![]() Accounting textbooks use two accounts with the word “Supplies”– Supplies (an asset), (sometimes called Supplies Asset), and Supplies Expense. “Supplies” is a tricky part of this transaction. When a payment is owed, we record it in a liability account called “Accounts Payable.” Purchases on account mean that the goods have been received but payment will be made later. Whenever an accounting textbook transaction using the phrase “on account”, it means no money has changed hands. Purchased office supplies on account, $3,300. The debit or credit indicates whether the account is increasing or decreasing.) Impact on the Accounting Equation: AssetsĬhart showing the impact of a transaction on the Accounting Equation. Journal Entry to record owner investment of cash. In the Joe Smith, Capital, the $55,000 deposit goes on the right (credit) side of the account because equity is increasing. In the journal entry, the $55,000 deposit to the bank account goes on the left (debit) side of the account because Cash is increasing. To increase an equity account, credit it. Joe Smith, Capital has the account type of Equity. The funds become a business asset recorded in the company’s books under an account called “Cash”.Ĭash has the account type of Asset. To put it differently, the funds represent the owner’s equity in the business and are recorded in an account called “Owner’s Name, Equity” or “Owner’s Name, Capital”. The business now owes that investment back to the business owner. When a business owner opens a business, they are turning personal funds into business funds. Opened a business bank account with a deposit of $55,000 from personal funds. Sample Accounting Transactions Step-by-step Determined that the cost of supplies on hand was $1,250 therefore, the cost of supplies used was $2,050.ġ0.Withdrew cash for personal use, $13,800. Paid automobile expenses for the month, $1,380, and miscellaneous expenses, $1,800.ĩ. Billed customers for fees earned for managing rental property, $30,800.ħ. Paid rent on office and equipment for the month, $8,300.Ħ. Received cash from fees earned for managing rental property, $18,300.Ĥ. Purchased office supplies on account, $3,300.ģ. Opened a business bank account with a deposit of $55,000 from personal funds.Ģ. He completed the following transactions during June:ġ. To demonstrate the correct method of completing journal entries, we will use the follow sample accounting transactions commonly found in accounting textbooks: On June 1 of the current year, Joe Smith established a business to manage rental property. For example, if the Account Name in the Chart of Accounts is Supplies Expense, the journal entry Account Name must be Supplies Expense, rather than Supplies or Supply Expense or Supplies Exp. The Account Name used in a journal entry must exactly match the Account Name from a company’s Chart of Accounts, an official list of accounts used by that company.
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