DOWNLOAD PDF JOURNAL ENTRY EXAMPLES ACCOUNTING

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1 Chapter 1 : Ledger Accounts Posting Transactions Example Analyzing transactions and recording them as journal entries is the first step in the accounting blog.quintoapp.com begins at the start of an accounting period and continues during the whole period. Sample Accounting Transactions Super Sample Accounting Transactions This tutorial provides examples of the accounting transactions and journal entries most common to small businesses. It also explains why we debit and credit the accounts that we do. Use this tutorial as a guide the next time you have bookkeeping transactions or journal entries to enter into your accounting software. Bookkeeping Basics to Remember When recording an Accounting transaction or journal entry in accounting software such as QuickBooks or Sage Accounting Peachtree, program, one account is debited and another account is credited. In some cases, two accounts may receive the debit or credit. But the total amount of the debit must equal the total amount of the credit. For example, when you write a check in QuickBooks, it knows to credit Cash checking account, so the user only needs to specify the account to receive the debit. When posting journal entries, though, one must know which account to debit AND which account to credit. What account receives a credit? The account to receive the credit is a Liability account called Loans Payable you may create a separate account or sub-account for each loan. This transaction is entered via a journal entry each month when the checking account is balanced. The Expense account called Bank Service Charges receives the debit. Since a check is being written, QuickBooks will automatically credit Cash. In this case the debit is split between two accounts. Since it is a liability account, a debit will reduce its balance, which is what you want. Remember that even though the debit is split between two accounts, the total debit must always equal the total credit. Since a check was written, QuickBooks will automatically credit Cash. The item is too costly to be considered an expense, so it must be entered into the accounting system as an asset. So we will debit an Asset account called Equipment or something similar. In addition, assets must be depreciated over time, with journal entries entered each year for a proscribed number of years. Depreciation is complicated, so be sure to see your accountant when purchasing company assets. Debit Equipment increases its balance Credit Cash decreases its balance [Remember: A debit adds a positive number and a credit adds a negative number. We debit the Expense account called Office. Debit Office increases its balance Credit Cash decreases its balance Example 7: Back in the office, the bill is entered into the accounting software. When you enter a bill, QuickBooks will automatically credit the Liability account called Accounts Payable. And since you purchased office supplies, an expense account called Office or similar should receive the debit. When the bill was entered, an expense account called Office or similar was debited and Accounts Payable was credited. Now as we write a check to pay the bill, QuickBooks will automatically credit Cash. And the accounting software will debit Accounts Payable - in effect, reversing the earlier credit. When you write the check, QuickBooks will automatically credit Cash. Either way, the COGS account receives the debit. When you enter the cash sale, QuickBooks will automatically debit Cash. When you create an invoice, you must specify an Item for each separate charge on the invoice. QuickBooks will automatically credit the revenue account s associated with these Items. And QuickBooks will automatically debit the invoice amount to Accounts Receivable. When you created the invoice, QuickBooks debited the Accounts Receivable account. The accounting software will also debit Cash - increasing its balance. These are the only non-contra Equity accounts that are positive accounts and receive debits. Keynote Support is providing general information in a highly readable format as a service to the visitor. We have made every effort to provide information accurate as to the date of this article. Every customer environment and each transaction is unique, so please use the information and examples in this article only as a guide. In addition, the reader cannot infer from this article that Keynote Support is providing financial or accounting advice. Consult with a financial or accounting professional for assistance with your unique requirements. Page 1

2 Chapter 2 : Adjusting Entries: Definition, Types. Examples Journal entries are the first step in the accounting cycle and are used to record all business transactions and events in the accounting system. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation. If ABC does not create such an account, it will be expensing the insurance payments as and when the payments are being made on a cash basis. Total premium for the 12 months: Login details for this Free course will be ed to you Prepaid Expenses Accounting Entry The prepaid expenses accounting entry follow the matching principle, which states that revenues in an accounting period need to be matched with the expenses in that same accounting period. The unused portion of a prepaid item provides future economic benefit and thus appears as an asset on the balance sheet. Based on this matching principle, it is shown as part of the current asset on the balance sheet until it is expensed. Following accounting entry will be recorded in the books of C Corp in the year Following accounting entry will be recorded in the year This asset will be recognized as an expense in the next accounting year to which the rental expense relates. Importance of Prepaid Expenses Asset Saving: One good prepaid expense example is rent where the company paid for next 12 months in advance. This results in potential savings which can be quite a significant factoring inflation in next months. Many businesses prepay some of their future expenses to have additional business deductions. The business owner can use these for tax deductions; however, there are various rules to avail the tax benefits and one of the basic rules is that entity cannot deduct it in the same financial year. Net working capital changes each accounting period as individual accounts that form CA and CL change period on a periodic basis. Most companies report prepaid expenses as a current asset on its balance sheet, a change in this account is part of a change in net working capital. However, if a company records any of such expense that it expects to take longer than 12 months to use in the long-term assets section of the balance sheet than this portion is not included in net working capital calculation. Recommended Article This has been a guide to what is Prepaid Expense. Here we discuss prepaid expense examples, is journal entries and accounting entries. Also, we discuss it as a part of working capital and why it is important. You may have a look at these articles below to learn more about accounting â. Page 2

