So, you want to learn
Bookkeeping!
Special Journals
by Bean Counter's Dave Marshall
Copyright © 2003 Bean Counter
Here I am ! I told you I'd drop by your office. My meter is running so Headknocker put on your thinking cap so we don't run up a big bill for your boss. With help from me your journal entries for the January transactions are recorded as follows.
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Navigation:
Click on the Journal Entry Number (1,2,3,etc.) for detailed transaction information.

General Journal Page 1
Entry Number Date Account Name Post Ref. Debit Credit
1 Jan 2, xxxx Cleaning Equipment 150 2500  
    Accounts Payable 200   2500
Record invoice # 805 from Super Buffer Company for 5 buffers purchased.
2 Jan 3, xxxx Rent 510 1000  
    Cash 100   1000
Record check # 2500 to Slum Landlord for January Rent.
3 Jan 3, xxxx Cash 100 2500  
    Loan From Bank 250   2500
Record loan from Friendly Bank for cleaning equipment.
4 Jan 5, xxxx Accounts Receivable 125 500  
    Janitorial Service Revenue 400   500
Record our invoice # 1050 to XXX Movie for cleaning services provided.  
5 Jan 6, xxxx Office Supplies 505 125  
    Cash 100   125
Record office invoice # A765 and our check # 2501 to JJ's Office Supply.
6 Jan 7, xxxx Professional Services 504 25  
    Cash 100   25
Record invoice # 1-7-xxxx and our check # 2502 to Bean Counter.
7 Jan 7, xxxx Contract Labor 500 200  
    Cash 100   200
Record check # 2503 to Jack Ofalltrades for temporary help.
8 Jan 7, xxxx Cleaning Supplies 501 300  
    Accounts Payable 200   300
Record invoice # 89 from Cleaning Supplies Inc dated Jan 7, xxxx.
9 Jan 10, xxxx Accounts Receivable 125 200  
    Cleaning Service Revenue 400   200
Record our invoice # 1051 to Mel's Diner for cleaning services provided.
10 Jan 10, xxxx Telephone 503 125  
    Accounts Payable 200   125
Record bill from Cheap Calls dated Jan 10, xxxx. for telephone services.
11 Jan 12, xxxx Utilities 506 250  
    Accounts Payable 200   250
Record electric bill invoice SU-1-12-xxxx from Shock Us dated Jan 12, xxxx.
12 Jan 20, xxxx Advertising 502 50  
    Cash 100   50
Record advertising bill dated Jan 20, xxxx from Community Gossip paid with our check # 2504.
13 Jan 24, xxxx Owner's Draw 350 500  
    Cash 100   500
Record our check # 2505 dated Jan 24, xxxx for the bosses night on the town.
14 Jan 28, xxxx No Entry To Make      
    No Entry To Make      
I tried to trick you. No entry is required until we perform services and bill.
15 Jan 28, xxxx Vehicle Operation 512 700  
    Accounts Payable 200   700
Record statement dated Jan 28, xxxx from Got Gas (GG-1-28-xxxx) for gas purchased.
           
           
 

Your Simplified Chart of Accounts for this exercise follows:

Asset Accounts-100-199

Cash In Bank-100
Accounts Receivable-125
Cleaning Equipment-150
Trucks & Vehicles-155
Office Equipment-175

Liability Accounts-200-299

Accounts Payable-200
Loans from Bank-250

Owner's Capital-300
Owner's Draws-350

Expense Accounts-500-599

Contract Labor-500
Cleaning Supplies-501
Advertising-502
Telephone-503
Professional Services (Me)-504
Office Supplies-505
Utilities-506
Entertainment-507
Insurance expense-508
Property tax expense-509
Rent-510
Maintenance & Repairs-511
Vehicles Operation-512

Revenue/Sale Accounts-400-499

Janitorial Service Revenue-400

 
All You Need To Know About Debits and Credits
Summarized In One Sentence
:

Enter an amount in the Normal Balance Side of an Account to Increase the Balance of an Account and in the Opposite Side of an Account to Decrease the Balance of an Account.

Return To Transaction

Additional Clarification:
Since Assets, Draw, and Expense Accounts normally have a Debit Balance, in order to Increase the Balance of an Asset, Draw, or Expense Account enter the amount in the Debit or Left Side Column and in order to Decrease the Balance enter the amount in the Credit or Right Side Column.

