Accounting Journal Entries1
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Accounting Journal Entries1 as PDF for free.
More details
- Words: 4,909
- Pages: 13
6/24/2009
Accounting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Journal Entries in Accounting
Examples of Journal Entries A djusting Journal Entries What is a journal entry in A ccounting?
Journal e ntry is a n e ntry to the journal. Journal is a re cord tha t k e e ps accounting tra nsa ctions in chronological orde r, i.e . a s the y occur. Le dge r is a re cord tha t k e e ps accounting tra nsa ctions by a ccounts. Account is a unit to re cord and sum m arize a ccounting transactions. All a ccounting transactions a re re corde d through journal e ntrie s tha t show a ccount nam e s, a m ounts, and whe the r those accounts are re corde d in de bit or cre dit side of a ccounts.
Double-Entry A ccounting
To re cord transactions, a ccounting syste m use s double -e ntry a ccounting. Double -e ntry im plie s tha t transactions a re a lways re corde d using two side s, de bit and cre dit. De bit re fe rs to the le ft-hand side and cre dit re fe rs to the right-ha nd side of the journal e ntry or a ccount. The sum of de bit side a m ounts should e qual to the sum of cre dit side a m ounts. A journa l e ntry is ca lle d "balance d" whe n the sum of de bit side am ounts e quals to the sum of cre dit side a m ounts.
T-A ccount
This form look s lik e a le tte r "T", so it is calle d a T-account. T-account is a conve nie nt form to a na lyze accounts, be cause it shows both de bit and cre dit side s of the a ccount. A ccount Debit
Credit
Examples of Journal Entries
accountinginfo.com/study/je/je-01.htm
1/4
6/24/2009
Accounting Journal Entries
Tra nsa ction 1: C om pa ny A sold its products a t $120 and re ce ive d the full am ount in cash. Ste ps
Se lf-Q ue stions
Answe rs
1
W ha t did C om pany A re ce ive ?
C a sh.
2
If C om pa ny A re ce ive d ca sh, how would this a ffe ct the ca sh balance ?
R e ce iving ca sh incre a se s the cash ba la nce of the com pany.
3
W hich side of ca sh a ccount re pre se nts the incre ase in ca sh?
De bit side (Le ft side ).
4
W ha t is the a ccount nam e to re cord the sale s of products.
Sale s.
5
W hich side of sale s a ccount re pre se nts the incre ase in sale s?
C re dit side (R ight side ).
6
Doe s the sum of de bit side a m ounts e qua l to the sum of cre dit side a m ounts? In othe r words, doe s this journa l e ntry balance ?
Ye s. $120 = $120
[Journal entry to record transaction 1]
De bit C ash
C re dit
120
Sa le s
120
Examples of Journal Entries
Tra nsa ction 2: C om pa ny A purchase d supplie s a nd pa id $50 in cash. Ste ps
Se lf-Q ue stions
Answe rs
1
W ha t did C om pany A re ce ive ?
Supplie s.
2
If C om pa ny A re ce ive d supplie s, how would this affe ct the supplie s balance ?
It incre ase s supplie s ba la nce .
3
W hich side of supplie s account re pre se nts the incre a se in cash?
De bit side (Le ft side ).
4
W ha t did C om pany A pay?
C a sh.
5
W hich side of ca sh a ccount re pre se nts the de cre ase in ca sh?
C re dit side (R ight side ).
6
Doe s the sum of de bit side a m ounts equa l to the sum of cre dit side
Ye s.
accountinginfo.com/study/je/je-01.htm
2/4
6/24/2009
Accounting Journal Entries a m ounts? In othe r words, doe s this journa l e ntry balance ? $50 = $50
[Journal e ntry to re cord tra nsa ction 2] De bit Supplie s
C re dit
50
C ash
50
Debits and Credits of A ccounts
De bit
C re dit
Incre a se in a sse t a ccounts
De cre ase in asse t accounts
Incre ase in e x pe nse accounts
De cre a se in e x pe nse a ccounts
De cre ase in liability a ccounts
Incre ase in liability a ccounts
De cre a se in e quity a ccounts
Incre a se in e quity a ccounts
De cre a se in re ve nue accounts
Incre a se in re ve nue accounts
Normal Balances of A ccounts
Accounts ha ve norm al ba la nce s on the side whe re the incre ase s in such a ccounts a re re corde d. Asse t accounts ha ve norm al ba la nce s on de bit side . Ex pe nse a ccounts have norm a l balance s on de bit side . Lia bility accounts ha ve norm al ba la nce s on cre dit side . Equity a ccounts have norm a l balance s on cre dit side . R e ve nue a ccounts have norm a l balance s on cre dit side . O n the financial state m e nts, a ccounts a re re porte d on the side s whe re the y have norm a l balance s. Lia bility accounts ha ve norm al ba la nce s on cre dit side . Equity a ccounts have norm a l balance s on cre dit side .
accountinginfo.com/study/je/je-01.htm
3/4
6/24/2009
Accounting Journal Entries Balance She e t Asse ts
Liabilitie s O wne rs' Equity
Incom e State m e nt Ex pe nse s
R e ve nue s
Read Journals Online Full-text journals for academic research at Questia Online Library. www.Q ue stia .com /Journals
GAAP & CPA Exam Resources from Amazon.com International GAAP 2009
Wiley IFRS 2009
Wiley GAAP
Ernst & Young
Barry J. Epstein, ...
Barry J. Epstein, ...
