Analyzes of Business Transactions for a Corporation

Basic Everyday Journal Entries

These are some of the issues to consider when determining where or not a transaction has
occurred and if it can be recorded in the books of the company.

Did assets exchange hands?

Was there a purchase price?
Were sales or services provided to a customer?
What is the source document that confirms a transaction occurred? I.e. Invoice,
check, signed notes, sales slips, etc.
What accounts within the company were affected by this transaction?
o Asset accounts: Cash, Accounts Receivable, Supplies, Prepaid Expenses,
or Property, Plant and Equipment.
o Liability accounts: Accounts Payable, Notes Payable, Unearned Sale
Revenues, Other payable accounts such as Salaries Payable
o Stockholders’ Equity accounts: Common Stock, Retained Earnings,
Dividends, Revenues, and Expenses
Determine where the accounts were increased or decreased and by how much.
o Assets are increased on the debit side and decreased on the credit side
o Contra asset accounts: Allowance for Doubtful accounts and Accumulated
Depreciation are increased on the credit side and decreased on the debit
side
o Liabilities are increased on the credit side and decreased on the debit side
o Stockholders’ Equity accounts: Common Stock, Retained Earnings or
Revenues are increased on the credit side and decreased on the debit side
o Stockholders’ Equity accounts: Dividends, Expenses or Treasury stock are
increased on the debit side and decreased on the credit side
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.

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The Following are selected journal entries from Steele Furniture Store out of their general
journals.

Example 1: Issuance of stock to investors (owners)

On January 1, Jon invested $500,000 in his new furniture store.

Did assets exchange hands? Yes, Cash for a share of ownership in his new
company
Was there a purchase price? Yes, $500,000
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Stock
certificate issued by the company in return for a check from Jon.
What accounts within the company were affected by this transaction?
Cash and Common Stock
Determine where the accounts were increased or decreased and by how
much. Cash, a asset account increased by $500,000 and Common stock, a
stockholders’ equity account was increased by $500,000
Create a journal entry that includes at least one debit and one credit that
equal the same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in
the general journal.
o Credits are then recorded second and indented when a journal entry
is recorded in the general journal.
o A short concise description can be placed on the next line if so
desired.
Date Account Titles Dr Cr
5/3 Cash 500,000
Common Stock 500,000
Issuances of stock to owner

In this case the owner invested $500,000 cash into his own company and received
common stock in return for the cash.
Example 2: Payment of a dividend to the company’s owners also known as
stockholders
On September 5, Steele Furniture Store declared and paid a dividend of $100 to
stockholders’ of record

Did assets exchange hands? Yes, Steele Furniture Store paid investors cash.
Was there a purchase price? Yes, current market value for the stock
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Check from
the company to the stockholders of record.

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 What accounts within the company were affected by this transaction? Cash, an
asset account and Dividends, a contra equity account
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, decreased by $100 and Dividends, a stockholders’ equity
account which is a recording keeping account, increased by $100.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
9/5 Dividends 100
Cash 100
Payment of dividends

In this case the company gave back money to the investors as a return on investments
which does not decrease the amount of stock owned by the investors. It will reduce
the retained earnings for the company.
Example 3: Purchase of a long term asset. I.e. Equipment, furniture, or fixtures for
cash payment
On June 5, Jon purchased a copy machine for $2,500 cash.

Did assets exchange hands? Yes

Was there a purchase price? Yes, $2,500
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Invoice
or sales slip from the company which sold the machine to Steele Furniture
Store.
What accounts within the company were affected by this transaction?
Equipment and Cash
Determine where the accounts were increased or decreased and by how
much. Equipment, an asset account, increased by $2,500 and Cash, an
asset account, decreased by $2,500.
Create a journal entry that includes at least one debit and one credit that
equal the same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in
the general journal.
o Credits are then recorded second and indented when a journal entry
is recorded in the general journal.
o A short concise description can be placed on the next line if so
desired.

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Date Account Titles Dr Cr
9/5 Equipment 2,500
Cash 2,500
Purchased a copy machine

In this transaction one asset is exchanged for another so one increases while the other
decreases.

