Balance: 24,000. Date: January 12; Item: Utility bill; Credit: 300; Balance: 23,700. Date: January 14; Item: Dividends payment; Credit: 100; Balance: 23,600. Date: January 17; Item: Cash for services; Debit: 2,800; Balance: 26,400. Date: January 18; Item: Paid cash for equipment; Credit: 3,500; Balance: 22,900. Date: January 20; Item: Paid employee salaries; Credit: 3,600; Balance: 19,300. Date: January 23; Item: Customer payment; Debit: 5,500; Balance: 24,800.

In the last column of the Greenbacks ledger account is the running balance. This shows where the account stands after each transaction, too equally the last rest in the business relationship. How do we know on which side, debit or credit, to input each of these balances? Let’s consider the full general ledger for Cash.

On Jan three, there was a debit balance of $xx,000 in the Cash business relationship. On Jan ix, a debit of $4,000 was included. Since both are on the debit side, they will be added together to get a balance on $24,000 (as is seen in the balance column on the January 9 row). On January 12, there was a credit of $300 included in the Greenbacks ledger business relationship. Since this figure is on the credit side, this $300 is subtracted from the previous balance of $24,000 to get a new balance of $23,700. The same process occurs for the rest of the entries in the ledger and their balances. The final balance in the business relationship is $24,800.

Checking to make sure the final residuum figure is correct; one tin can review the figures in the debit and credit columns. In the debit column for this greenbacks business relationship, we see that the total is $32,300 (twenty,000 + 4,000 + 2,800 + five,500). The credit cavalcade totals $7,500 (300 + 100 + 3,500 + 3,600). The difference between the debit and credit totals is $24,800 (32,300 – seven,500). The balance in this Cash account is a debit of $24,800. Having a debit balance in the Cash account is the normal balance for that business relationship.

Posting to the T-Accounts

The third step in the bookkeeping cycle is to postal service journal data to the ledger. To practise this we can use a T-business relationship format. A company volition accept data from its periodical and post to this full general ledger. Posting refers to the process of transferring information from the journal to the general ledger. Information technology is important to understand that T-accounts are only used for illustrative purposes in a textbook, classroom, or business concern give-and-take. They are not official accounting forms. Companies will use ledgers for their official books, non T-accounts.

Let’due south look at the journal entries for Printing Plus and postal service each of those entries to their corresponding T-accounts.

The following are the periodical entries recorded earlier for Printing Plus.

Transaction 1:
On January 3, 2019, issues $20,000 shares of common stock for cash.


A journal entry dated January 3, 2019. Debit Cash, 20,000. Credit Common Stock, 20,000. Explanation: “To recognize issuance of common stock.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, and a balance of 20,000. The right account is labeled Common Stock, with a credit entry dated January 3 for 20,000, and a balance of 20,000.

In the journal entry, Cash has a debit of $xx,000. This is posted to the Greenbacks T-account on the debit side (left side). Common Stock has a credit residue of $xx,000. This is posted to the Common Stock T-business relationship on the credit side (right side).

Transaction ii:
On January 5, 2019, purchases equipment on account for $three,500, payment due within the calendar month.


A journal entry dated January 5, 2019. Debit Equipment, 3,500. Credit Accounts Payable, 3,500. Explanation: “To recognize purchase of equipment on account.” Below the journal entry are two T-accounts. The left account is labeled Equipment, with a debit entry dated January 5 for 3,500, and a balance of 3,500. The right account is labeled Accounts Payable, with a credit entry dated January 5 for 3,500, and a balance of 3,500.

In the periodical entry, Equipment has a debit of $3,500. This is posted to the Equipment T-business relationship on the debit side. Accounts Payable has a credit balance of $three,500. This is posted to the Accounts Payable T-account on the credit side.

Transaction 3:
On January 9, 2019, receives $four,000 greenbacks in advance from a customer for services not yet rendered.


A journal entry dated January 9, 2019. Debit Cash, 4,000. Credit Unearned revenue, 4,000. Explanation: “To recognize receipt of customer advanced payment for services yet to be rendered.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, and a balance of 24,000. The right account is labeled Unearned Revenue, with a credit entry dated January 9 for 4,000, and a balance of 4,000.

In the periodical entry, Cash has a debit of $4,000. This is posted to the Cash T-account on the debit side. Y’all will find that the transaction from January three is listed already in this T-account. The next transaction figure of $iv,000 is added directly below the $20,000 on the debit side. Unearned Acquirement has a credit balance of $4,000. This is posted to the Unearned Acquirement T-account on the credit side.