New $214.42 Best $138.14
New $78.75 Best $67.72
New $57.00 Best $51.30 Privacy Information
C opyright © 1999-2009 by C P Acla ss.com . TM All R ights R e se rve d.
accountinginfo.com/study/je/je-01.htm
4/4
6/24/2009
Adjusting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Adjusting Journal Entries
Basics of Journal Entries What is an adjusting journal entry? Adjusting journa l e ntry is a journa l e ntry prepare d to adjust account ba la nces. The only wa y of cha nging a ccount balance s is to m a k e journal e ntrie s. Account ba la nce s cannot be change d without journal e ntrie s. If curre nt a ccount balance s do not re pre se nt corre ct a m ounts, journal e ntrie s are ne e de d to cha nge curre nt balance s to the corre ct ba la nce s. --> Journa l e ntrie s pre pare d with this purpose a re adjusting journal entries. Why do companies need adjusting journal entries? C urre nt a ccount balance s m a y not re pre se nt corre ct balance s due to following re a sons: a . C om pa ny m ade m ista k e s in pre pa ring journa l e ntrie s in the past. b. Accounting re cords a re not update d to re fle ct ne w tra nsa ctions or a m ount change s in pre vious tra nsa ctions. Adjusting journa l e ntrie s a re usua lly pre pa re d at the e nd of a n a ccounting pe riod to upda te a ccount balance s to re fle ct corre ct balance s as of the ba la nce she e t da te (the da te a t the e nd of an accounting pe riod). The tim ing diffe re nce s in re cognizing re ve nue s a nd e x pe nse s be twe e n accrual ba sis a nd ca sh basis accounting a re fre que ntly corre cte d by adjusting journa l e ntrie s. Three steps of preparing adjusting journal entries Ste p 1: Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. Ste p 2: Ide ntify the corre ct account ba la nce s. Ste p 3: Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s. Example 1 C om pa ny A sold its products a t the price of $1,000 for cash. Howe ve r, this transaction was re corde d a s $100 sale s. W ha t is the a djusting journal e ntry to corre ct this m ista k e ?
Ste p 1
Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. De bit C a sh
100 Sale s
Ste p 2
C re dit
100
Ide ntify the corre ct account ba la nce s. C ash
1,000
(De bit Balance )
Sa le s
1,000
(C re dit Balance )
Ste p 3
Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s.
Accounts
C orre ct
C urre nt
C orre ct - C urre nt
C a sh
1,000
100
900
Sa le s
1,000
100
900
accountinginfo.com/study/…/index.htm
1/3
6/24/2009
Adjusting Journal Entries
To a djust the se diffe re nce s, following a djusting journal e ntry is ne e de d. De bit C a sh
C re dit
900 Sale s
900
Example 2 O n De ce m be r 1, 2006 C om pany A signe d an insura nce contract and paid $3,000 ca sh a s insura nce pre m ium for thre e m onths. C om pa ny re corde d $3,000 as pre paid insurance on De ce m be r 1, 2006. P re pare adjusting journa l e ntrie s a t De ce m be r 31, 2006.
Ste p 1
Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. De bit Pre pa id insura nce
C re dit
3,000
C a sh
Ste p 2
3,000
Ide ntify the corre ct account ba la nce s.
O n De ce m ber 31, 2006, $1,000 insura nce prem ium should be re cognized as an e x pe nse for De ce m be r. Insura nce e x pe nse
1,000
(De bit Ba la nce )
Pre pa id insura nce
2,000
(De bit Ba la nce )
Insurance e x pe nse for 1999 = $3,000 x 1/3 = $1,000
Ste p 3
Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s. Accounts
C orre ct
C urre nt
C orre ct - C urre nt
Insura nce e x pe nse
1,000
0
1,000
Pre pa id insura nce
2,000
3,000
(1,000)
To a djust the se diffe re nce s, following a djusting journal e ntry is ne e de d. De bit Insurance e x pe nse
C re dit
1,000
P re paid insurance
1,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se .
Sb Accounting & Co. Bookkeeping, Auditing, Payroll Legal advices, Taxation, Offshore www.sb-bg.com
accountinginfo.com/study/…/index.htm
2/3
6/24/2009
Accounting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Examples of Journal Entries
Basics of Journal Entries Example 1: Financing A ctivities Owner invested $10,000 in the company. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (C ash) by $10,000 2 Incre a se in O wne r's Equity by $10,000 Journal Entry C a sh O wne r's Equity
De bit or C re dit ? De bit C re dit De bit 10,000
C re dit 10,000
Description of Journal Entry O wne r inve ste d $10,000 in the com pany. Results of Journal Entry C a sh balance incre ase s by $10,000. --> Incre a se in Asse ts O wne r's Equity balance incre ase s by $10,000. --> Incre a se in O wne r's Equity
Example 2: Financing A ctivities The company borrowed $20,000 from a bank. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (C ash) by $20,000 2 Incre a se in Liabilitie s (Borrowings) by $20,000 Journal Entry C a sh
Borrowings
De bit 20,000
De bit or C re dit ? De bit C re dit C re dit 20,000
Description of Journal Entry Borrowe d $20,000. Results of Journal Entry C a sh balance incre ase s by $20,000. --> Incre a se in Asse ts Borrowings ba la nce incre a se s by $10,000. --> Incre ase in Lia bilitie s
Example 3: Investing A ctivities The company purchased $12,000 equipment and paid in cash. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (Equipm e nt) by $12,000 2 De cre ase in Asse ts (C a sh) by $12,000 Journal Entry Equipment
C a sh
accountinginfo.com/study/je/je-101.htm
De bit or C re dit ? De bit C re dit De bit 12,000
C re dit 12,000
1/4
6/24/2009
Accounting Journal Entries
