Thursday, December 27, 2007

Journal Entries

The journal provides in a single location a chronological listing of every transaction affecting a company. Analyzing transactions and recording them as journal entries is the first step in the accounting process and something that every accountant must become very familiar with. A journal entry typically follows the conventional format for journal entries in that debits appear first and on the left and credits come second and are indented to the right. This is also the same with the rules for debits and credits.

Accounting Journal Entry Example

A Small Business Consulting Company provided consulting service to a business client on January 1, and then billed them for $10,000. Later on February 1, the client made one cash payment of $3,000 and signed a promissory note for $7,000 to settle the account. What is the Small Business Consulting Company's journal entry on February 1?

When the company bills a company, that implies Accounts Receivable for 10000. On feb 1, a particular client made a cash payment of 3000 the journal entry for the Small Business Consulting company would be:

Debit CASH 3000
Credit Accounts Receivable

But, of the 10000 to 'receive' only 3000 were received and the rest (7000) were settled with th note receivable (signing of the note receivable transfers the amount in accounts receivable account to the notes payable account) Therefore, the difference between the amount to receive and the actual amount received (10000-3000 = 7000) is debited to notes receivable account.

Debit Cash 3000
Debit Notes Receivable. 7000
Credit Accounts Receivable 10000

Additional Accounting Journal Entry Example

Here is another example of an accounting journal entry:

Additional Accounting Examples:

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