3 Chapter 3 : Journal Entries Format Examples Accounting Sheet The following journal entry examples provide an outline of the more common entries encountered. It is impossible to provide a complete set of journal entries that address every variation on every situation, since there are thousands of possible entries. Just learn the rules of double entries and to make some journal entries of simple purchase and sale transactions is not enough for becoming the master in accounting. You should know every type of transactions and journal entries. You also know how to pass the journal entry, what account will be debited and what account will be credited in this journal entry. Cash brought in by proprietor as capital Rs. Goods purchased on credit from Madan Lal Rs. Who is giver, will be credited. Madan lal is giver, so its account will be credited. Purchase account debit Madan Lal account credit 3. Furniture purchased for cash Rs. In this transaction, furniture came in business, so we will open furniture account in the debit side of journal entry. Furniture Account Debit 10, 4. Goods sold on credit to Dev Raj Rs. Goods purchased for cash Rs. Purchase account debit 6. Goods sold for cash Rs. Cash account debit 7. Rent paid for shop to landlord a Rent is an item of expenses, so it will be debited. Rent Account Debit 8. Commission received in cash a Cash comes in, so cash account will be debited. Cash Account Debit 9. Cash deposited into bank a Bank is receiver of cash, so bank account will be debited. Bank Account Debit Cash withdrawn from bank for office use Rs. Cash drawn by proprietor from business for personal use Rs. Drawing Account Debit Goods given as charity Rs. Bad Debts written off Rs. We are applying what goes from business, debtor is also our asset, if he does not pay, and it means this asset has gone from business, so its account will be credited. Bad debts recovered in cash Rs. Carriage paid on machinery expenses on purchase of asset Rs. Depreciation on fixed assets Rs. So, asset account will be credited. Carriage paid on the behalf of buyer Rs. Debtor account Debit Cash Account Credit Goods given as free samples Rs. Advertising Account Debit Interest allowed on capital Rs. Capital is liability account, so increase in the amount of capital will be also shown in the credit side of journal entry. Interest charged on drawings Rs. Drawing Account Debit Interest on drawing account Credit Bank charges or interest charged by bank Rs. Bank charge Account Debit Bank account Credit Goods lost by fire Rs. Goods insured and a claim is admitted by insurance company in full or in part. Transaction has increase in debtors because we have to get money from insurance company. So, this account will be debited. Interest paid on loan. Interest on loan due but not paid in cash. Investment Account Debit Cash stolen from office. Cash paid to a creditor in full settlement When cash discount is received Amount due to Madan Lal Rs. Cash received from a debtor in full settlement When cash discount is allowed. Amount receivable from Dev Raj Rs. Now, it is available in my online shop for sale. Page 3