Description of Journal Entry P urcha se d $12,000 e quipm e nt in ca sh. Results of Journal Entry Equipm e nt ba la nce incre a se s by $12,000. --> Incre ase in Asse ts C a sh balance de cre ase s by $12,000. --> De cre ase in Asse ts
Example 4: Operating A ctivities The company purchased $6,000 merchandise (600 units) on credit. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (Me rchandise ) by $6,000 2 Incre a se in Liabilitie s (Accounts Pa yable ) by $6,000 Journal Entry Merchandise
Accounts P aya ble
De bit 6,000
De bit or C re dit ? De bit C re dit C re dit 6,000
Description of Journal Entry P urcha se d $6,000 m e rcha ndise on cre dit. Results of Journal Entry Me rcha ndise ba la nce incre a se s by $6,000. --> Incre a se in Asse ts Accounts P aya ble balance incre ase s by $6,000. --> Incre ase in Lia bilitie s
Example 5: Operating A ctivities The company sold 500 units of merchandise at the price of $11,000. Customer paid $9,000 in cash at the time of sale. A nalysis of Transaction Note: This transaction includes both "REVENUE" and "EXPENSE" components. (1) REVENUE side Ste ps 1 Incre a se in Asse ts (C ash) by $9,000 2 Incre a se in Asse ts (Accounts R e ce ivable ) by $2,000 3 Incre a se in R e ve nue (Sa le s) by $11,000
De bit or C re dit ? De bit De bit C re dit
(2) EXPENSE side Ste ps 1 Incre a se in Ex pe nse s (C ost of Me rcha ndise Sold) by $5,000 ($6,000 / 600 units = $10 pe r unit) ($10 pe r unit X 500 units sold = $5,000 cost) 2 De cre ase in Asse ts (Me rcha ndise ) by $5,000
De bit or C re dit ? De bit De bit
(1) REVENUE Journal Entry
De bit C re dit C a sh 9,000 Accounts R e ce iva ble 9,000 Sale s R e ve nue 11,000 Description of Journal Entry Sold m e rcha ndise at $11,000 price a nd re ce ive d $9,000 in cash. Results of Journal Entry C a sh balance incre ase s by $9,000. --> Incre ase in Asse ts Accounts R e ce iva ble balance incre ase s by $2,000. --> Incre ase in Asse ts Sale s R e ve nue account ba la nce incre a se s by $11,000. --> Incre ase in R e ve nue (2) EXPENSE Journal Entry C ost of Me rcha ndise Sold Me rcha ndise
De bit 5,000
C re dit 5,000
Description of Journal Entry To re cord the cost of m e rchandise sold.
accountinginfo.com/study/je/je-101.htm
2/4
6/24/2009
Accounting Journal Entries
Results of Journal Entry Me rcha ndise ba la nce de cre a se s by $5,000. --> De cre ase in Asse ts C ost of Me rcha ndise Sold account ba la nce incre a se s by $5,000. --> Incre a se in Ex pe nse
Example 6: Operating A ctivities The company paid $3,500 salaries. A nalysis of Transaction Ste ps 1 Incre a se in Ex pe nse s (Salarie s Ex pe nse ) by $3,500 2 De cre ase in Asse ts (C a sh) by $3,500 Journal Entry Salarie s Ex pe nse C a sh
De bit 3,500
De bit or C re dit ? De bit C re dit C re dit 3,500
Description of Journal Entry P aid $3,500 salarie s. Results of Journal Entry C a sh balance de cre ase s by $3,500. --> De cre a se in Asse ts Salaries Ex pe nse account ba la nce increase s by $3,500. --> Increase in Ex pe nse s
Example 7: Operating A ctivities The company paid $1,500 rent. A nalysis of Transaction Ste ps 1 Incre a se in Ex pe nse s (R e nt Ex pe nse ) by $1,500 2 De cre ase in Asse ts (C a sh) by $1,500 Journal Entry R e nt Ex pe nse C a sh
De bit 1,500
De bit or C re dit ? De bit C re dit C re dit 1,500
Description of Journal Entry P aid $1,500 re nt. Results of Journal Entry C a sh balance de cre ase s by $1,500. --> De cre a se in Asse ts R e nt Ex pe nse account ba la nce incre a se s by $1,500. --> Incre a se in Ex pe nse s Further analysis of these transactions continues on the next file.
Full-Text Online Journals Full-text journals for academic research at Questia Online Library. www.Q ue stia .com /Journals
accountinginfo.com/study/je/je-101.htm
3/4
6/24/2009
Accrual Basis Accounting
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Accrual Basis vs. Cash Basis Accounting U.S. GAAP by Topic Financial Sta te m e nts Accounting for Inve ntorie s De pre cia tion Me thods Accounting Journa l Entrie s A ccrual Basis A ccounting Unde r the a ccrua l basis accounting, re ve nue s and e x pe nse s a re re cognize d a s follows: R e ve nue re cognition: R e ve nue is re cognize d whe n both of the following conditions a re m e t: a . R e ve nue is e a rne d. b. R e ve nue is re a lize d or re aliza ble . R e ve nue is e a rne d whe n products are de live re d or se rvice s are provide d. R e alize d m e a ns cash is re ce ive d. R e aliza ble m e a ns it is re asona ble to e x pe ct that cash will be re ce ive d in the future . Ex pe nse re cognition: Ex pe nse is re cognize d in the pe riod in which re la te d re ve nue is re cognize d (Matching Principle). Cash Basis A ccounting Unde r the ca sh basis accounting, re ve nue s and e x pe nse s a re re cognize d a s follows: R e ve nue re cognition: R e ve nue is re cognize d whe n cash is re ce ive d. Ex pe nse re cognition: Ex pe nse is re cognize d whe n cash is paid. Timing differences in recognizing revenues and expenses The re a re pote ntial tim ing diffe re nce s in re cognizing re ve nue s and e x pe nse s be twe e n a ccrua l basis and cash ba sis a ccounting. Four types of timing differences a. b. c. d.
A ccrued Revenue: R e ve nue is re cognize d before cash is re ce ive d. A ccrued Expense: Ex pe nse is re cognize d before cash is paid. Deferred Revenue: R e ve nue is re cognize d after ca sh is re ce ive d. Deferred Expense: Ex pe nse is re cognize d after cash is paid.
