into to journal entries + bookkeeping!
TRANSCRIPT
BOOKKEEPING 101:HOW TO RECORD
JOURNAL ENTRIES! (INCLUDES
EXAMPLES)
Andrew Li
Double Entry Bookkeeping Companies use a double-entry system to record
transactions
Elements of the accounting equation are represented by accounts which are contained in the general ledger
The General Ledger is a collection of accounts (i.e. inventory, payables, etc) used to keep track of increases and decreases in those accounts
The General Ledger We will represent the general ledger
through “T-accounts”
Account Name (i.e. Inventory)Beginning Balance
Additions Subtractions
Ending Balance
Debits and Credits Accountants use a system of debits and
credits to increase/decrease account balances in the general ledger
Debits represent the left side of the account and credits represent the right side
Account Name (i.e. Inventory)Debit Side Credit Side
Debits and Credits dAssets = Liabilities + Capital
ContributionRetained Earnings
Debit (+)
Credit (-)
Debit (-)
Credit(+)
Debit (-)
Credit(+)
Debit (-)
Credit (+)
Remember retained earnings represents the cumulative revenue and expenses of the
business
Revenue Expenses
Debit (-)
Credit (+)
Debit (+)
Credit (-)
Debits and Credits The debits must equal the credits in
every transaction (hence the “dual-entry accounting system”)
Journal Entries Accountants record transactions in a
journal that provides a record of all economic events affecting the Company.
Each “journal entry” is expressed in terms of debits and credits to accounts affected by the transactions.
Journal Entry Examples1. You invest $40,000 to open a business
Debit Credit
Cash $40,000
Equity $40,000
Journal Entry Examples2. You borrowed $40,000 from the bank
Debit Credit
Cash $40,000
Debt $40,000
Journal Entry Examples3. $2,000 worth of supplies were
purchased on your credit card.
Debit Credit
Supplies $2,000
Accounts Payable $2,000
Journal Entry Examples4. You performed $20,000 worth of
services for customers (on credit)
Debit Credit
Accounts Receivable $20,000
Revenue $20,000
Journal Entry Examples5. $1,000 was paid to your supply vendor
Debit Credit
Accounts Payable $1,000
Cash $1,000
Journal Entry Examples6. You pay a $5,000 salary for an
employee (in cash)
Debit Credit
Salary Expense $5,000
Cash $5,000
Journal Entry Examples7. You purchase equipment for $12,000 in
cash
Debit Credit
Equipment $12,000
Cash $12,000
Journal Entry Examples8. You purchased $50,000 of inventory on
credit
Debit Credit
Inventory $50,000
Accounts Payable $50,000
Journal Entry Examples9. You sold inventory costing $15,000 for
$25,000 in cash
Debit Credit
Cash $25,000
Revenue $25,000
Cost of Goods Sold $15,000
Inventory $15,000
Journal Entry Examples10. You sold inventory costing $5,000 for
$7,500 on credit
Debit Credit
Accounts Receivable $7,500
Revenue $7,500
Cost of Inventory $5,000
Inventory $5,000
Journal Entry Examples11. You received $1,000 from a customer
payment of a receivable
Debit Credit
Cash $1,000
Accounts Receivable $1,000
Journal Entry Examples12. You paid a cash dividend to
shareholders of $1,000
Debit Credit
Retained Earnings $1,000
Cash $1,000
Adjusting Entries Even when all transactions and
economic events have been recorded, some accounts still need to be updated.
Adjusting entries are recorded at the end of the period when financial statements are prepared.
Adjusting Entries Adjusting entries are required to implement
the accrual method of accounting to satisfy the realization principle and the matching principle.
In other words, adjusting entries help ensure revenue and expenses are recognized in the proper period, regardless of when cash is received or paid.
Adjusting Entries Adjusting entries are needed for the
following situations
Prepayments
Accruals
Estimates
Prepayments Prepayments occur when cash flow
precedes expense or revenue recognition.
Prepaid expenses represent assets recorded when a cash disbursement creates benefits beyond the current period.
Prepayment ExamplesAt the beginning of the year, you prepaid 3 years of
rent for $3,000. What adjusting journal entry is needed at the end of the year?
Debit CreditRent
Expense $1,000
Prepaid Rent $1,000
Debit CreditPrepaid
Rent $3,000
Cash $3,000
Prepayment ExamplesAt the beginning of the year, you purchase
equipment for $60,000. The equipment has a life of 6 years. What adjusting journal entry is needed at the end of the year?
Debit CreditDepreciation
Expense $10,000
Accumulated Depreciation $10,000
Debit CreditEquipment $60,000
Cash $60,000
Unearned Revenue Unearned revenue is created when a
company receives cash from a customer before providing the good/service.
This liability reflects an obligation to deliver that good/service.
Unearned RevenueAt the beginning of the year, you receive $30,000
for 3 years of rent on your rental property. At the end of the year, what adjusting entry is needed?
Debit CreditUnearned
Rent $10,000
Rental Revenue $10,000
Debit CreditCash $30,000
Unearned Rent $30,000
Accruals Accruals occur when cash flow comes
after expense or revenue recognition
Accrued Liabilities Accrued liabilities represent liabilities
recorded when an expense has been incurred prior to cash payment.
Accrued Liabilities ExampleAt the end of the year, your employee
earns a $5,000 bonus that you will pay at the beginning of the next year.
Debit Credit
Salaries Expense $5,000
Salaries Payable $5,000
Accrued Receivables Accrued receivables involve situations
when the revenue is earned in a period prior to the cash receipt.
Accrued Receivables Example
On 06/30/16, you loan a company $100,000 at 1.0% interest payable annually. What is the adjusting journal entry needed on 12/31/16?
Debit Credit
Interest Receivable $500
Interest Revenue $500
Estimates Accountants must often make estimates
in order to comply with the accrual model of accounting.
Estimates ExampleAt the end of the year, you have $100,000 of
receivables outstanding from customers. However, you estimate only $95,000 will be collectible. What is the adjusting journal entry?
Debit Credit
Bad Debt Expense $5,000
Allowance For Bad Debts
$5,000
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