Debit Cash. Journalizing Transactions. Problem 2-2b. Created 2009 By Michael Worthington Elizabeth City State University

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1 Journalizing Transactions Created 2009 By Michael Worthington Elizabeth City State University Lela Peterson transferred cash from a personal bank account to the account used for the business Entity states that the business and owner are separate, so anything personal goes through the Capital Account Double-entry Bookkeeping means that at two accounts are involved in each transaction: In this case, CASH & CAPITAL Debit Cash Cash increased Cash is an with a normal debit balance Post to the normal balance side to increase an account Post a debit to cash Debit Cash $9,000 Credit 1

2 Every journal entry must contain at least one debit & one credit Since Cash was debited, the other account must be credited Cash $9,000 Capital, Lela Peterson $9,000 Lela Peterson invested money in the business, so the Capital Account increased Capital has a normal balance, so credit the account to increase it Paid rent on office and equipment for month, $2,000 Paying rent means Rent Expense Double-entry Bookkeeping means that at two accounts are involved in each transaction: In this case, CASH and EXPENSE Cash decreased Credit Cash when paid Cash is an asset with a normal debit balance To decrease an account, post to the side opposite the normal balance side So post a to cash Cash $2,000 2

3 Every journal entry must contain at least one debit & one credit Since Cash was credited, the other account must be debited Rent Expense $2,000 Cash $2,000 Always debit so debit Rent Expense Purchased supplies on account, $700 Account is involved on account means on credit, so it involves Accounts Payable or Accounts Receivable Will the business receive or pay money? If they will eventually receive money it is Accounts Receivable If they will eventually pay money, it is Accounts Payable Credit Accounts Payable Accounts Payable because they must eventually pay for supplies Accounts Payable is a liability with a normal credit balance To increase an account, post to the normal balance side So post a credit to Accounts Accounts Payable $2,000 3

4 Every journal entry must contain at least one debit & one credit Since Accounts Payable was credited, the other account must be Supplies $ 700 Accounts Payable $ 700 Supplies increased, and Supplies is an asset with a normal debit balance, so debit Supplies to increase its balance Paid creditor on account, $290 Account is involved on account means on credit, so it involves Accounts Payable or Accounts Receivable Did the business receive or pay money? If they receive money, Accounts Receivable If they pay money, it is Accounts Payable Credit Cash when paid When the business pays for something, cash decreases Cash is an asset with a normal balance To decrease an account, post to the side opposite of the normal balance So credit Cash to decrease the balance Cash $290 4

5 Every journal entry must contain at least one debit & one credit Since Cash was, the other account must be debited Accounts Payable $ 290 Cash $ 290 Payment on account reduces the amount due to the creditor Accounts Payable is a liability, with a normal credit balance To decrease an account, post to the side opposite of the normal balance side Earned sales commissions, receiving cash, $10,750 Sales Commissions is the name of one of the accounts listed in the problem When a realty company receives sales commission, it s revenue Revenue should always be Sales Commissions $10,750 Every journal entry must contain at least one debit & one credit Since Commissions was credited, the other account must be debited Cash $10,750 Sales Commissions $10,750 Receipt of cash increases the balance of cash Cash is a asset, with a normal debit balance To increase an account, post to the normal balance side, so debit cash for an increase 5

6 Paid automobile expenses, $1,400 and miscellaneous expenses, $580 Account is involved Automobile Expense and Miscellaneous Expenses are listed as account titles Credit Cash when paid When the business pays for something, cash decreases Cash is an asset with a normal debit balance To decrease an account, post to the side opposite of the normal balance So Cash to decrease the balance Cash $1,880 ($1,400 + $480 = $1,880) Two different expense accounts were listed Since Cash was credited the expense accounts must be debited Automobile Expense $1,400 Miscellaneous Expenses $ 480 Cash $1,880 ALWAYS expense accounts 6

7 Paid office salaries, $2,500 Look for clue words that identify accounts Office Salaries is listed as an account title Credit Cash when paid When the business pays for something, cash Cash is an asset with a normal debit balance To decrease an account, post to the side opposite of the normal balance So credit Cash to decrease the balance Cash $2,500 Office Salaries Expense was listed Since Cash was credited, the expense account must be debited Office Salaries Expense $2,500 Cash $2,500 ALWAYS expense accounts 7

8 Determined the cost of supplies used was $575 The Supplies Account is involved Word used means an Always debit expenses DebitCredit Supplies Expense $ 575 Supplies Account was indicated Since Supplies Expense was, the Supplies Account must be credited Supplies Expense $ 575 Supplies $ 575 When supplies are used the amount decreases Supplies is an asset with normal debit balance Post to opposite side to decrease account So post to credit side to decrease Supplies Withdrew cash for personal use, $1,000 Withdrew indicates the Account 8

9 Always credit cash to decrease the balance Drawing Account was indicated Since Cash was the Drawing Account must be debited Drawing $1,000 Cash $1,000 T Accounts Cash Supplies Acct Pay Capital Drawing Sales Commissions Salaries Expense Rent Expense Auto Expense Supplies Expense 575 Misc Exp 480 Trial Balance DEBIT CREDIT Cash $12080 Supplies 125 Acct Payable $ 410 Capital 9000 Drawing 1000 Sales Commissions Offices Expense 2500 Rent Expense 2000 Auto Expense 1400 Supplies Expense 575 Misc Expense 480 TOTALS $20,160 $20,160 REVENUES $10,750 EXPENSES NET INCOME MINUS $6,955 EQUALS $3,795 9