Likewise, since Liabilities, Owner's Equity (Capital), and Revenue Accounts normally have a Credit Balance in order to Increase the Balance of a Liability, Owner's Equity, or Revenue Account the amount would be entered in the Credit or Right Side Column and the amount would be entered in the Debit or Left Side column to Decrease the Account's Balance.

How To Use and Apply The Debit and Credit Rules:

(1) Determine the types of accounts the transactions affect-asset, liability, revenue, or expense account.
(2) Determine if the transaction increases or decreases the account's balance.
(3) Apply the debit and credit rules based on the types of accounts and whether the balance of the account will increase or decrease.

Your Type of Transaction Listing
and the Debits and Credits and Accounts Used To Record Them

Sale-Sell goods and/or services

  • (1) Cash Sale-customer pays at the time of sale
    The business gets cash or a check from their customer and gives up a product or service to their customer.
    Accounts Used:
    Debit: Cash   
    Credit: Sales
  • (2) On Account Sale-business allows the customer time to pay
    The business gets a promise to pay from their customer and gives up a product or service to their customer.
    Accounts Used:
    Debit: Accounts Receivable   
    Credit: Sales

Purchase goods and/or services

  • (3) Cash Purchase-business pays the supplier at the time of purchase
    The business gets a product or service from their supplier and gives up cash or a check to their supplier.
    Accounts Used:
    Debit: Expense or Inventory Account   
    Credit: Cash
  • (4) On Account Purchase-supplier allows the business time to pay
    The business gets a product or service from a supplier and gives up a promise to pay to their supplier.
    Accounts Used:
    Debit: Expense or Inventory Account   
    Credit: Accounts Payable

    Return To Transaction

(5) Pay Supplier Charge Purchases -pay suppliers for products and/or services that we promised to pay for later (charge).
The business gets the amount of their promise to pay the supplier reduced and gives up cash or a check.
Accounts Used:
Debit: Accounts Payable   
Credit: Cash

(6) Receive Customer Charge Payments -receive payments from a customer that promised to pay us later (charge sale).
The business gets cash or a check from their customer and gives up (reduces the amount of) their customer's promise to pay.
Accounts Used:
Debit: Cash   
Credit: Accounts Receivable

(7) Borrow Money (Loans) The business gets cash or equipment and gives up a promise to pay.
Accounts Used:
Debit: Cash or Equipment   
Credit: Note Payable

(8) Repay a Loan
The business gets the amount of their promise to pay reduced and gives up cash or a check.
Accounts Used:
Debit: Note Payable   
Credit: Cash

(9) Draw
The business gets the owner's claim to the business assets reduced and gives up cash or a check.
Accounts Used:

Debit: Owner's Draw   
Credit: Cash

(10) Payroll (not covered in this tutorial)
The business gets services from their employees and gives up a check.
Accounts Used:
Debit: Salary & Wages Expense   
Credit: Cash

Bean Counter's RUDUUUDD

Let's use Bean Counter's seven simple steps (RUDUUDD) to analyze and record our transactions:

  1. Recognize that a transaction (event) has occurred and what source documents such as sales invoices (tickets), invoices from suppliers, contracts, checks written or checks received , provide documentation (proof) that a transaction has occurred.
  2. Understand how the transaction (event) affects the business-the type of transaction and whether it needs to be recorded in the formal bookkeeping records.
  3. Determine what accounts are affected and whether the transaction increases or decreases the account balance.
  4. Use the business's Chart of Accounts when necessary to determine the account numbers that represent these accounts.
  5. Use the debit and credit rules to determine if the accounts are debited or credited.
  6. Determine what Journal should be used to record the transaction.
  7. Do It-Record the transaction.

For each transaction for XYZ Cleaning we will identify the Source Document, the Type Of Transaction, Accounts Affected, Account Numbers To Use, Determine and Explain the Debits and Credits Needed, and Do It (Properly Record the Transaction). Wait a minute a step was omitted. You're absolutely right. I omitted determining what Journal should be charged because for this exercise we're recording all our transactions in the General Journal. Be patient, we'll be using our Special Journals in future lessons.

January xxxx Transactions (Events)

Navigation:
Click on the Date or Do It to see the Journal Entry Recorded in the General Journal. Click on the Journal Entry Number (1,2,3,4,...) to return here.