Transaction 4:
On January 10, 2019, provides $5,500 in services to a customer who asks to be billed for the services.


A journal entry dated January 10, 2019. Debit Accounts Receivable, 5,500. Credit Service Revenue, 5,500. Explanation: “To recognize revenue earned, billed customer.” Below the journal entry are two T-accounts. The left account is labeled Accounts Receivable, with a debit entry dated January 10 for 5,500, and a balance of 5,500. The right account is labeled Service Revenue, with a credit entry dated January 10 for 5,500, and a balance of 5,500.

In the journal entry, Accounts Receivable has a debit of $5,500. This is posted to the Accounts Receivable T-account on the debit side. Service Acquirement has a credit residuum of $5,500. This is posted to the Service Acquirement T-account on the credit side.

Transaction 5:
On January 12, 2019, pays a $300 utility neb with cash.


A journal entry dated January 12, 2019. Debit Utility Expense, 300. Credit Cash, 300. Explanation: “Paid utility bill with cash.” Below the journal entry are two T-accounts. The left account is labeled Utility Expense, with a debit entry dated January 12 for 300, and a balance of 300. The right account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a credit entry dated January 12 for 200, and a balance of 23,700.

In the journal entry, Utility Expense has a debit remainder of $300. This is posted to the Utility Expense T-account on the debit side. Cash has a credit of $300. This is posted to the Cash T-account on the credit side. Yous will notice that the transactions from January three and Jan 9 are listed already in this T-business relationship. The next transaction figure of $300 is added on the credit side.

Transaction vi:
On Jan xiv, 2019, distributed $100 cash in dividends to stockholders.


A journal entry dated January 14, 2019. Debit Dividends, 100. Credit Cash, 100. Explanation: “Paid dividends with cash.” Below the journal entry are two T-accounts. The left account is labeled Dividends, with a debit entry dated January 14 for 100, and a balance of 100. The right account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, and a balance of 23,600.

In the journal entry, Dividends has a debit residuum of $100. This is posted to the Dividends T-business relationship on the debit side. Cash has a credit of $100. This is posted to the Greenbacks T-business relationship on the credit side. You will notice that the transactions from January iii, January 9, and January 12 are listed already in this T-account. The adjacent transaction figure of $100 is added straight beneath the January 12 record on the credit side.

Transaction 7:
On January 17, 2019, receives $2,800 cash from a customer for services rendered.


A journal entry dated January 17, 2019. Debit Cash, 2,800. Credit Service Revenue, 2,800. Explanation: “Collected cash for services rendered.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a debit entry dated January 17 for 2,800, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, and a balance of 26,400. The right account is labeled Service Revenue, with a credit entry dated January 10 for 5,500, a credit entry dated January 17 for 2,800, and a balance of 8,300.

In the journal entry, Cash has a debit of $2,800. This is posted to the Greenbacks T-business relationship on the debit side. You will notice that the transactions from January 3, January 9, January 12, and Jan xiv are listed already in this T-account. The next transaction figure of $2,800 is added straight below the Jan 9 tape on the debit side. Service Revenue has a credit balance of $2,800. This too has a balance already from January 10. The new entry is recorded under the January 10 record, posted to the Service Revenue T-account on the credit side.

Transaction 8:
On Jan eighteen, 2019, paid in full, with greenbacks, for the equipment purchase on January 5.


A journal entry dated January 18, 2019. Debit Accounts Payable, 3,500. Credit Cash, 3,500. Explanation: “Paid liability for equipment in full.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a debit entry dated January 17 for 2,800, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, a credit entry dated January 18 for 3,500 and a balance of 22,900. The right account is labeled Accounts Payable, with a credit entry dated January 5 for 3,500, a debit entry dated January 18 for 3,500, and a balance of 0.

On this transaction, Cash has a credit of $3,500. This is posted to the Greenbacks T-account on the credit side beneath the January xiv transaction. Accounts Payable has a debit of $3,500 (payment in full for the Jan. v purchase). You notice there is already a credit in Accounts Payable, and the new record is placed direct across from the Jan 5 record.

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Transaction nine:
On January xx, 2019, paid $3,600 cash in salaries expense to employees.


A journal entry dated January 20, 2019. Debit Salaries Expense, 3,600. Credit Cash, 3,600. Explanation: “Paid employee salaries.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a debit entry dated January 17 for 2,800, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, a credit entry dated January 18 for 3,500, a credit entry dated January 20 for 3,600, and a balance of 19,300. The right account is labeled Salaries Expense, with a debit entry dated January 20 for 3,600, and a balance of 3,600.