A n Example of A ccrued Revenue Ex am ple : Products a re sold at $5,000 on Ma y 1, 2006 a nd ca sh is re ce ive d on Ma y 10, 2006. May 1, 2006
Ma y 10, 2006
R e ve nue is re cognize d.
C a sh is re ce ive d.
[Journal e ntry on Ma y 1, 2006] De bit Accounts re ce iva ble
C re dit
5,000
Sale s
5,000
[Journal e ntry on Ma y 10, 2006] De bit C a sh
accountinginfo.com/…/accrual-101.htm
C re dit
5,000
1/4
6/24/2009
Accrual Basis Accounting Accounts re ce iva ble
5,000
A n Example of A ccrued Expense Ex am ple : O n Ma y 1, 2006, C om pany A borrowe d $100,000 from a bank a nd prom ise d to pay 12% inte re st at the e nd of e ach qua rte r. May 31, 2006
June 30, 2006
Inte re st e x pe nse is re cognize d for Ma y.
C a sh is pa id at the e nd of the qua rte r.
[Journal e ntry on Ma y 1, 2006] De bit C a sh
C re dit
100,000 Borrowings from ba nk
100,000
[Journal e ntry on Ma y 31, 2006] De bit Inte re st e x pe nse
C re dit
1,000
Inte re st paya ble
1,000
$100,000 x 12% x 1/12 = $1,000 for e ach m onth. Inte re st paya ble is a lia bility account. C re dit side of inte re st pa yable (a liability a ccount) re pre se nts a n incre a se . [Journal e ntry on June 30, 2006] De bit Inte re st e x pe nse
C re dit
1,000
Inte re st paya ble
1,000
C re dit side of inte re st pa yable (a liability a ccount) re pre se nts a n incre a se . De bit Inte re st paya ble
C re dit
2,000
C a sh
2,000
C om pany pa ys $2,000 a s inte re sts for May a nd June . De bit side of inte re st pa yable (a liability a ccount) re pre se nts a de cre ase . A n Example of Deferred Revenue Ex am ple : O n Ma y 1, 2006, C om pany A had a ne w le ase contra ct with a te na nt a nd re ce ive d $6,000 for two m onth re nt. Ma y 1, 2006
May 31 a nd June 30 2006
C a sh is re ce ive d.
R e ve nue is re cognize d at the e nd of May a nd June .
R e ve nue is re cognize d whe n C om pany A provide s se rvice . In this e x am ple , se rvice is provide d whe n tim e passe s.
accountinginfo.com/…/accrual-101.htm
2/4
6/24/2009
Accrual Basis Accounting
[Journal e ntry on Ma y 1, 2006] De bit C a sh
C re dit
3,000 Une a rne d re nt re ve nue
3,000
Une a rne d re nt re ve nue is a liability a ccount. C re dit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a n incre a se . "Une arne d re ve nue" accounts re prese nt the am ount of cash re ce ived be fore se rvice s are provided. Since se rvices have not be e n provide d ye t, it is not re ve nue . "Une arne d re ve nue" accounts are liabilitie s of the com pany, be ca use the y should be paid back to the othe r party if se rvice is not provide d in the future . [Journal e ntry on Ma y 31, 2006] De bit Une a rne d re nt re ve nue
C re dit
3,000
R e nt re ve nue
3,000
De bit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a de cre ase . C re dit side of re nt re ve nue (a re ve nue account) re pre se nts an incre ase . [Journal e ntry on June 30, 2006] De bit Une a rne d re nt re ve nue
C re dit
3,000
R e nt re ve nue
3,000
De bit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a de cre ase . C re dit side of re nt re ve nue (a re ve nue account) re pre se nts an incre ase . A n Example of Deferred Expense Ex am ple : C om pa ny A purchase d a n insurance for a pe riod from May 1, 2006 to July 31, 2006 and paid $6,000 ca sh for thre e m onth insura nce pre m ium . Ma y 1, 2006
May 31, June 30, July 31, 2006
C ash is paid.
Ex pe nse is re cognize d at the e nd of May, June a nd July.
[Journal e ntry on Ma y 1, 2006] De bit P re paid insurance
C re dit
6,000
C a sh
6,000
P re paid insurance is a n a sse t a ccount. De bit side of pre pa id insura nce (an asse t account) re pre se nts an incre ase . [Journal e ntry on Ma y 31, 2006] De bit Insurance e x pe nse
accountinginfo.com/…/accrual-101.htm
C re dit
2,000
3/4
6/24/2009
Accrual Basis Accounting P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se . [Journal e ntry on June 30, 2006] De bit Insurance e x pe nse
C re dit
2,000
P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se . [Journal e ntry on July 31, 2006] De bit Insurance e x pe nse
C re dit
2,000
P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se .
Sb Accounting & Co. Bookkeeping, Auditing, Payroll Legal advices, Taxation, Offshore www.sb-bg.com
GAAP & CPA Exam Resources from Amazon.com GAAP 2009
Wiley CPA Exam Review 2009
International GAAP 2009
Joel G. Siegel, Ma...
Patrick R. Delaney...
Ernst & Young
New $148.50 Best $58.89
New $162.80 Best $162.80
New $214.42 Best $138.14 Privacy Information
C opyright © 1999-2009 by C P Acla ss.com . TM All R ights R e se rve d.
accountinginfo.com/…/accrual-101.htm
4/4
Accounting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Journal Entries in Accounting
Examples of Journal Entries A djusting Journal Entries What is a journal entry in A ccounting?