Example 4: Purchase of a long term asset. I.e. Equipment, furniture, or fixtures for
cash down payment and the balance on credit.
On August 1, Jon Doe purchases a company car for $20,000 with a down payment of
$5,000 and he signs a notes payable for the remaining sum.

Did assets exchange hands? Yes, Jon received a company car in exchange for
cash of $5,000 and a written promise to pay the remainder of $15,000 at a
future date in time.
Was there a purchase price? Yes, $20,000
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? They are
the signed note and a cashers check for the $5,000 down payment.
What accounts within the company were affected by this transaction? Cash,
Company vehicles, and Notes Payable
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, was reduced by $5,000, Company vehicle, an asset
account, was increased by $20,000 and Notes Payable, a liability account, and
was increased by $15,000.
Create a journal entry that includes at least one debit and one credit that equal
the same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
8/1 Company vehicle 20,000
Cash 5,000
Notes Payable 15,000
Purchased vehicle for company use

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 The car is considered an asset to the company so that account is debited for the total
value of the vehicle. Cash is reduced by the amount of the down payment so that
account is credited. And Notes payable is a liability to the company which is
increased so that account is also credited. This type of journal entry is called a
compound journal entry because more than two accounts are used to record the
transaction.

Example 5: Advance payment from a customer for payment of services or sales to be

performed at a future date.
On May 10, Jon receives a $10,000 cash advance payment for a custom made dinner
table and chairs that will be delivered one it is finished.

Did assets exchange hands? Yes, the company receives a cash advance
payment in return for a promise for future service.
Was there a purchase price? Yes, $10,000
Were sales or services provided to a customer? No, in the event of an
advance payment servers will not be performed at the time the money is
received.
What is the source document that confirms a transaction occurred? Check
from the customer
What accounts within the company were affected by this transaction?
Cash and Unearned Sales Revenue
Determine where the accounts were increased or decreased and by how
much. Cash, an asset account was increased by $10,000 and Unearned
Sales Revenue, a liability account, increased by $10,000.
Create a journal entry that includes at least one debit and one credit that
equal the same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in
the general journal.
o Credits are then recorded second and indented when a journal entry
is recorded in the general journal.
o A short concise description can be placed on the next line if so
desired.
Date Account Titles Dr Cr
5/10 Cash 10,000
Unearned Sales Revenue 10,000
Advance payment for Custom Dining Room Set

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Example 6: Providing the services or sales that the company is in the business to
perform for cash.
On May 3, Jon sold Mr. Jones, a customer, a bookcase for $2,000 cash and delivered it on
the same day.

Did assets exchange hands? Yes, a bookcase was delivered to Mr. Jones for cash
payment of $2,000.
Was there a purchase price? Yes, $2,000
Were sales or services provided to a customer? Yes, sales
What is the source document that confirms a transaction occurred? Sales slip from
Steele Furniture Store.
What accounts within the company were affected by this transaction? Cash and
Sales Revenues
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, was increased by $2,000 and Sales Revenues, a
Stockholder’s Equity account, was also increased by $2,000.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
5/3 Cash 2,000
Sales Revenues 2,000
Sold bookcase to Mr. Jones

The bookcase is considered inventory for the company so the sale of it is considered
revenue by the company. In this case cash was received at the time of the sale. If the
customer had been billed for the bookcase you would have debited Accounts Receivable
instead of cash.

Example 7: Providing the services or sales that eh company is in the business to

perform on credit. Customer will pay at a later date in time.
On June 6, Jon made and delivered six custom bedroom suits for a local bed and
breakfast at a cost of $60,000. When he delivered the suits he gave the management an
invoice for the items that had terms of n/30.