For the first transaction I have also provided a link to the Type of Transaction List, Chart Of Account List, and the Debit and Credit Rules. Click on the Underlined Link to return here.

1.January 2, xxxx we receive invoice # 805 dated January 1, xxxx from Super Buffer Company in the amount of $2,500 for the purchase of 5 new buffer machines. We have an open account with Super Buffers that allows us to take up to 30 days to pay.

Source Document:Invoice # 805
Type Of Transaction:Purchase On Account
Accounts Affected:Cleaning Equipment/Accounts Payable
Account Numbers:Cleaning Equipment-150/Accounts Payable-200
Debits and Credits:Increase Cleaning Equipment (Asset)-Debit/Increase-Accounts Payable (Liability)-Credit
Explanation:Since the purchase of equipment is an increase in an asset and the normal balance of an asset is a debit balance the balance of the account is increased by debiting Cleaning Equipment Account and since the normal balance of a liability account is a credit balance the increase in the liability account is recorded as a credit in the Accounts Payable Account.
Debit/Credit Rule

Do It

2.January 3, xxxx wrote our check # 2500 for $1000.00 to Slum Landlord Enterprises for January rent (we're just a little guy and can't afford a fancy complex).

Source Document:Check # 2500
Type Of Transaction:Cash Purchase
Accounts Affected:Cash/Rent
Account Numbers:Cash-100/Rent-510
Debits and Credits:Decrease Cash (Asset)-Credit/Increase Rent Expense (Expense)-Debit
Explanation:Since the normal balance of an expense account is a debit balance, the increase in an expense account is recorded as a debit in the Rent Expense Account, and since the normal balance of the asset cash is a debit balance and debits increase assets, we use the opposite which is a credit to record the decrease and credit the Cash Account.
Do It

3.January 5, xxxx we received a notice that our loan that we requested for $2,500 in order to have the funds available to pay for the buffers purchased from Super Buffer Company was approved. We also received our signed Note dated Janauary 3, xxxx along with a copy of our deposit slip dated January 3, xxxx where the bank had deposited the funds to our checking account.

Source Document(s):Note/Deposit Slip
Type Of Transaction:Borrow Money
Accounts Affected:Cash (Asset)/Loan From Bank (Liability)
Account Numbers:Cash-100/Loan From Bank-250
Debits and Credits:Increase Cash-Debit/Increase Loan From Bank-Credit
Explanation:Since an increase in Cash is an increase to an asset account and an asset account normally has a debit balance the Cash Account is debited and the increase in the liability account Loan From Bank, which normally has a credit balance, is credited..
Do It

4.January 5, xxxx we billed our customer XXX Movie Theater $500.00 on our Invoice # 1050 dated January 5, xxxx for cleaning services we provided. We like the owners (they give us free tickets) so we have an open account set up for them that allows them 30 days to pay us.

Source Document:Invoice # 1050
Type Of Transaction:Sale on Account (Charge Sale)
Accounts Affected:Accounts Receivable/Janitorial Service Revenue
Account Numbers:Accounts Receivable-125/Janitorial Service Revenue-400
Debits and Credits:Increase Accounts Receivable-Debit/Increase Janitorial Service Revenue-Credit
Explanation:Since an increase in an asset account is a debit, the asset account Accounts Receivable, which normally has a debit balance, is debited and the increase in the revenue account Janitorial Service Revenue, which normally has a credit balance, is credited.
Do It

5.January 6, xxxx we visited JJ's Office Supply and bought copy paper, pens & pencils, and ink cartridges. JJ gave us his bill, invoice # A765 dated January 6, xxxx for $125.00 and we wrote him our check, number 2501, for the total amount of the purchase.

Source Documents:Invoice # A765/Check # 2501
Type Of Transaction:Cash Purchase
Accounts Affected:Cash/Office Supplies
Account Numbers:Cash-100/Office Supplies-505
Debits and Credits:Decrease Cash (Asset)-Credit/Increase Office Supplies (Expense)-Debit
Explanation:Since an asset is increased using a debit, the opposite which is a credit is used to record the decrease and the account Cash (Asset) is credited, and since an expense account normally has a debit balance, the increase in the expense account Office Supplies is debited.
Do It

6.January 7, xxxx we received an invoice from our smart accountant Bean Counter's Dave Marshall dated January 2, xxxx in the amount of $25.00 for 8 hours of consulting (cheap aren't I). His bills are due upon receipt. We think he's great so we immediately wrote him check # 2502 dated January 7, xxxx.
Note:I'm not really that cheap, but I am reasonable.