Journal e ntry is a n e ntry to the journal. Journal is a re cord tha t k e e ps accounting tra nsa ctions in chronological orde r, i.e . a s the y occur. Le dge r is a re cord tha t k e e ps accounting tra nsa ctions by a ccounts. Account is a unit to re cord and sum m arize a ccounting transactions. All a ccounting transactions a re re corde d through journal e ntrie s tha t show a ccount nam e s, a m ounts, and whe the r those accounts are re corde d in de bit or cre dit side of a ccounts.
Double-Entry A ccounting
To re cord transactions, a ccounting syste m use s double -e ntry a ccounting. Double -e ntry im plie s tha t transactions a re a lways re corde d using two side s, de bit and cre dit. De bit re fe rs to the le ft-hand side and cre dit re fe rs to the right-ha nd side of the journal e ntry or a ccount. The sum of de bit side a m ounts should e qual to the sum of cre dit side a m ounts. A journa l e ntry is ca lle d "balance d" whe n the sum of de bit side am ounts e quals to the sum of cre dit side a m ounts.
T-A ccount
This form look s lik e a le tte r "T", so it is calle d a T-account. T-account is a conve nie nt form to a na lyze accounts, be cause it shows both de bit and cre dit side s of the a ccount. A ccount Debit
Credit
Examples of Journal Entries
accountinginfo.com/study/je/je-01.htm
1/4
6/24/2009
Accounting Journal Entries
Tra nsa ction 1: C om pa ny A sold its products a t $120 and re ce ive d the full am ount in cash. Ste ps
Se lf-Q ue stions
Answe rs
1
W ha t did C om pany A re ce ive ?
C a sh.
2
If C om pa ny A re ce ive d ca sh, how would this a ffe ct the ca sh balance ?
R e ce iving ca sh incre a se s the cash ba la nce of the com pany.
3
W hich side of ca sh a ccount re pre se nts the incre ase in ca sh?
De bit side (Le ft side ).
4
W ha t is the a ccount nam e to re cord the sale s of products.
Sale s.
5
W hich side of sale s a ccount re pre se nts the incre ase in sale s?
C re dit side (R ight side ).
6
Doe s the sum of de bit side a m ounts e qua l to the sum of cre dit side a m ounts? In othe r words, doe s this journa l e ntry balance ?
Ye s. $120 = $120
[Journal entry to record transaction 1]
De bit C ash
C re dit
120
Sa le s
120
Examples of Journal Entries
Tra nsa ction 2: C om pa ny A purchase d supplie s a nd pa id $50 in cash. Ste ps
Se lf-Q ue stions
Answe rs
1
W ha t did C om pany A re ce ive ?
Supplie s.
2
If C om pa ny A re ce ive d supplie s, how would this affe ct the supplie s balance ?
It incre ase s supplie s ba la nce .
3
W hich side of supplie s account re pre se nts the incre a se in cash?
De bit side (Le ft side ).
4
W ha t did C om pany A pay?
C a sh.
5
W hich side of ca sh a ccount re pre se nts the de cre ase in ca sh?
C re dit side (R ight side ).
6
Doe s the sum of de bit side a m ounts equa l to the sum of cre dit side
Ye s.
accountinginfo.com/study/je/je-01.htm
2/4
6/24/2009
Accounting Journal Entries a m ounts? In othe r words, doe s this journa l e ntry balance ? $50 = $50
[Journal e ntry to re cord tra nsa ction 2] De bit Supplie s
C re dit
50
C ash
50
Debits and Credits of A ccounts
De bit
C re dit
Incre a se in a sse t a ccounts
De cre ase in asse t accounts
Incre ase in e x pe nse accounts
De cre a se in e x pe nse a ccounts
De cre ase in liability a ccounts
Incre ase in liability a ccounts
De cre a se in e quity a ccounts
Incre a se in e quity a ccounts
De cre a se in re ve nue accounts
Incre a se in re ve nue accounts
Normal Balances of A ccounts
Accounts ha ve norm al ba la nce s on the side whe re the incre ase s in such a ccounts a re re corde d. Asse t accounts ha ve norm al ba la nce s on de bit side . Ex pe nse a ccounts have norm a l balance s on de bit side . Lia bility accounts ha ve norm al ba la nce s on cre dit side . Equity a ccounts have norm a l balance s on cre dit side . R e ve nue a ccounts have norm a l balance s on cre dit side . O n the financial state m e nts, a ccounts a re re porte d on the side s whe re the y have norm a l balance s. Lia bility accounts ha ve norm al ba la nce s on cre dit side . Equity a ccounts have norm a l balance s on cre dit side .
accountinginfo.com/study/je/je-01.htm
3/4
6/24/2009
Accounting Journal Entries Balance She e t Asse ts
Liabilitie s O wne rs' Equity
Incom e State m e nt Ex pe nse s
R e ve nue s
Read Journals Online Full-text journals for academic research at Questia Online Library. www.Q ue stia .com /Journals
GAAP & CPA Exam Resources from Amazon.com International GAAP 2009
Wiley IFRS 2009
Wiley GAAP
Ernst & Young
Barry J. Epstein, ...
Barry J. Epstein, ...