Did assets exchange hands? Yes, Jon delivered the suits to the bed and
breakfast along with an invoice which states terms of payment.
Was there a purchase price? Yes, $60,000
Were sales or services provided to a customer? Yes, Sales

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 What is the source document that confirms a transaction occurred? Invoice
from Steele Furniture Store.
What accounts within the company were affected by this transaction?
Accounts Receivable and Sales Revenues
Determine where the accounts were increased or decreased and by how
much. Accounts Receivable, an asset account, increased by $60,000 and
Sales Revenue, a Stockholders’ Equity account, increased by $60,000.
Create a journal entry that includes at least one debit and one credit that
equal the same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in
the general journal.
o Credits are then recorded second and indented when a journal entry
is recorded in the general journal.
o A short concise description can be placed on the next line if so
desired.
Date Account Titles Dr Cr
6/6 Accounts Receivable 60,000
Sales Revenues 60,000
Sold six bedroom suits

Example 8: Payment of cash on account for items purchases earlier on credit.

On July 1, Jon paid $10,000 cash on account for the past month.

Did assets exchange hands? Yes, Jon is paying off his accounts payable for items
charge on credit during the recent past.
Was there a purchase price? Yes, the balance in the accounts payable account.
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Company
check from Steele Furniture Store.
What accounts within the company were affected by this transaction? Cash and
Accounts Payable
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, decreased by $10,000 and Accounts Payable a liability
account, decreased by $10,000.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.

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Date Account Titles Dr Cr
7/1 Accounts Payable 10,000
Cash 10,000
Sold six bedroom suits

Example 9: On October 10 Received $60,000 cash on account from customers who

owes money to the company for services or sales.

Did assets exchange hands? Yes, Steele Furniture Store received cash to pay off
customer’s credit account.
Was there a purchase price? Yes, at the time of the sale the customer was given a
price for the goods sold and this amount was record in Steele Furniture Store’s
Accounts Receivable account.
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Customer’s
Check and the record of deposit for Steele Furniture Store.
What accounts within the company were affected by this transaction? Cash and
Accounts Receivable
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, increased by $60,000 and Accounts Receivable, an asset
account decreased by $60,000.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
10/10 Cash 60,000
Accounts Receivable 60,000
Received Payment from Customer on Account

Example 10: Payment of regular monthly bills with cash such as rent, utilities, or
salaries.
On October 28, Jon received a phone bill for $145 and the Monthly Utilities bill for
$350.

Did assets exchange hands? Yes, end of the month bills were paid by Steele
Furniture Store.
Was there a purchase price? Yes, the amount is record on the bills.
Were sales or services provided to a customer? No

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 What is the source document that confirms a transaction occurred? Monthly bills
What accounts within the company were affected by this transaction? Cash,
Telephone Expense, and Utilities Expense
Determine where the accounts were increased or decreased and by how much.
Cash, an asset decreased by $495, Telephone Expense, a stockholders’ equity
account, increased by $145, and Utilities Expense, a stockholders’ equity account
increased by $350.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
10/28 Telephone Expense 145
Utilities Expense 350
Cash 495
Paid monthly bills

Monthly bills that are paid during the course of the month are recorded as expenses.
Example 11: Recording of monthly expenses on account (credit) Bills accrued at
month’s end
On October 31, Jon received a bill for rent totaling $1,500 that is due on the first of
each month.

Did assets exchange hands? Yes, Steele Furniture Store incurred an expense that
will be paid at a later date in time.
Was there a purchase price? Yes, the amount record on the bill.
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Bill
What accounts within the company were affected by this transaction? Accounts
Payable and Rent Expense
Determine where the accounts were increased or decreased and by how much.
Rent Expense, a stockholders’ equity account, increased by $1,500 and Accounts
Payable, a liability, increased by $1,500.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.

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 o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
10/31 Rent Expense 1,500
Accounts Payable 1,500
Monthly rent

Monthly bill that do not come due until the following month are recorded in order to
match those expenses with the revenues that were earned in a specific fiscal time period.
Example 12: The purchase and prepayment of an asset with cash before it is used by
the company. I.e. Insurance, rent, or supplies.
On November 1, Jon purchased a six month insurance policy for the company
vehicle for $1,200.

