Friday, February 25, 2011

General Journal Entries Examples

The best way to learn general journal entries to work with examples. Let's get started.

Let’s first review the rules of debits and credits by working with the accounting equation (Assets = Liabilities + Stockholders’ Equity). Assets are increased with debits and decreased with credits.

Liabilities are increased with credits and decreased with debits.

Below are the some general journal entries

Transaction 1 - A new corporation issues 1,000 shares of common stock and receives $75,000 cash.

Step 2 -- The journal entry is
Cash 75,000
Common Stock 75,000

Transaction 2 -- The corporation acquires equipment. The purchase price is $100,000. The corporation pays $25,000 cash and signs a note for the balance.

The journal entry is:

Equipment 100,000
Notes Payable 75,000
Cash 25,000

This is a compound entry because it has more than one credit. A transaction can affect more than one debit and/or more than one credit account. The important point is that the total of all debits equals the total of all credits for each journal entry.

Transaction 3 -- Services are performed and clients are billed for $40,000.

The journal entry is
Accounts Receivable 40,000
Service Revenue 40,000

Transaction 4 -- Salaries of $10,000 are paid.

The journal entry is
Salaries Expense 10,000
Cash 10,000

Transaction 5 – Cash, in the amount of $20,000, is collected from clients who were previously billed. (Transaction 3 - Services were performed and clients were billed for $40,000.

The journal entry is:
Cash 20,000
AR 20,000

Transaction 6 -- $1,000 of supplies are purchased on account.

The journal entry is:
Supplies 1,000
AP 1,000

Transaction 7 -- A contract is signed with a client. The client immediately pays $15,000 for services to be performed at a later date.

The journal entry is:
Cash 15,000
Unearned Revenue 15,000

Transaction 8 -- $1,000 is paid for the supplies purchased in Transaction 6.]

The journal entry is:
Accounts Payable 1,000
Cash 1,000

Transaction 9 -- Services are performed and cash of $2,000 is received.

The journal entry is:
Cash 2,000
Service Revenue 2,000

Transaction 10 -- Dividends of $2,500 are paid to the stockholders.

The journal entry is:
Dividends 2,500
Cash 2,500

These ten examples have given you an opportunity to work with the rules of debits and credits. (Practice)

In addition, you are now comfortable with the two step process of analyzing transactions and then recording them in the general journal. (Confidence)

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