New $214.42 Best $138.14
New $78.75 Best $67.72
New $57.00 Best $51.30 Privacy Information
C opyright © 1999-2009 by C P Acla ss.com . TM All R ights R e se rve d.
accountinginfo.com/study/je/je-01.htm
4/4
6/24/2009
Adjusting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Adjusting Journal Entries
Basics of Journal Entries What is an adjusting journal entry? Adjusting journa l e ntry is a journa l e ntry prepare d to adjust account ba la nces. The only wa y of cha nging a ccount balance s is to m a k e journal e ntrie s. Account ba la nce s cannot be change d without journal e ntrie s. If curre nt a ccount balance s do not re pre se nt corre ct a m ounts, journal e ntrie s are ne e de d to cha nge curre nt balance s to the corre ct ba la nce s. --> Journa l e ntrie s pre pare d with this purpose a re adjusting journal entries. Why do companies need adjusting journal entries? C urre nt a ccount balance s m a y not re pre se nt corre ct balance s due to following re a sons: a . C om pa ny m ade m ista k e s in pre pa ring journa l e ntrie s in the past. b. Accounting re cords a re not update d to re fle ct ne w tra nsa ctions or a m ount change s in pre vious tra nsa ctions. Adjusting journa l e ntrie s a re usua lly pre pa re d at the e nd of a n a ccounting pe riod to upda te a ccount balance s to re fle ct corre ct balance s as of the ba la nce she e t da te (the da te a t the e nd of an accounting pe riod). The tim ing diffe re nce s in re cognizing re ve nue s a nd e x pe nse s be twe e n accrual ba sis a nd ca sh basis accounting a re fre que ntly corre cte d by adjusting journa l e ntrie s. Three steps of preparing adjusting journal entries Ste p 1: Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. Ste p 2: Ide ntify the corre ct account ba la nce s. Ste p 3: Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s. Example 1 C om pa ny A sold its products a t the price of $1,000 for cash. Howe ve r, this transaction was re corde d a s $100 sale s. W ha t is the a djusting journal e ntry to corre ct this m ista k e ?
Ste p 1
Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. De bit C a sh
100 Sale s
Ste p 2
C re dit
100
Ide ntify the corre ct account ba la nce s. C ash
1,000
(De bit Balance )
Sa le s
1,000
(C re dit Balance )
Ste p 3
Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s.
Accounts
C orre ct
C urre nt
C orre ct - C urre nt
C a sh
1,000
100
900
Sa le s
1,000
100
900
accountinginfo.com/study/…/index.htm
1/3
6/24/2009
Adjusting Journal Entries
To a djust the se diffe re nce s, following a djusting journal e ntry is ne e de d. De bit C a sh
C re dit
900 Sale s
900
Example 2 O n De ce m be r 1, 2006 C om pany A signe d an insura nce contract and paid $3,000 ca sh a s insura nce pre m ium for thre e m onths. C om pa ny re corde d $3,000 as pre paid insurance on De ce m be r 1, 2006. P re pare adjusting journa l e ntrie s a t De ce m be r 31, 2006.
Ste p 1
Ide ntify the origina l journa l e ntrie s that have be e n m a de during the pe riod. De bit Pre pa id insura nce
C re dit
3,000
C a sh
Ste p 2
3,000
Ide ntify the corre ct account ba la nce s.
O n De ce m ber 31, 2006, $1,000 insura nce prem ium should be re cognized as an e x pe nse for De ce m be r. Insura nce e x pe nse
1,000
(De bit Ba la nce )
Pre pa id insura nce
2,000
(De bit Ba la nce )
Insurance e x pe nse for 1999 = $3,000 x 1/3 = $1,000
Ste p 3
Ana lyze the diffe re nce s be twe e n corre ct a nd curre nt ba la nce s a nd pre pa re journa l e ntrie s to adjust such diffe re nce s. Accounts
C orre ct
C urre nt
C orre ct - C urre nt
Insura nce e x pe nse
1,000
0
1,000
Pre pa id insura nce
2,000
3,000
(1,000)
To a djust the se diffe re nce s, following a djusting journal e ntry is ne e de d. De bit Insurance e x pe nse
C re dit
1,000
P re paid insurance
1,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se .
Sb Accounting & Co. Bookkeeping, Auditing, Payroll Legal advices, Taxation, Offshore www.sb-bg.com
accountinginfo.com/study/…/index.htm
2/3
6/24/2009
Accounting Journal Entries
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Examples of Journal Entries
Basics of Journal Entries Example 1: Financing A ctivities Owner invested $10,000 in the company. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (C ash) by $10,000 2 Incre a se in O wne r's Equity by $10,000 Journal Entry C a sh O wne r's Equity
De bit or C re dit ? De bit C re dit De bit 10,000
C re dit 10,000
Description of Journal Entry O wne r inve ste d $10,000 in the com pany. Results of Journal Entry C a sh balance incre ase s by $10,000. --> Incre a se in Asse ts O wne r's Equity balance incre ase s by $10,000. --> Incre a se in O wne r's Equity
Example 2: Financing A ctivities The company borrowed $20,000 from a bank. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (C ash) by $20,000 2 Incre a se in Liabilitie s (Borrowings) by $20,000 Journal Entry C a sh
Borrowings
De bit 20,000
De bit or C re dit ? De bit C re dit C re dit 20,000
Description of Journal Entry Borrowe d $20,000. Results of Journal Entry C a sh balance incre ase s by $20,000. --> Incre a se in Asse ts Borrowings ba la nce incre a se s by $10,000. --> Incre ase in Lia bilitie s
Example 3: Investing A ctivities The company purchased $12,000 equipment and paid in cash. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (Equipm e nt) by $12,000 2 De cre ase in Asse ts (C a sh) by $12,000 Journal Entry Equipment
C a sh
accountinginfo.com/study/je/je-101.htm
De bit or C re dit ? De bit C re dit De bit 12,000
C re dit 12,000
