Accounting Examples 2

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In this article, you will learn some basic accounting transaction examples to guide you on your bookkeeping transactions or journal entries. In addition, financial statements disclose details concerning economic resources and the claims to those resources. But it’s important that anyone entering transactions and posting journal entries in accounting software understand which accounts to debit and credit.

Accounting Example

Since the gain is outside of the main activity of a business, it is reported as a nonoperating or other revenue on the company’s income statement. The amount of a long-term asset’s cost that has been allocated to Depreciation Expense since the time that the asset was acquired. Accumulated Depreciation is a long-term contra asset account (an asset account with a credit balance) that is reported on the balance sheet under the heading Property, Plant, and Equipment. The totals show us that the corporation had assets of $17,200 with $7,120 provided by the creditors and $10,080 provided by the stockholders. The accounting equation also reveals that the corporation’s creditors had a claim of $7,120 and the stockholders had a residual claim for the remaining $10,080. It will become part of depreciation expense only after the equipment is placed in service.

Insurance Expense

Income earned during a period of accounting but not received until the end of that period is called accrued income. Match your journal entry log to the ledger on a daily schedule instead of getting to it during the month-end. Daily reconciliation helps you catch gaps, duplications or missing approvals before they cause closing delays or reporting risk. Move all journal entries whether they are open, posted, or exceptions into a single, always-updated register. Every record should show date, account, amounts, approver, and a direct link to supporting docs.

Owner’s Withdrawal (Drawings)

Remember that even though the debit is split between two accounts, the total debit must always equal the total credit. But the total amount of the debit must equal the total amount of the credit. This post is ideal for accounting students, beginners, and professionals seeking to sharpen their knowledge of basic accounting principles.

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A company selling merchandise on credit will record these sales in a Sales account and in an Accounts Receivable account. Again, reporting revenues when they are earned results from the basic accounting principle known as the revenue recognition principle. Revenues accounts are credited when the company earns a fee (or sells merchandise) regardless of whether cash is received at the time.

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• Suppose Direct Delivery pays $1,200 on December 1 for a six-month insurance premium on its delivery vehicle.
• Sales are reported in the accounting period in which title to the merchandise was transferred from the seller to the buyer.
• As he enters his transactions, Joe will find the chart of accounts to be helpful for selecting the two (or more) accounts that are involved.

Since a check is written, we know that one of the accounts involved is Cash. (Take another look at the last TIP.) While we have not yet identified the second account, what we do know for certain is that the second account will have to be debited. On December 2, Direct Delivery purchases a used delivery van for $14,000 by writing a check for $14,000.

The purchase of a corporation’s own stock will never result in an amount to be reported on the income statement. Therefore, there is no transaction involving the income statement for the two-day period of December 1 through December 2. The totals indicate that ASI has assets of $9,900 and the source of those assets is the stockholders. The accounting equation also shows that the corporation has assets of $9,900 and the only claim against the assets is the stockholders’ claim. The accounting equation tells us that ASI has assets of $10,000 and the source of those assets were the stockholders.

Here is an additional list of the most common business transactions and the journal entry examples to go with them. Manual journal entry processes are subject to errors that can disrupt financial accuracy and create compliance headaches even for experienced teams. Problems keep occurring when workflows aren’t controlled, leading to time-consuming investigations, late closes, and unnecessary risk.

Some Transactions Will Involve Two Asset Accounts

Many businesses start with pre-designed spreadsheet-based templates—especially small business owners. Tools like Excel, Google Sheets, or entry-level accounting software offer flexible, low-cost ways to structure reports. The income statement shows revenue earned, costs incurred, and profit generated during a specific period—most often monthly or quarterly.

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• It has also spent a sum of ₹10,000 on transportation, ₹20,000 on its installation, and ₹15,000 on making it ready to use.
• They simplify complex accounting records, reduce the risk of error, and allow teams to compare results across periods of time or against benchmarks.
• Joe will be able to see at a glance the cash generated and used by his company’s operating activities, its investing activities, and its financing activities.
• A liability account that reports amounts received in advance of providing goods or services.
• Viewed another way, the corporation has assets of $16,300 with the creditors having a claim of $7,000 and the stockholders having a residual claim of $9,300.

Departmental Cost Reports for Budget Accountability

If the corporation were to liquidate, the secured lenders would be paid first, followed by unsecured lenders, preferred stockholders (if any), and lastly the common stockholders. Things that are resources owned by a company and which have future economic value that can be measured and can be expressed in dollars. Examples include cash, investments, accounts Accounting Examples receivable, inventory, supplies, land, buildings, equipment, and vehicles. You should consider our materials to be an introduction to selected accounting and bookkeeping topics (with complexities likely omitted).

It is also used to refer to several periods of net losses caused by expenses exceeding revenues. Although stockholders’ equity decreases because of an expense, the transaction is not recorded directly into the retained earnings account. Since ASI’s assets increase by $10,000 and stockholders’ equity increases by the same amount the accounting equation is in balance. The totals indicate that the transactions through December 4 result in assets of $16,900.