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Journal Entries

Journal Entries

Author: Evan McLaughlin

Determine the accounts and amounts for a journal entry.

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Source: Instrumental “Drops of H2O ( The Filtered Water Treatment )" by J.Lang (feat. Airtone),” Creative Commons,

Video Transcription

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Hey, everyone. Welcome to today's video on journal entries. So what is today's video all about? We're going to look at two main topics. We're going to review the general journal. And then we're going to discuss journal entries in a little more detail and look at some examples.

So let's start with a review. The general journal, this is the original book of entry. And it contains the transaction detail for our accounting events in a chronological order.

Now our journal entries, those are specific changes to accounts, so our debits and our credits. And again, it derives its name from its use within the general journal. And if we go back to our accounting cycle, starting with analysis, so if we perform our analysis and determine that there is an accounting event, the next step would be to journalize the transaction. But no entries, no journal entries, until accounting events have taken place.

So the general journal, let's dive into some examples. We have a transaction, purchased $10,000 of equipment for cash. So which accounts are involved? Which accounts do you think are involved when we purchase $10,000 of equipment for cash?

Well, we know that we're going to have equipment. So we're purchasing an asset, so our assets are going up. And remember this reference number is from our chart of accounts. So in this case, account number 3001, debit of $10,000.

And then we also have to have at least one credit. In this case we're paying cash, so a credit to our cash account of $10,000. Now what you see there is our journal entry within our general journal for this transaction.

So now let's look at our next transaction. Purchased $10,000 of equipment, but on account. So which accounts are involved?

We use the same date. We know that we're purchasing equipment, so our equipment's going up with a $10,000 debit.

But what's our credit going to be to? It's not cash in this case. Since it's on account, it's going to be accounts payable. So it's a liability. It's money that's owed.

And liabilities are increased with credits. So then we have a $10,000 debit to equipment and a $10,000 credit to accounts payable. Now it's important to note here that the unique identifier for a journal entry here is J102. So that unique identifier is changing with each transaction that we're adding to our general journal.

Next transaction. So we're making a partial payment of $5,000 for that equipment that we just purchased on account. So what accounts do you think are involved in this case, a partial payment for the equipment that we purchased on account?

So if we're paying down a liability, that must mean we have to debit our accounts payable. And if we're paying cash for that, that must mean our cash is going down too. So then we have a credit to cash of $5,000.

Next transaction. So if we have a payment for $10,000 of equipment purchased on account, so in this case, we're going to look at what if we paid the entire balance owed for that equipment that we purchased on account? So which accounts are involved?

Similar to the last entry that we made, accounts payable. We're paying off our entire balance, so we're paying all $10,000. And again, the liabilities are reduced by debits. So a $10,000 debit to accounts payable.

Then we also have to have a credit to cash. So we're paying cash. And assets, cash is an asset, are reduced by credits. So that means we have a credit to cash of $10,000.

Next transaction. A withdrawal of $2,000 cash by the owner. So what accounts do you think would be involved in this case, a withdrawal of $2,000 by an owner of the business?

Owner's draws. OK. So that's a reduction of our equity, because the owner is pulling cash out, so his equity's going down. So we record that with a $2,000 debit within our journal entry.

So the credit, if he's taking cash out, that must mean cash is going down. Assets again are reduced by credits. So we have a $2,000 credit to our cash account.

Couple more transactions left. So what's our transaction? Receipt of $20,000 cash for future services. So we're receiving $20,000 cash now for services that we're going to perform in the future but we haven't done yet. So which accounts do you think are involved there?

Well, we know if we're receiving cash that must mean our assets are going up. So we would debit our cash account.

But what do you think the credit is to? So it's future services that haven't been performed yet. So it wouldn't be revenue. It would be unearned revenue. So it's a liability, because we haven't performed those services yet but we have an obligation to perform them because we've been paid. And since liabilities are increased with credits, that's a credit to our unearned revenue.

Last transaction that we're going to look at today. Payment of $1,000 cash for a future expense. So what are we doing with our expense? Are we pre-paying the expense?

We are. So that's a prepaid expense, which is an asset. So it gets recorded with a $1,000 debit in our journal entry within our general journal.

So what's our offsetting credit? We paid $1,000 cash. That must mean our cash is going down. So we would credit cash for $1,000.

So now let's review what we've talked about today. We performed a review of the general journal as well as journal entries. And we looked at several examples. Those examples included entries to cash, equipment, prepaid expense, accounts payable. We even looked at deferred revenue and owner's draws, so we covered a lot of examples today.

I hope everyone enjoyed this video. And I hope to see you next time.