Accounting Study Guide

Examples of Journal Entries
 

Basics of Journal Entries

Example 1:  Financing Activities

Owner invested $10,000 in the company.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Assets (Cash) by $10,000 Debit 2 Increase in Owner's Equity by $10,000 Credit    Journal Entry   Debit Credit Cash 10,000 Owner's Equity 10,000    Description of Journal Entry Owner invested $10,000 in the company.    Results of Journal Entry Cash balance increases by $10,000.  --> Increase in Assets Owner's Equity balance increases by $10,000.  -->  Increase in Owner's Equity

Example 2:  Financing Activities

The company borrowed $20,000 from a bank.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Assets (Cash) by $20,000 Debit 2 Increase in Liabilities (Borrowings) by $20,000 Credit    Journal Entry Debit Credit Cash 20,000  Borrowings 20,000    Description of Journal Entry Borrowed $20,000.    Results of Journal Entry Cash balance increases by $20,000.  --> Increase in Assets Borrowings balance increases by $10,000.  -->  Increase in Liabilities

Example 3:  Investing Activities

The company purchased $12,000 equipment and paid in cash.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Assets (Equipment) by $12,000 Debit 2 Decrease in Assets (Cash) by $12,000 Credit    Journal Entry   Debit Credit Equipment 12,000  Cash 12,000    Description of Journal Entry Purchased $12,000 equipment in cash.    Results of Journal Entry Equipment balance increases by $12,000.  --> Increase in Assets Cash balance decreases by $12,000.  -->  Decrease in Assets

Example 4:  Operating Activities

The company purchased $6,000 merchandise (600 units) on credit.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Assets (Merchandise) by $6,000 Debit 2 Increase in Liabilities (Accounts Payable) by $6,000 Credit    Journal Entry   Debit Credit Merchandise 6,000  Accounts Payable 6,000    Description of Journal Entry Purchased $6,000 merchandise on credit.    Results of Journal Entry Merchandise balance increases by $6,000.  --> Increase in Assets Accounts Payable balance increases by $6,000.  -->  Increase in Liabilities

Example 5:  Operating Activities

The company sold 500 units of merchandise at the price of $11,000.  Customer paid $9,000 in cash at the time of sale.    Analysis of Transaction    Note:  This transaction includes both "REVENUE" and "EXPENSE" components.    (1) REVENUE side Steps   Debit or Credit ? 1 Increase in Assets (Cash) by $9,000 Debit 2 Increase in Assets (Accounts Receivable) by $2,000 Debit 3 Increase in Revenue (Sales) by $11,000 Credit    (2) EXPENSE side Steps   Debit or Credit ? 1 Increase in Expenses (Cost of Merchandise Sold) by $5,000 ($6,000 / 600 units = $10 per unit) ($10 per unit X 500 units sold = $5,000 cost) Debit 2 Decrease in Assets (Merchandise) by $5,000 Debit    (1) REVENUE Journal Entry   Debit Credit Cash 9,000 Accounts Receivable 9,000 Sales Revenue 11,000    Description of Journal Entry Sold merchandise at $11,000 price and received $9,000 in cash.    Results of Journal Entry Cash balance increases by $9,000.  --> Increase in Assets Accounts Receivable balance increases by $2,000.  --> Increase in Assets Sales Revenue account balance increases by $11,000.  -->  Increase in Revenue

(2) EXPENSE Journal Entry   Debit Credit Cost of Merchandise Sold 5,000 Merchandise 5,000    Description of Journal Entry To record the cost of merchandise sold.    Results of Journal Entry Merchandise balance decreases by $5,000. --> Decrease in Assets Cost of Merchandise Sold account balance increases by $5,000. --> Increase in Expense

Example 6:  Operating Activities

The company paid $3,500 salaries.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Expenses (Salaries Expense) by $3,500 Debit 2 Decrease in Assets (Cash) by $3,500 Credit    Journal Entry   Debit Credit Salaries Expense 3,500  Cash 3,500    Description of Journal Entry Paid $3,500 salaries.    Results of Journal Entry Cash balance decreases by $3,500.  --> Decrease in Assets Salaries Expense account balance increases by $3,500.  -->  Increase in Expenses

Example 7:  Operating Activities

The company paid $1,500 rent.    Analysis of Transaction Steps   Debit or Credit ? 1 Increase in Expenses (Rent Expense) by $1,500 Debit 2 Decrease in Assets (Cash) by $1,500 Credit    Journal Entry   Debit Credit Rent Expense 1,500  Cash 1,500    Description of Journal Entry Paid $1,500 rent.    Results of Journal Entry Cash balance decreases by $1,500.  --> Decrease in Assets Rent Expense account balance increases by $1,500.  -->  Increase in Expenses

Further analysis of these transactions continues on the next file.

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