1/4
6/24/2009
Accounting Journal Entries
Description of Journal Entry P urcha se d $12,000 e quipm e nt in ca sh. Results of Journal Entry Equipm e nt ba la nce incre a se s by $12,000. --> Incre ase in Asse ts C a sh balance de cre ase s by $12,000. --> De cre ase in Asse ts
Example 4: Operating A ctivities The company purchased $6,000 merchandise (600 units) on credit. A nalysis of Transaction Ste ps 1 Incre a se in Asse ts (Me rchandise ) by $6,000 2 Incre a se in Liabilitie s (Accounts Pa yable ) by $6,000 Journal Entry Merchandise
Accounts P aya ble
De bit 6,000
De bit or C re dit ? De bit C re dit C re dit 6,000
Description of Journal Entry P urcha se d $6,000 m e rcha ndise on cre dit. Results of Journal Entry Me rcha ndise ba la nce incre a se s by $6,000. --> Incre a se in Asse ts Accounts P aya ble balance incre ase s by $6,000. --> Incre ase in Lia bilitie s
Example 5: Operating A ctivities The company sold 500 units of merchandise at the price of $11,000. Customer paid $9,000 in cash at the time of sale. A nalysis of Transaction Note: This transaction includes both "REVENUE" and "EXPENSE" components. (1) REVENUE side Ste ps 1 Incre a se in Asse ts (C ash) by $9,000 2 Incre a se in Asse ts (Accounts R e ce ivable ) by $2,000 3 Incre a se in R e ve nue (Sa le s) by $11,000
De bit or C re dit ? De bit De bit C re dit
(2) EXPENSE side Ste ps 1 Incre a se in Ex pe nse s (C ost of Me rcha ndise Sold) by $5,000 ($6,000 / 600 units = $10 pe r unit) ($10 pe r unit X 500 units sold = $5,000 cost) 2 De cre ase in Asse ts (Me rcha ndise ) by $5,000
De bit or C re dit ? De bit De bit
(1) REVENUE Journal Entry
De bit C re dit C a sh 9,000 Accounts R e ce iva ble 9,000 Sale s R e ve nue 11,000 Description of Journal Entry Sold m e rcha ndise at $11,000 price a nd re ce ive d $9,000 in cash. Results of Journal Entry C a sh balance incre ase s by $9,000. --> Incre ase in Asse ts Accounts R e ce iva ble balance incre ase s by $2,000. --> Incre ase in Asse ts Sale s R e ve nue account ba la nce incre a se s by $11,000. --> Incre ase in R e ve nue (2) EXPENSE Journal Entry C ost of Me rcha ndise Sold Me rcha ndise
De bit 5,000
C re dit 5,000
Description of Journal Entry To re cord the cost of m e rchandise sold.
accountinginfo.com/study/je/je-101.htm
2/4
6/24/2009
Accounting Journal Entries
Results of Journal Entry Me rcha ndise ba la nce de cre a se s by $5,000. --> De cre ase in Asse ts C ost of Me rcha ndise Sold account ba la nce incre a se s by $5,000. --> Incre a se in Ex pe nse
Example 6: Operating A ctivities The company paid $3,500 salaries. A nalysis of Transaction Ste ps 1 Incre a se in Ex pe nse s (Salarie s Ex pe nse ) by $3,500 2 De cre ase in Asse ts (C a sh) by $3,500 Journal Entry Salarie s Ex pe nse C a sh
De bit 3,500
De bit or C re dit ? De bit C re dit C re dit 3,500
Description of Journal Entry P aid $3,500 salarie s. Results of Journal Entry C a sh balance de cre ase s by $3,500. --> De cre a se in Asse ts Salaries Ex pe nse account ba la nce increase s by $3,500. --> Increase in Ex pe nse s
Example 7: Operating A ctivities The company paid $1,500 rent. A nalysis of Transaction Ste ps 1 Incre a se in Ex pe nse s (R e nt Ex pe nse ) by $1,500 2 De cre ase in Asse ts (C a sh) by $1,500 Journal Entry R e nt Ex pe nse C a sh
De bit 1,500
De bit or C re dit ? De bit C re dit C re dit 1,500
Description of Journal Entry P aid $1,500 re nt. Results of Journal Entry C a sh balance de cre ase s by $1,500. --> De cre a se in Asse ts R e nt Ex pe nse account ba la nce incre a se s by $1,500. --> Incre a se in Ex pe nse s Further analysis of these transactions continues on the next file.
Full-Text Online Journals Full-text journals for academic research at Questia Online Library. www.Q ue stia .com /Journals
accountinginfo.com/study/je/je-101.htm
3/4
6/24/2009
Accrual Basis Accounting
Accounting Study Guide U.S. GA A P
IFRS, IA S
Accounting Topics
Accrual Basis vs. Cash Basis Accounting U.S. GAAP by Topic Financial Sta te m e nts Accounting for Inve ntorie s De pre cia tion Me thods Accounting Journa l Entrie s A ccrual Basis A ccounting Unde r the a ccrua l basis accounting, re ve nue s and e x pe nse s a re re cognize d a s follows: R e ve nue re cognition: R e ve nue is re cognize d whe n both of the following conditions a re m e t: a . R e ve nue is e a rne d. b. R e ve nue is re a lize d or re aliza ble . R e ve nue is e a rne d whe n products are de live re d or se rvice s are provide d. R e alize d m e a ns cash is re ce ive d. R e aliza ble m e a ns it is re asona ble to e x pe ct that cash will be re ce ive d in the future . Ex pe nse re cognition: Ex pe nse is re cognize d in the pe riod in which re la te d re ve nue is re cognize d (Matching Principle). Cash Basis A ccounting Unde r the ca sh basis accounting, re ve nue s and e x pe nse s a re re cognize d a s follows: R e ve nue re cognition: R e ve nue is re cognize d whe n cash is re ce ive d. Ex pe nse re cognition: Ex pe nse is re cognize d whe n cash is paid. Timing differences in recognizing revenues and expenses The re a re pote ntial tim ing diffe re nce s in re cognizing re ve nue s and e x pe nse s be twe e n a ccrua l basis and cash ba sis a ccounting. Four types of timing differences a. b. c. d.
A ccrued Revenue: R e ve nue is re cognize d before cash is re ce ive d. A ccrued Expense: Ex pe nse is re cognize d before cash is paid. Deferred Revenue: R e ve nue is re cognize d after ca sh is re ce ive d. Deferred Expense: Ex pe nse is re cognize d after cash is paid.
