3 5 Use Journal Entries to Record Transactions and Post to T-Accounts Principles of Accounting, Volume 1: Financial Accounting

When we introduced debits and credits, you learned about the
usefulness of T-accounts as a graphic representation of any account
in the general ledger. But before transactions are posted to the
T-accounts, they are first recorded using special forms known as
journals. If your key steps for auditing the legal department business is a corporation, and your corporation has declared a dividend payable to shareholders, the declared dividend needs to be recorded on the books. Assuming the dividend will not be paid until after year-end, an adjusting entry needs to be made in the general journal.

How do we
know on which side, debit or credit, to input each of these
balances? The following are selected journal entries from Printing Plus
that affect the Cash account. We will use the Cash ledger account
to calculate account balances. Another example is a liability account, such as Accounts
Payable, which increases on the credit side and decreases on the
debit side. If there were a $4,000 credit and a $2,500 debit, the
difference between the two is $1,500.

Examples for How to Journalize Paying a Bill in Accounting

A
summary showing the T-accounts for Printing Plus is presented in

Figure 3.10. This will go
on the debit side of the Supplies T-account. You notice there are already figures in Accounts
Payable, and the new record is placed directly underneath the
January 5 record. In the last column of the Cash ledger account is the running
balance. This shows where the account stands after each
transaction, as well as the final balance in the account.

• In the reporting period of March, the company should record its cash payment on March 25 for its utility bill.
• In the journal entry, Equipment has a debit of $3,500.
• As of October 1, 2017, Starbucks had a total of $1,288,500,000 in stored value card liability.
• Peruse Best Buy’s 2017 annual report to learn more about Best Buy.

We will use the Cash ledger account to calculate account balances. Another example is a liability account, such as Accounts Payable, which increases on the credit side and decreases on the debit side. If there were a $4,000 credit and a $2,500 debit, the difference between the two is $1,500.

Utilities Bill Journal Entry Example

The record is placed on the debit side of the Accounts Receivable T-account underneath the January 10 record. The record is placed on the credit side of the Service Revenue T-account underneath the January 17 record. This is posted to the Cash T-account on the debit side beneath the January 17 transaction. Accounts Receivable has a credit of $5,500 (from the Jan. 10 transaction). The record is placed on the credit side of the Accounts Receivable T-account across from the January 10 record.

Credit The credit entry represents the liability to pay the supplier in the future for the use of the utilities. The General Ledger is your link to updates on people, policies, and other information related to financial transactions at the University. Another double entry bookkeeping example for you to discover. For this, we need to understand the nature of the account and the group under which it falls for determining whether we need to debit or credit. Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries.

Utilities used for administrative duties can be listed as an administrative expense. Electricity is one of the operating expenses that a company has to spend on a monthly basis. The company will require to pay for the electricity every month after the electricity consumption. The supplier will issue a bill based on the consumption.

Printing a Prior Bill from History

There are also other types of large accruals made during this process. Controller’s Office accruals are recorded by the Controller’s office during the year-end financial statement process. For these accruals, departments and projects are not charged; rather these are charged to a special Controller’s office department. These accruals are generally determined after the general ledger is deemed final for Information Warehouse reporting. If so, do you have any accounts receivable at year-end that you know are uncollectable? If so, the end of the year is a good time to make an adjusting entry in your general journal to write off any worthless accounts.

Assets may include cash and cash equivalents, buildings, equipment, investments and more. Liabilities are amounts your business owes, such as balances with vendors, loan balances, revolving account balances and even settlement payments. The equity of the business is the difference between the assets and the liabilities and is affected by revenues and expenses. This is posted to the Cash T-account on the debit side.

This is posted to the Cash T-account on the credit side beneath the January 14 transaction. Accounts Payable has a debit of $3,500 (payment in full for the Jan. 5 purchase). You notice there is already a credit in Accounts Payable, and the new record is placed directly across from the January 5 record.

To find the account balance, you must find the
difference between the sum of all figures on the side that
increases and the sum of all figures on the side that
decreases. We now return to our company example of Printing Plus, Lynn
Sanders’ printing service company. We will analyze and record each
of the transactions for her business and discuss how this impacts
the financial statements. Some of the listed transactions have been
ones we have seen throughout this chapter. More detail for each of
these transactions is provided, along with a few new
transactions.

Printing Bills

To follow the accrued basics, the company has to record expenses when they consume service. At the same time, suppliers require payment, so company has to record the cash paid too. Most of the time, company is required to pay cash to the supplier at the month’s end. A business receives an invoice for electricity amounting to 2,000 and records this in the accounting records with the following utility expense bookkeeping journal. The utility expense is based on the amount used during an accounting period, and is included as part of operating expenses in the income statement of the business.

If there was a debit of $5,000 and a
credit of $3,000 in the Cash account, we would find the difference
between the two, which is $2,000 (5,000 – 3,000). The debit is the
larger of the two sides ($5,000 on the debit side as opposed to
$3,000 on the credit side), so the Cash account has a debit balance
of $2,000. Certain end-of-period adjustments must be made when you close your books. Adjusting entries are made at the end of an accounting period to account for items that don’t get recorded in your daily transactions.

If you would like to watch another video about journal entries, click Journal Entries. As of October 1, 2017, Starbucks had a total of $1,288,500,000 in stored value card liability. This similarity extends to other retailers, from clothing stores to sporting goods to hardware. No matter the size of a company and no matter the product a company sells, the fundamental accounting entries remain the same. It is not taken from previous examples but is intended to stand alone.

They show the date of the transaction, the accounts affected, and their respective debit and credit amounts. Checking to make sure the final balance figure is correct; one
can review the figures in the debit and credit columns. In the
debit column for this cash account, we see that the total is
$32,300 (20,000 + 4,000 + 2,800 + 5,500). The credit column totals
$7,500 (300 + 100 + 3,500 + 3,600). The difference between the
debit and credit totals is $24,800 (32,300 – 7,500).

A journal keeps a historical account of all recordable transactions with which the company has engaged. In other words, a journal is similar to a diary for a business. When you enter information into a journal, we say you are journalizing the entry. Journaling the entry is the second step in the accounting cycle.

The credit is the larger of
the two sides ($4,000 on the credit side as opposed to $2,500 on
the debit side), so the Accounts Payable account has a credit
balance of $1,500. Recall that the general ledger is a record of each account and
its balance. Reviewing journal entries individually can be tedious
and time consuming.