4 Chapter 4 : Journal Entries Examples Accounting Cycle What is a Journal Entry? A journal entry is the primary record of all financial transactions of a business in chronological order. Before computer accounting software programs, the process of recording transactions was manual and recorded in a paper journal and is where the term journal entry comes from. Timing Issues with Adjusting Entries Accountants divide the economic life of a business into artificial time periods. That makes figuring out when to post the adjusting entries challenging. Time period assumption states; Revenue should be recognized in the accounting period in which it is earned. Expenses should be matched with revenues. The economic life of a business can be divided into artificial time periods. The fiscal year should correspond to the calendar year. Cash Basis Accounting versus Accrual Basis Accounting Comparatively small organizations, educational institutions, and professionals such as physicians, lawyers, and accountants keep accounts of all their income and expenditures on a cash basis. Under cash basis accounting process income is recognized when it is received in cash and expenses are also recognized when these are paid in cash. Under cash basis accounting process, it will be treated as income of Similarly under this system the expenditure of if paid in, will be treated as an expenditure of For this sort of faulty accounting of income and expenditure, the cash basis accounting process is generally not accepted as a proper accounting system. Under accrual basis accounting sales or services, rendered in a particular accounting period, are recognized as income for that period whether cash received or not. Similarly, under this system expenditure, incurred in a particular accounting period, are recognized as expenditure whether cash paid for these or not in that particular period. Therefore, under accrual accounting system the economic transactions, which have taken place but not accounted for, are adjusted with balances of accounts concerned to get them updated by means of adjusting entries. By adjusting entries financial statements can be prepared accurately. GAAP for Accounting Rules, Principles, Assumptions Recognition of Revenue and Expenses Determining the amount of income and expenses, as shown in the financial statements of a particular accounting period, is a Very complicated task. For that reason the accountants follow two generally accepted accounting principles viz â revenue recognition principles and matching principles. According to the revenue recognition principle the revenues, earned in a particular accounting period, are revenue of that period. For example, sale price realized or receivable on account of a particular accounting period is the revenue of that period. Whether sale or service rendered in an accounting period is treated as income on the occurrence or on cash received depends on accounting principle. Generally, merchandise or service is treated as income when it is transferred. The accountants recognize expense following the principle â expense follows income. Therefore expense recognition is closely related to revenue. For example If the expenditure is incurred for the purchase of merchandise, sales revenue is generated. There is no revenue without expenditure. Profit is determined after deduction of expenditure from revenue. Time of Preparation of Adjusting Entries While preparing financial statements necessary adjusting entries are to be passed. Therefore if the financial statements are prepared at the end of six months period in that case also necessary adjusting entries are to be passed. As per convention and some laws, business organizations report the results and financial position of the business to the owners at least once in a year. That is why adjusting entries are required at least once in a year for preparing financial statement correctly. Page 4

5 Chapter 5 : Journal Entries Examples Accounting Education This will result in a compound journal entry. There is an increase in an asset account (debit Service Equipment, $16,), a decrease in another asset (credit Cash, $8,, the amount paid), and an increase in a liability account (credit Accounts Payable, $8,, the balance to be paid after 60 days). November 6, Lesson 3 in the Basic Accounting series: Let us show you the steps and some examples! What is a Journal Entry? A journal entry is the primary record of all financial transactions of a business in chronological order. Before computer accounting software programs, the process of recording transactions was manual and recorded in a paper journal and is where the term journal entry comes from. What are Journal Entries Used For? Journal entries are used to record daily financial transactions to analyze how financial transactions impact a business The journal entries are aggregated to the general ledger which is then used to construct financial statements. What is in a Journal Entry? A journal entry should typically include: In a double entry accounting system used by most businesses every business transaction is recorded in at least two accounts. Debits and credits must balance equal. See more about debits and credits in our basic accounting concepts section. Step 2 â Journalizing Note: Today most accounting is done on computers and the journalizing recording accounting journal entries is done in the background; however, it is still important to know the basics of double entry accounting. In manual accounting, each financial transaction is first recorded in a book called a journal. In that accounting journal entry, the title of the account to be debited is listed first, followed by the amount to be debited. The title of the account to be credited is listed below and to the right of the debit, followed by the amount to be credited. To determine which account is debited and which is credited you have to first determine what kind of account is being affected and if it was increased or decreased. To determine which account is debited and which is credited memorize this basic accounting equation the foundation of all basic accounting concepts: Step 4 â Recording Accounting Journal Entries: To record a business transaction in an accounting journal entry, we need to look closely at the transaction and see which accounts it involves and if it increased or decreased those accounts. If it involved an asset account such as Cash, you would picture that basic accounting equation above and know that its normal balance is on the left side debit side, so if we received increase cash we would record the amount on the left side. However, if it decreased our asset account such as paying our small business bills, we would record it on the second line and on the right side to show a decrease in that account. To sum it upâ remembering the basic accounting equation: For income statement accounts such as revenue income and expenses, you just need to remember revenue accounts have a normal right credit balance. Expenses have a normal debit left balance. To increase your expense account, you would record the amount on its normal debit left side and to decrease it you would record the amount on its opposite credit side. Expenses are almost always debited! Bob open their brand new store selling thingamajigs. Here are some examples of their basic accounting journal entries for the first accounting period: How should the general journal entry be made? Page 5

