Podcast 1 – Basic Journal Entries For Financial Accounting University of Dallas

Objective Learn how to do basic journal entries.

Know the rules to start Debiting an asset increases its value Debiting a liability decreases its value Crediting a liability increases its value Crediting an asset decreases its value (write this down somewhere – commit it to memory right away and then know how to use it)

Also MUST know what are assets and liabilities You also MUST know what is an asset or liability by name Remember – assets and liabilities appear on the balance sheet Revenues and expenses appear on the income statement IT APPEARS ON ONE OR THE OTHER BUT NOT BOTH!!!

For example If I say “cash” – you say asset If I say “accounts payable” – you say liability If I say “wage expense” – you san neither asset nor liability If I say “sales revenue” – you say neither asset nor liability And so on…..

Now basic journal entries Remember that debits must equal credits You cannot memorize every possible combination of journal entries You have to train yourself in a “method of thinking” It takes practice – outside the classroom – no one can simply sit in class, listen to the few examples there and “get it”

OK let’s practice 1)Purchased truck for $20,000 What am I getting? What am I giving up? I am getting a truck. I am giving up cash.

Example 1 What is a truck? Asset? Liability? Revenue? Expense? –Asset What is cash? Asset? Liability? Revenue? Expense? –Asset So I want an asset account to increase by $20,000, and another account to decrease by $20,000.

Example 1 answer Debit (or Dr) – Truck (or Equipment) for $20,000 Credit (or Cr) – Cash for $20,000 The truck account increases, the cash account decreases

Example 2 Received $2000 in cash for services provided. What am I getting? What am I giving up? I get cash – I don’t give up anything, I made money by providing a service. RULE – ANYTIME I PROVIDE A GOOD OR SERVICE I CREDIT REVENUE.

Example 2 I got cash. Cash is an asset. I increase an asset account by debiting it. I also provided a service. I always CREDIT REVENUE when I provide a good or a service.

Example 2 answer DR – Cash $2000 CR – Service Revenue $2000

Example 3 I sell $4000 of goods on account, payment due to me by my customer next month. What I am getting? I get $4000 by not until next month. I PROVIDED A GOOD – CREDIT REVENUE.

Example 3 answer DR – Accounts Receivable $4000 CR – Sales Revenue $4000

Example 4 Received $2300 in cash for services to be provided next month. What do I get? What do I give up? I get cash. EVENTUALLY I have to provide a service. So do I credit revenue NOW? NOOOOO…..

Example 4 thought process I get cash. How do I make the cash account increase in value? DEBIT I also have an obligation to provide a service in the future – that is a LIABILITY. How do I make liabilities increase in value? CREDIT

Example 4 answer DR – Cash $2300 CR – Unearned Revenue $2300

Conclusion Basic journal entries – now practice on your own.