A n Example of A ccrued Revenue Ex am ple : Products a re sold at $5,000 on Ma y 1, 2006 a nd ca sh is re ce ive d on Ma y 10, 2006. May 1, 2006
Ma y 10, 2006
R e ve nue is re cognize d.
C a sh is re ce ive d.
[Journal e ntry on Ma y 1, 2006] De bit Accounts re ce iva ble
C re dit
5,000
Sale s
5,000
[Journal e ntry on Ma y 10, 2006] De bit C a sh
accountinginfo.com/…/accrual-101.htm
C re dit
5,000
1/4
6/24/2009
Accrual Basis Accounting Accounts re ce iva ble
5,000
A n Example of A ccrued Expense Ex am ple : O n Ma y 1, 2006, C om pany A borrowe d $100,000 from a bank a nd prom ise d to pay 12% inte re st at the e nd of e ach qua rte r. May 31, 2006
June 30, 2006
Inte re st e x pe nse is re cognize d for Ma y.
C a sh is pa id at the e nd of the qua rte r.
[Journal e ntry on Ma y 1, 2006] De bit C a sh
C re dit
100,000 Borrowings from ba nk
100,000
[Journal e ntry on Ma y 31, 2006] De bit Inte re st e x pe nse
C re dit
1,000
Inte re st paya ble
1,000
$100,000 x 12% x 1/12 = $1,000 for e ach m onth. Inte re st paya ble is a lia bility account. C re dit side of inte re st pa yable (a liability a ccount) re pre se nts a n incre a se . [Journal e ntry on June 30, 2006] De bit Inte re st e x pe nse
C re dit
1,000
Inte re st paya ble
1,000
C re dit side of inte re st pa yable (a liability a ccount) re pre se nts a n incre a se . De bit Inte re st paya ble
C re dit
2,000
C a sh
2,000
C om pany pa ys $2,000 a s inte re sts for May a nd June . De bit side of inte re st pa yable (a liability a ccount) re pre se nts a de cre ase . A n Example of Deferred Revenue Ex am ple : O n Ma y 1, 2006, C om pany A had a ne w le ase contra ct with a te na nt a nd re ce ive d $6,000 for two m onth re nt. Ma y 1, 2006
May 31 a nd June 30 2006
C a sh is re ce ive d.
R e ve nue is re cognize d at the e nd of May a nd June .
R e ve nue is re cognize d whe n C om pany A provide s se rvice . In this e x am ple , se rvice is provide d whe n tim e passe s.
accountinginfo.com/…/accrual-101.htm
2/4
6/24/2009
Accrual Basis Accounting
[Journal e ntry on Ma y 1, 2006] De bit C a sh
C re dit
3,000 Une a rne d re nt re ve nue
3,000
Une a rne d re nt re ve nue is a liability a ccount. C re dit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a n incre a se . "Une arne d re ve nue" accounts re prese nt the am ount of cash re ce ived be fore se rvice s are provided. Since se rvices have not be e n provide d ye t, it is not re ve nue . "Une arne d re ve nue" accounts are liabilitie s of the com pany, be ca use the y should be paid back to the othe r party if se rvice is not provide d in the future . [Journal e ntry on Ma y 31, 2006] De bit Une a rne d re nt re ve nue
C re dit
3,000
R e nt re ve nue
3,000
De bit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a de cre ase . C re dit side of re nt re ve nue (a re ve nue account) re pre se nts an incre ase . [Journal e ntry on June 30, 2006] De bit Une a rne d re nt re ve nue
C re dit
3,000
R e nt re ve nue
3,000
De bit side of une a rne d re nt re ve nue (a liability a ccount) re pre se nts a de cre ase . C re dit side of re nt re ve nue (a re ve nue account) re pre se nts an incre ase . A n Example of Deferred Expense Ex am ple : C om pa ny A purchase d a n insurance for a pe riod from May 1, 2006 to July 31, 2006 and paid $6,000 ca sh for thre e m onth insura nce pre m ium . Ma y 1, 2006
May 31, June 30, July 31, 2006
C ash is paid.
Ex pe nse is re cognize d at the e nd of May, June a nd July.
[Journal e ntry on Ma y 1, 2006] De bit P re paid insurance
C re dit
6,000
C a sh
6,000
P re paid insurance is a n a sse t a ccount. De bit side of pre pa id insura nce (an asse t account) re pre se nts an incre ase . [Journal e ntry on Ma y 31, 2006] De bit Insurance e x pe nse
accountinginfo.com/…/accrual-101.htm
C re dit
2,000
3/4
6/24/2009
Accrual Basis Accounting P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se . [Journal e ntry on June 30, 2006] De bit Insurance e x pe nse
C re dit
2,000
P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se . [Journal e ntry on July 31, 2006] De bit Insurance e x pe nse
C re dit
2,000
P re paid insurance
2,000
C re dit side of pre pa id insura nce (an asse t account) re pre se nts a de cre a se .
Sb Accounting & Co. Bookkeeping, Auditing, Payroll Legal advices, Taxation, Offshore www.sb-bg.com
GAAP & CPA Exam Resources from Amazon.com GAAP 2009
Wiley CPA Exam Review 2009
International GAAP 2009
Joel G. Siegel, Ma...
Patrick R. Delaney...
Ernst & Young
New $148.50 Best $58.89
New $162.80 Best $162.80
New $214.42 Best $138.14 Privacy Information
C opyright © 1999-2009 by C P Acla ss.com . TM All R ights R e se rve d.
accountinginfo.com/…/accrual-101.htm
4/4
Related Documents
Accounting Journal Entries1
May 2020 5
Journal Of Accounting Research.docx
April 2020 16
Accounting
May 2020 53
Accounting
November 2019 56
Accounting
June 2020 39