6 Chapter 6 : Financial Accounting Course Review for Accounting Students Recording financial transactions through journal entries is the first step of an accounting system. Journal entries use two or more accounts and generally have the following features:journal entry is an integral part of the double entry accounting system. Twitter0 What is General Journal? Journal entries are used to record business transaction and the first step in accounting cycle. This process continues throughout the accounting period. In order to record journal entries in general journal, bookkeepers need to find out the debit credit effects involved in business transactions. For example, company purchases furniture on cash. This event has two effects the cash account is credited or decreased and the office furniture account is debited or increased. While making journal entry there are three steps to follow. First bookkeepers must identify business transaction. When and what types of transaction incurred. Then in order to analyze transaction, we need to find whether the business transaction have any economic impact on assets, liabilities and owner equity. After identified and analyzed transaction, it is the time to journalize transaction using debit credit rules on transaction having economic impact. General entry has its standard format based on accounting equation which contains specific columns for date, description, post reference, debit amount and credit amount. The process or art of recording transactions in general journal is called journalizing. It is sometimes also called making an entry. Having this book in place, the achievement of other desired objectives and goal with respect to accounting systems and internal controls become more certain. This may further be noted that in large business units, there are several journal books are used for specific purposes. These journals include, but not limited to, sales journal, purchase journal, cash journal etc. This sub-division of General journal is usually based on the needs of business and volume of activities. In order to understand the accounting and book keeping, at this stage, student should focus and concentrate only on single journal system. Examples In order to understand and comprehend the process of recording entries into general journal, students are advised to look into the following example: In a business unit, the following journal entries transactions took place in the month of April, April 02 â Mr. In the next step we will record it in ledger accounts. Page 6

7 Chapter 7 : Journal Entries Examples Format How to Explanation Recording journal entries is only the first step in the accounting cycle. If you are interested in learning accounting, try an introduction to financial accounting. Here are journal entry examples to help you better understand journal entries. As business events occur throughout the accounting period, journal entries are recorded in the general journal to show how the event changed in the accounting equation. For example, when the company spends cash to purchase a new vehicle, the cash account is decreased or credited and the vehicle account is increased or debited. How to Make a Journal Entry Here are the steps to making an accounting journal entry. Identify Transactions There are generally three steps to making a journal entry. First, the business transaction has to be identified. Using our vehicle example above, you must identify what transaction took place. In this case, the company purchased a vehicle. This means a new asset must be added to the accounting equation. Analyze Transactions After an event is identified to have an economic impact on the accounting equation, the business event must be analyzed to see how the transaction changed the accounting equation. When the company purchased the vehicle, it spent cash and received a vehicle. Total assets increased and decreased by the same amount, but an economic transaction still took place because the cash was essentially transferred into a vehicle. Journalizing Transactions After the business event is identified and analyzed, it can be recorded. Journal entries use debits and credits to record the changes of the accounting equation in the general journal. Traditional journal entry format dictates that debited accounts are listed before credited accounts. Each journal entry is also accompanied by the transaction date, title, and description of the event. Here is an example of how the vehicle purchase would be recorded. Since there are so many different types of business transactions, accountants usually categorize them and record them in separate journal to help keep track of business events. For instance, cash was used to purchase this vehicle, so this transaction would most likely be recorded in the cash disbursements journal. There are numerous other journals like the sales journal, purchases journal, and accounts receivable journal. Here are the events that take place. Entry 6 â PGS has a grand opening and makes it first sale. Pay makes his first payroll payment. Here is an additional list of the most common business transactions and the journal entry examples to go with them. Chapter 8 : Journal Entry Examples for Students Journal entries are a key component as well as the first step in the accounting cycle. Each business transaction is analyzed for the economic impact on the asset, liability, and equity accounts before being recorded in the accounting system with a journal entry. Chapter 9 : How to make Journal Entries in Accounting [Examples] Journal Entries are the building blocks of accounting, from reporting to auditing journal entries (which consist of Debits and Credits). Without proper journal entries, companies' financial statements would be inaccurate and a complete mess. Page 7

DOWNLOAD PDF LIST OF DEBIT AND CREDIT ITEMS IN ACCOUNTING

DOWNLOAD PDF LIST OF DEBIT AND CREDIT ITEMS IN ACCOUNTING Chapter 1 : Debits and Credits If the words "debits" and "credits" sound like a foreign language to you, you are more perceptive than you realizeâ "debits" and "credits" are words that have been traced