Source Document:Check # 2502/Bean Counter's Invoice
Type Of Transaction:Cash Purchase
Accounts Affected:Cash/Professional Fees
Account Numbers:Cash-100/Professional Services-504
Debits and Credits:Decrease Cash (Asset)-Credit/Increase Professional Fees (Expense)-Debit
Explanation:Since an asset normally has a debit balance and is increased using a debit, a decrease in an asset is recorded using the opposite which is a credit so the Cash Account is credited and since an expense account normally has a debit balance, the increase in the expense account Professional Fees is debited.
Do It

7.January 7, xxxx wrote check # 2503 for $200.00 to Jack Ofalltrades who occasionally helps us clean our customer's businesses.

Source Document:Check # 2503
Type Of Transaction:Cash Purchase
Accounts Affected:Cash/Contract Labor
Account Numbers:Cash-100/Contract Labor-500
Debits and Credits:Decrease Cash (Asset)-Credit/Increase Contract Labor (Expense)-Debit
Explanation:Since an asset normally has a debit balance and is increased using a debit, a decrease in an asset is recorded using the opposite which is a credit so the Cash Account is credited and since an expense account normally has a debit balance, the increase in the expense account Contract Labor is debited.
Do It

8.January 8, xxxx received invoice # 89 from Cleaning Supplies Inc. dated January 7, xxxx in the amount of $300.00 for supplies we purchased. We have an open account with Cleaning Supplies that allows us 30 days to pay.

Source Document:Invoice # 89
Type Of Transaction:Purchase On Account
Accounts Affected:Cleaning Supplies (Expense)/Accounts Payable (Liability)
Account Numbers:Cleaning Supplies-501/Accounts Payable-200
Debits and Credits:Increase Cleaning Supplies (Expense)-Debit/Increase Accounts Payable (Liability)-Credit
Explanation:Since an expense account normally has a debit balance, an increase to an expense account is a debit and the Cleaning Supplies Account is debited, and since a liability account normally has a credit balance, the increase in the liability account Accounts Payable is credited.
Do It

9.January 10, xxxx we billed Mel's Diner on our invoice # 1051 dated January 10, xxxx $200.00 for cleaning services we provided. Mel's food is not that great so his payment terms are due upon receipt. Mel has not yet sent us a check.

Source Document:Invoice # 1051
Type Of Transaction:Sale On Account
Accounts Affected:Accounts Receivable/Cleaning Service Revenue
Account Numbers:Accounts Receivable-125/Cleaning Service Revenue-400
Debits and Credits:Increase Accounts Receivable (Asset)-Debit/Increase Cleaning Service Revenue (Revenue)-Credit
Explanation:Since an asset account normally has a debit balance,an increase in an asset account is recorded as a debit and the Accounts Receivable Account is debited and since a revenue account normally has a credit balance, the account Cleaning Service Revenue is credited since the transaction also represents an increase in a revenue account. Quick Reminder:That double entry rule we learned about in my Introductory Tutorial.
Do It

10.January 15, xxxx we received our telephone bill from Cheap Calls dated January 10, xxxx in the amount of $125.00 due in 10 days.

Source Document:Monthly Telephone Bill (Statement)
Type Of Transaction:Purchase On Account
Accounts Affected:Telephone Expense/Accounts Payable
Account Numbers:Telephone-503/Accounts Payable-200
Debits and Credits:Increase Telephone Expense (Expense)-Debit/Increase Accounts Payable (Liability)
Explanation:Since an increase to an expense account is a debit the Account Telephone Expense is debited and the increase to the liability account Accounts Payable is credited.
Do It

11.January 17, xxxx we received our monthly utility bill (electricity) from Shock Us dated January 12, xxxx in the amount of $250.00 due in 10 days.