Did assets exchange hands? Yes, the insurance policy is considered an asset to the
company until it is used up.
Was there a purchase price? Yes, the cost of the policy
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Insurance
policy and Company Check
What accounts within the company were affected by this transaction? Prepaid
Insurance and Cash
Determine where the accounts were increased or decreased and by how much.
Prepaid Insurance, an asset account, was increased by $1,200 and Cash, an asset
account, was decreased by $1,200.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
11/01 Prepaid Insurance 1,200
Cash 1,200
Purchased a six month policy

Things like insurance policies, supplies, tickets, magazines are considered assets until
they either expire or are used up during the course of business.

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Example 13: The purchase and prepayment of an asset on credit before it is used by
the company. I.e. Insurance, tickets, rent, or supplies.
On November 17, Jon purchased airplane tickets valued at $638 for a woodworking
conference in Hartford Connecticut for December 16-18.

Did assets exchange hands? Yes, an airplane ticket was purchased using credit.
Was there a purchase price? Yes
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Tickets and
Company check
What accounts within the company were affected by this transaction? Prepaid
Travel Expenses and Accounts Payable
Determine where the accounts were increased or decreased and by how much.
Prepaid Travel Expenses, an asset account, was increased by $638 and Account
Payable, a liability account, was increased by $638.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
11/17 Prepaid Travel Expense 638
Accounts Payable 638
Purchased Plane Tickets for Conference

Companies often purchase assets before they use them up in the normal course of
business.

Example 14: Borrowing money from a bank

On December 1, Jon borrowed $10,000 cash for the local community bank in order
to buy exotic lumber for his woodworking projects. Since the lumber is purchased in
small lots it was determined that it would be best to borrow the money as cash at
one time and use it over the next year for purchases of lumber.

Did assets exchange hands? Yes, cash for a promise to pay back the money with
interest in the future.
Was there a purchase price? Yes, the amount of the loan.
Were sales or services provided to a customer? No

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 What is the source document that confirms a transaction occurred? Signed Notes
Payable and check from bank.
What accounts within the company were affected by this transaction? Cash and
Notes Payable
Determine where the accounts were increased or decreased and by how much.
Cash, an asset account, was increased by $10,000 and Notes Payable, a liability
account, was increased by $10,000.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.
o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
12/1 Cash 10,000
Notes Payable 10,000
Bank loan for exotic lumber

Most of the time if an asset such as inventory is being purchase with credit then the asset
will be debited but in this case because the asset has not yet been determined because of
demand reasons the money was borrowed in advance in the form of cash.

Example 15: Purchase of items for resale to customers on credit

On December 15, Jon purchased on account silver tea services at a cost of $6,000 to
resale to customers that purchased his dining room sideboards.

Did assets exchange hands? Yes, tea services for a promise to pay in the future.
Was there a purchase price? Yes
Were sales or services provided to a customer? No
What is the source document that confirms a transaction occurred? Sales slip from
the company selling the silver tea services.
What accounts within the company were affected by this transaction? Specialty
Inventory and Accounts Payable
Determine where the accounts were increased or decreased and by how much.
Specialty Inventory, an asset account, was increased by $6,000 and Accounts
Payable, a liability account, was increased by $6,000.
Create a journal entry that includes at least one debit and one credit that equal the
same amount in both columns of a journal.
o Debits are always recorded first when a journal entry is recorded in the
general journal.
o Credits are then recorded second and indented when a journal entry is
recorded in the general journal.

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 o A short concise description can be placed on the next line if so desired.
Date Account Titles Dr Cr
12/15 Specialty Inventory 6,000
Account Payable 6,000
Purchase of tea services for resale

This asset was purchased by using credit there for not money exchanged hands at time of
the purchase.
Final notes: When determining which account titles to use always look for a trial balance,
a chart of accounts, hints for the question being answered or an example in the book that
you are using. While most account names will have a root element the actual titles varies
from one company to another. Example would be Sale Revenue where different
companies could use the title Sales, Furniture Sales, or Furniture Sale Revenue. Try to
avoid making up new account titles in the industry unless no other account can be found.

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