Journal Entries
Analyzing
transactions and recording them as journal entries is the first step in the accounting
cycle. It begins at the start of an accounting period and continues during the
whole period. Transaction analysis is a process which determines whether a
particular business event has an economic effect on the assets, liabilities or
equity of the business. It also involves ascertaining the magnitude of the
transaction i.e. its currency value.
After
analyzing transactions, accountants classify and record the events having
economic effect via journal entries according to debit-credit rules.
Frequent journal entries are usually recorded in specialized journals, for
example, sales journal and purchases journal. The rest are recorded in a
general journal.
The following example
illustrates how to record journal entries:
Example
Otto Repair Shop was organized
on January 1, 2015 with an initial capital of P100,000. During the first month
of its operations, the company engaged in following transactions:
|
Date
|
Transaction
|
|
Jan 1
|
R. Papa invested P100,000 in cash
to capitalize the business.
|
|
Jan 2
|
An amount of P12,000 was paid as rent
for the month of January.
|
|
Jan 3
|
Paid P60,000 cash on the purchase
of equipment costing P80,000. The remaining amount was recognized as a one
year note payable with interest rate of 9%.
|
|
Jan 4
|
Purchased office supplies costing P17,600
on account.
|
|
Jan 13
|
Provided services to its customers
and received P28,500 in cash.
|
|
Jan 13
|
Paid the accounts payable on the
office supplies purchased on January 4.
|
|
Jan 14
|
Paid wages to its employees for
first two weeks of January, aggregating P19,100.
|
|
Jan 18
|
Provided P54,100 worth of services
to its customers. They paid P32,900 and promised to pay the remaining amount.
|
|
Jan 23
|
Received P15,300 from customers
for the services provided on January 18.
|
|
Jan 25
|
Received P4,000 as an advance
payment from customers.
|
|
Jan 26
|
Purchased office supplies costing P5,200
on account.
|
|
Jan 28
|
Paid wages to its employees for
the third and fourth week of January: P19,100.
|
|
Jan 31
|
Withdraw P5,000 cash for personal
use.
|
|
Jan 31
|
Received electricity bill of P2,470.
|
|
Jan 31
|
Received telephone bill of P1,494.
|
|
Jan 31
|
Miscellaneous expenses paid during
the month totaled P3,470
|
The following table
shows the journal entries for the above events.
|
Date
|
Account
|
Debit
|
Credit
|
|
Jan 1
|
Cash
|
100,000
|
|
|
|
R.Papa, Capital
|
|
100,000
|
|
Jan 2
|
Rent Expense
|
12,000
|
|
|
|
Cash
|
|
12,000
|
|
Jan 3
|
Equipment
|
80,000
|
|
|
|
Cash
|
|
60,000
|
|
|
Notes Payable
|
|
20,000
|
|
Jan 4
|
Office Supplies
|
17,600
|
|
|
|
Accounts Payable
|
|
17,600
|
|
Jan 13
|
Cash
|
28,500
|
|
|
|
Service Revenue
|
|
28,500
|
|
Jan 13
|
Accounts Payable
|
17,600
|
|
|
|
Cash
|
|
17,600
|
|
Jan 14
|
Wages Expense
|
19,100
|
|
|
|
Cash
|
|
19,100
|
|
Jan 18
|
Cash
|
32,900
|
|
|
|
Accounts Receivable
|
21,200
|
|
|
|
Service Revenue
|
|
54,100
|
|
Jan 23
|
Cash
|
15,300
|
|
|
|
Accounts Receivable
|
|
15,300
|
|
Jan 25
|
Cash
|
4,000
|
|
|
|
Unearned Revenue
|
|
4,000
|
|
Jan 26
|
Office Supplies
|
5,200
|
|
|
|
Accounts Payable
|
|
5,200
|
|
Jan 28
|
Wages Expense
|
19,100
|
|
|
|
Cash
|
|
19,100
|
|
Jan 31
|
R. Papa, Drawing
|
5,000
|
|
|
|
Cash
|
|
5,000
|
|
Jan 31
|
Electricity Expense
|
2,470
|
|
|
|
Utilities Payable
|
|
2,470
|
|
Jan 31
|
Telephone Expense
|
1,494
|
|
|
|
Utilities Payable
|
|
1,494
|
|
Jan 31
|
Miscellaneous Expense
|
3,470
|
|
|
|
Cash
|
|
3,470
|