Source Document:Monthly Utility Bill
Type Of Transaction:Purchase On Account
Accounts Affected:Utilities/Accounts Payable
Account Numbers:Utilities-506/Accounts Payable-200
Debits and Credits:Increase Utilities (Expense)/Increase Accounts Payable (Liability)-Credit
Explanation:Since Since an expense account normally has a debit balance and is increased using a debit, the increase to the expense account is recorded by debiting he Account Utilities Expense account and since a liability account normally has a credit balance the increase to the liability account Accounts Payable is credited.
Do It

12.January 20,xxxx visited our local newspaper Community Gossip and placed an ad to try to drum up some new customers. Wrote our check # 2504 in the amount of $50.00 dated January 20, xxxx and received receipt number # 1-20-505 from their representative.

Source Documents:Check # 2504/Receipt #1-20-505
Type Of Transaction:Cash
Accounts Affected:Cash/Advertising
Account Numbers:Cash-100/Advertising-502
Debits and Credits:Decrease Cash (Asset)-Credit/Increase Advertising (Expense)-Debit
Explanation:Since an asset account normally has a debit balance and is increased using a debit, a decrease to an asset account is recorded using the opposite so the Cash Account is credited and since an expense account normally has a debit balance the increase to the expense account Advertising is recorded using a debit.
Do It

13.January 25,xxxx Big Boss (our boss and owner) hands us a paid bill from our local fancy restaurant Yummy For The Tummy where he and hopefully his wife (maybe girl friend) enjoyed a wonderful dinner and drinks. On the bill he noted that he paid this bill with company check number #2505 for the amount of $500.00 dated January 24, xxxx. Based on the amount I hope they had a nice time !

Source Document:Check # 2505/Restaurant Bill
Type Of Transaction:Draw
Accounts Affected:Cash/Draw
Account Number:Cash-100/Draw-350
Debits and Credits:Increase Owner's Draw-Debit/Decrease Cash-Credit
Explanation:Since a draw account normally has a debit balance and is increased using a debit, the increase to the draw account is recorded as a debit and since an asset account normally has a debit balance, the opposite is used to record a decrease so the decrease in the asset cash is recorded as a credit.

Note:Big Boss asked why we didn't charge this to Entertainment Expense. We told him that this is reserved for entertaining for business purposes-not "monkey business" and that any expenditures for personal purposes are charged to Owner's Draw.
Do It

14.January 28, xxxx we received a signed contract in the mail from Big Office Complex for us to provide monthly cleaning services to them at the rate of $2,0000 a month beginning in February, xxxx.

Source Document:Contract
Type Of Transaction:Non Recordable
Accounts Affected:None
Account Numbers:None
Debits and Credits:None
Explanation:This was to keep you own your toes. Not all business transactions are recorded in the formal financial journals. We do ,however, definitely want to keep up with these type of transactions. This transaction will be recorded when we perform and bill the services.
Do It

15.January 31, xxxx received our monthly statement dated January 28, xxxx from Got Gas in the amount of $700.00 for gasoline we purchased for our company vehicles during January. Payment terms are due in 10 days.

Source Document:Monthly Statement-I assigned my own document number made up from the Suppliers Initial and the transaction date- GG-1-28-xxxx.
Type Of Transaction:Purchase On Account
Accounts Affected:Vehicle Operation/Accounts Payable
Account Numbers:Vehicle Operation-512/Accounts Payable-200
Debits and Credits:Increase Vehicle Operation (Expense)/Increase Accounts Payable (Liability)
Explanation:Since an expense account normally has a debit balance, a debit is used to record an increase. So, the Vehicle Operation Expense account is debited. Since a liability account normally has a credit balance, a credit is used to record an increase. So, the increase to the liability account Accounts Payable is recorded using a credit.
Do It

  • A few Things to Note:
  • How I assigned my own invoice document number when none was provided by the supplier. You will run across this at times when their is no "official" invoice or document number. While it's not absolutely necessary, I usually assign my own number using the date and/or the supplier's initials. Some businesses assign their own document control numbers to all documents-even those that already have a number. This is called a voucher and the process is called vouchering.
  • How not all transactions are recorded in the "formal" records immediately. Contracts, Purchase Orders, and Sales Orders are a few examples of information that a business keeps up with but that are not recorded in the formal journals until the sale or purchase is completed.
  • Dates used are not the date the transaction is recorded but the actual date that the transaction occurred (contained on the source document)
  • Even invoices that we billed that were due upon receipt were recorded as a sale at the time of billing. We didn't wait until we received the check from our customer.

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