On this transaction, Cash has a credit of $3,600. This is posted to the Cash T-account on the credit side beneath the January 18 transaction. Salaries Expense has a debit of $3,600. This is placed on the debit side of the Salaries Expense T-account.

Transaction 10:
On January 23, 2019, received cash payment in total from the customer on the January x transaction.


A journal entry dated January 23, 2019. Debit Cash, 5,500. Credit Accounts Receivable, 5,500. Explanation: “Received customer payment from January 10.” Below the journal entry are two T-accounts. The left account is labeled Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a debit entry dated January 17 for 2,800, a debit entry dated January 23 for 5,500, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, a credit entry dated January 18 for 3,500, a credit entry dated January 20 for 3,600, and a balance of 24,800. The right account is labeled Accounts Receivable, with a debit entry dated January 10 for 5,500, a credit entry dated January 23 for 5,500, and a balance of 0.

On this transaction, Cash has a debit of $v,500. This is posted to the Cash T-account on the debit side beneath the January 17 transaction. Accounts Receivable has a credit of $v,500 (from the Jan. 10 transaction). The record is placed on the credit side of the Accounts Receivable T-account beyond from the Jan 10 tape.

Transaction 11:
On January 27, 2019, provides $one,200 in services to a customer who asks to be billed for the services.


A journal entry dated January 27, 2019. Debit Accounts Receivable, 1,200. Credit Service Revenue, 1,200. Explanation: “Billed customer for services rendered.” Below the journal entry are two T-accounts. The left account is labeled Accounts Receivable, with a debit entry dated January 10 for 5,500, a debit entry dated January 27 for 1,200, a credit entry dated January 23 for 5,500, and a balance of 1,200. The right account is labeled Service Revenue, with a credit entry dated January 10 for 5,500, a credit entry dated January 17 for 2,800, a credit entry dated January 27 for 1,200, and a balance of 9,500.

On this transaction, Accounts Receivable has a debit of $1,200. The record is placed on the debit side of the Accounts Receivable T-account underneath the January x record. Service Acquirement has a credit of $1,200. The record is placed on the credit side of the Service Revenue T-account underneath the January 17 tape.

Transaction 12:
On January 30, 2019, purchases supplies on business relationship for $500, payment due within three months.


A journal entry dated January 30, 2019. Debit Supplies, 500. Credit Accounts Payable, 500. Explanation: “Purchased supplies on account.” Below the journal entry are two T-accounts. The left account is labeled Supplies, with a debit entry dated January 30 for 500, and a balance of 500. The right account is labeled Accounts Payable, with a debit entry dated January 18 for 3,500, a credit entry dated January 9 for 3,500, a credit entry dated January 30 for 500, and a balance of 500.

On this transaction, Supplies has a debit of $500. This will get on the debit side of the Supplies T-account. Accounts Payable has a credit of $500. You lot notice there are already figures in Accounts Payable, and the new record is placed directly underneath the January 5 record.

T-Accounts Summary

Once all journal entries have been posted to T-accounts, we can check to make sure the accounting equation remains balanced. A summary showing the T-accounts for Printing Plus is presented in Figure 3.x.


Three columns headed Assets equal Liabilities plus Equity. The Asset column has four T-accounts. Cash, with a debit entry dated January 3 for 20,000, a debit entry dated January 9 for 4,000, a debit entry dated January 17 for 2,800, a debit entry dated January 23 for 5,500, a credit entry dated January 12 for 300, a credit entry dated January 14 for 100, a credit entry dated January 18 for 3,500, a credit entry dated January 20 for 3,600, and a balance of 24,800. Accounts Receivable, with a debit entry dated January 10 for 5,500, a debit entry dated January 27 for 1,200, a credit entry dated January 23 for 5,500, and a balance of 1,200. Supplies, with a debit entry dated January 30 for 500, and a balance of 500. Equipment, with a debit entry dated January 5 for 3,500, and a balance of 3,500. The Liability column has two T-accounts. Accounts Payable, with a debit entry dated January 18 for 3,500, a credit entry dated January 9 for 3,500, a credit entry dated January 30 for 500, and a balance of 500. Unearned Revenue, with a credit entry dated January 9 for 4,000, and a balance of 4,000. The Equity column has five T-accounts. Common Stock, with a credit entry dated January 3 for 20,000, and a balance of 20,000. Dividends, with a debit entry dated January 14 for 100, and a balance of 100. Service Revenue, with a credit entry dated January 10 for 5,500, a credit entry dated January 17 for 2,800, a credit entry dated January 27 for 1,200, and a balance of 9,500. Salaries Expense, with a debit entry dated January 20 for 3,600, and a balance of 3,600. Utility Expense, with a debit entry dated January 12 for 300, and a balance of 300.

