Journalizing an Asset Purchase Example Exercise 2-2 Journalizing an Asset Purchase Example Exercise 2-2 discusses the rules of debits and credits and specifically transactions. Transactions are entered into a record called a journal. The journal serves as a record of transactions that have occurred.

Journalizing–Asset Purchase Example Exercise 2-2 Journalizing–Asset Purchase This example exercise will walk you through how to prepare a journal entry to record the purchase of an asset. The purchase includes a cash down payment with the remainder set up as an Accounts Payable.

Example Exercise 2-2 The data tells us that we are purchasing a truck [CLICK]. A truck is an asset and an asset account is increased by a debit.

Example Exercise 2-2 Next, determine the rules of debit or credit for the remaining data in our example exercise. Cash [CLICK] will decrease by $8,500. A decrease to an asset account is a credit. The last bit of data tells us that the balance of money due on the truck will be added to the Accounts Payable account. Accounts Payable is a liability account; [CLICK] therefore, a credit to the account increases the balance. $34,000, that is, $42,500 minus $8,500.

Example Exercise 2-2 Truck > Asset > Debit > $42,500 Cash Payment > Asset > Credit > $8,500 Account Payable > Liability > Credit > $34,000 To recap the data sorting that we just completed: we are purchasing a truck [CLICK] that is an asset. In order to increase the asset account, we debit Truck for $42,500. [CLICK] Next, we credit Cash for $8,500. The remaining $34,000 due on the truck is recorded as a liability [CLICK]. This means that our liability account, Accounts Payable will be increased or credited in the amount of $34,000.

Example Exercise 2-2 Now, we just need to record this information in our journal. When a journal entry is first prepared, the month and day of the transaction are entered [CLICK] in the date column. This recording tells the reader that this purchase took place on June 3, 2011.

Example Exercise 2-2 Truck > Asset > Debit> $42,500 The next step is to journalize all debit amounts. In our example, we determined that there is a debit to Truck [CLICK]. The debit [CLICK] will be in the amount of $42,500. [CLICK]

Example Exercise 2-2 Truck > Asset > Debit > Cash Payment > Asset > Credit > $8,500 Next the credit amounts are recorded. In our example, we determined that there will be credits to two accounts, Cash and Accounts Payable. Cash [CLICK] is credited [CLICK] for $8,500. [CLICK] Also, note that credit entry title is indented [CLICK] under the debit entries. indent

Example Exercise 2-2 Truck > Asset > Debit > $42,500 Cash Payment > Asset >– Credit > $8,500 Account Payable > Liability > Credit > $34,000 For the remaining amount due on the purchase of this truck, the credit is to [CLICK] Accounts Payable for $34,000. [CLICK] Remember to indent [CLICK] all credit entries! indent

Example Exercise 2-2 indent The last thing that is done in the preparation of a journal entry is to provide a description of the transactions. Note that the transaction description is indented [CLICK] beneath all credit entries.

Example Exercise 2-2  For Practice: PE 2-2A, PE 2-2B To practice the preparation of more journal entries, refer to Practice Exercises PE 2-2A and 2-2B.  For Practice: PE 2-2A, PE 2-2B