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 AssetsOwner'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 AssetsBorrowings 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 AssetsCash 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 AssetsAccounts 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 AssetsAccounts Receivable balance increases by $2,000. --> Increase in AssetsSales 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 AssetsCost 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 AssetsSalaries 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 AssetsRent Expense account balance increases by $1,500. --> Increase in Expenses