Effigy

3.ten


Summary of T-Accounts for Press Plus. (attribution: Copyright Rice University, OpenStax, nether CC BY-NC-SA 4.0 license)

The sum on the assets side of the accounting equation equals $30,000, institute by adding together the terminal balances in each asset account (24,800 + 1,200 + 500 + iii,500). To notice the total on the liabilities and equity side of the equation, we need to find the difference between debits and credits. Credits on the liabilities and equity side of the equation full $34,000 (500 + 4,000 + twenty,000 + 9,500). Debits on the liabilities and equity side of the equation total $4,000 (100 + 3,600 + 300). The difference $34,000 – $4,000 = $xxx,000. Thus, the equation remains balanced with $30,000 on the asset side and $xxx,000 on the liabilities and disinterestedness side. Now that nosotros have the T-account information, and have confirmed the bookkeeping equation remains balanced, we tin can create the unadjusted trial balance.

Your Plow

Journalizing Transactions

Yous have the post-obit transactions the last few days of April.

Apr. 25 Y’all stop by your uncle’south gas station to refill both gas cans for your visitor, Watson’south Landscaping. Your uncle adds the total of $28 to your business relationship.
Apr. 26 Y’all tape another week’s revenue for the lawns mowed over the past calendar week. You earned $1,200. Yous received cash equal to 75% of your acquirement.
Apr. 27 You pay your local newspaper $35 to run an advertizing in this week’due south paper.
Apr. 29 You brand a $25 payment on account.

Tabular array

three.24



  1. Prepare the necessary periodical entries for these 4 transactions.
  2. Explain why yous debited and credited the accounts you lot did.
  3. What will be the new residue in each account used in these entries?

Solution


A journal entry dated April 25, 2018. Debit Gas expense, 28. Credit Accounts payable, 28. Explanation: “Purchased gas on account.” April 26, 2018. Debit Cash, 900. Debit Accounts receivable, 300. Credit Lawnmowing revenue, 1,200. Explanation: “Earned $1,200 revenue: received 75 percent in cash.” April 27, 2018. Debit Advertising expense, 35. Credit Cash, 35. Explanation: “Paid cash to run an ad in the newspaper.” April 29, 2018. Debit Accounts payable, 25. Credit Cash, 25. Explanation: “Made a payment on account.”

April 25

  • You have incurred more gas expense. This ways y’all accept an increment in the full amount of gas expense for April. Expenses go upwardly with debit entries. Therefore, you lot will debit gas expense.
  • You purchased the gas on business relationship. This volition increment your liabilities. Liabilities increase with credit entries. Credit accounts payable to increase the total in the business relationship.

April 26

  • You take received more than cash from customers, so yous want the total cash to increase. Cash is an asset, and assets increase with debit entries, and so debit cash.
  • You lot also have more than money owed to you by your customers. You have performed the services, your customers owe you the money, and you will receive the money in the future. Debit accounts receivable as asset accounts increase with debits.
  • You have mowed lawns and earned more acquirement. You want the total of your revenue account to increase to reflect this additional revenue. Revenue accounts increment with credit entries, then credit lawn-mowing revenue.

April 27

  • Advertising is an expense of doing business organisation. You lot have incurred more expenses, and so you lot want to increase an expense business relationship. Expense accounts increase with debit entries. Debit advert expense.
  • You lot paid cash for the ad. You take less cash, so credit the cash business relationship. Greenbacks is an asset, and asset account totals decrease with credits.

April 29

  • Yous paid “on business relationship.” Remember that “on account” means a service was performed or an detail was received without existence paid for. The customer asked to be billed. You were the client in this case. You fabricated a purchase of gas on account before in the calendar month, and at that time you increased accounts payable to show you had a liability to pay this amount old in the future. You are at present paying down some of the money you owe on that account. Since y’all paid this money, you now have less of a liability and so y’all want to see the liability account, accounts payable, decrease by the amount paid. Liability accounts decrease with debit entries.
  • You lot paid, which means you lot gave cash (or wrote a check or electronically transferred) so you have less cash. To decrease the total cash, credit the business relationship because asset accounts are reduced past recording credit entries.

Your Turn

Normal Account Balances

Calculate the balances in each of the following accounts. Do they all have the normal balance they should accept? If not, which one? How do you know this?


A General Ledger titled “Cash Account No. 101” with six columns. Date: 2019. Six columns labeled left to right: Date, Item, Reference, Debit, Credit, Balance. Debit: 9,500; Balance: 9,500. Credit: 3,500; Balance: 6,000. Debit: 1,750; Balance: 7,750. Credit: 5,800; Balance: 1,950. Debit: 500; Balance: 2,450. Credit: 1,500; Balance: 950.


A General Ledger titled “Accounts Receivable No. 111” with six columns. Date: 2019. Debt column entries: 4,500, 3,650, 825. Credit column entries: 4,250, 3,500.


A General Ledger titled “Accounts Payable No. 201” with six columns. Date: 2019. Debit column entries: 500, 650. Credit column entries: 1,500, 875, 325.

Solution


A General Ledger titled “Cash Account No. 101” with six columns. Date: 2019. Six columns labeled left to right: Date, Item, Reference, Debit, Credit, Balance. Debit: 9,500; Balance: 9,500. Credit: 3,500; Balance: 6,000. Debit: 1,750; Balance: 7,750. Credit: 5,800; Balance: 1,950. Debit: 500; Balance: 2,450. Credit: 1,500; Balance: 950. Credit: 1,200; Balance: 250.


A General Ledger titled “Accounts Receivable No. 111” with six columns. Date: 2019. Six columns labeled left to right: Date, Item, Reference, Debit, Credit, Balance. Debit: 4,500; Balance: 4,500. Debit: 3,650; Balance: 8,150. Credit: 4,250; Balance: 3,900. Credit: 3,500; Balance: 400. Debit: 825; Balance: 1,225.


A General Ledger titled “Accounts Payable No. 201” with six columns. Date: 2019. Six columns labeled left to right: Date, Item, Reference, Debit, Credit, Balance. Credit: 1,500; Balance: 1,500. Credit: 875; Balance: 2,375. Debit: 500; Balance: 1,875. Credit: 325; Balance: 2,200. Debit: 650; Balance: 1,550.

Think It Through

Gift Cards

Gift cards take become an of import topic for managers of any visitor. Agreement who buys souvenir cards, why, and when can be important in business organisation planning. Likewise, knowing when and how to determine that a gift card volition not probable exist redeemed volition impact both the company’s residuum sheet (in the liabilities section) and the income statement (in the revenues section).

Co-ordinate to a 2017 vacation shopping written report from the National Retail Federation, gift cards are the most-requested presents for the eleventh year in a row, with 61% of people surveyed saying they are at the acme of their wish lists.vi
CEB TowerGroup
projects that total gift card volume will reach $160 billion by 2018.7

How are all of these gift card sales affecting ane of America’s favorite specialty coffee companies,
Starbucks?

In 2014 one in 7 adults received a
Starbucks
souvenir carte du jour. On Christmas Eve lone $2.five million gift cards were sold. This is a rate of 1,700 cards per infinitesimal.8

The post-obit give-and-take virtually souvenir cards is taken from
Starbucks’s 2016 annual study:

When an amount is loaded onto a stored value card we recognize a corresponding liability for the full corporeality loaded onto the card, which is recorded within stored value card liability on our consolidated balance sheets. When a stored value card is redeemed at a company-operated store or online, we recognize revenue by reducing the stored value card liability. When a stored value menu is redeemed at a licensed store location, we reduce the respective stored value card liability and cash, which is reimbursed to the licensee. At that place are no expiration dates on our stored value cards, and in near markets, we exercise not charge service fees that crusade a decrement to customer balances. While we will continue to accolade all stored value cards presented for payment, direction may make up one’s mind the likelihood of redemption, based on historical experience, is deemed to be remote for certain cards due to long periods of inactivity. In these circumstances, unredeemed card balances may be recognized as breakage income. In financial 2016, 2015, and 2014, we recognized breakage income of $60.5 one thousand thousand, $39.3 meg, and $38.iii million, respectively.9

As of October 1, 2017,
Starbucks
had a full of $ane,288,500,000 in stored value card liability.

Correct Entry to Record a Tool Purchase of $500

Source: https://openstax.org/books/principles-financial-accounting/pages/3-5-use-journal-entries-to-record-transactions-and-post-to-t-accounts