Mastering Journal Entries in Accounting

Hello and welcome to Journal Entry Bootcamp. In this video we are going to practice journal entries. It assumes that you've heard of journal entries before and you've done a few before. If you've never heard of journal entries or you need to start from ground zero, I'm going to link a video right now. You'll see it pop up. Please click on that and watch that video. This video is for those of us that have tried journal entries and we're struggling a little bit. I'm a college professor, I teach accounting, and when a student fails my class, and it does happen unfortunately, often we can trace the root of their problem back to not understanding journal entries well enough. So this video is going to provide you with all kinds of practice. Now there's one rule, I shouldn't call this rules, I should call it a rule, and the rule is if you want to succeed, if you want to get the most out of this video, You need to pause the video each time a journal entry question is on the screen and answer it yourself, either by writing down the debit and credit or just by saying aloud what you think should be debited and credited. It's not enough just to watch me do it. I'm going to go fast here. It's not enough just to watch me do it and go, uh-huh, uh-huh, uh-huh. No, no, no. You've got to be very active if you want to get the most out of this video. Write down what you think the journal entry is, say it out loud, and that way when you make a mistake... You'll remember if you just say uh-huh as I do it in the video you're not gonna learn nearly as much So I do hope you'll follow my one and only rule I do hope you will try to write them down or try to answer these journal entries first Okay enough preamble one last thing before we get going I just want to remind you about how journal entries work. You should all know this but oops I got the wrong highlighter. Let me use my bigger highlighter If I want to make an asset increase, I debit the asset. If I want it to decrease, I credit it. Liabilities and equity are the exact opposite. Credits make them go up. Debits make them go down. And the final piece of the rule, revenues, expenses, and dividends, well, these are all sub-accounts of shareholders'equity. So revenues always help our shareholders'equity. Revenues, therefore, take a credit because credits make equity go up. Expenses and dividends always hurt your shareholders equity so they always take a debit because again they make shareholders equity go down. Okay, those are the rules. You should be familiar with them from before and if you're not you should go back and watch that earlier video that I've linked before because I really go through it in some slow detail. This is meant for people who have an idea about journal entries but just need more practice. Here we go. Let's get down to business. This problem is linked right below the video. You'll see a... a link to a pdf file of the problem and a few of my others speedy landscaping has been in business for years the company has the following transactions during the month of august record the needed journal entries okay so we've got a big job we got to do a bunch of journal entries um okay so the first one uh and again here's where you should be pausing your video and doing this yourself but i'm not gonna say that every time i'm just gonna do the problems and I'll go reasonably quickly. August 1st, borrowed $50,000 from the bank, signed a note payable. The first thing I'm thinking about when I see a journal entry is, did cash change hands? And if you borrow $10 from your friends, did cash change hands? Yeah, I've borrowed $10 from my friend, I got cash. Borrowed $50,000 from our friend, the bank, did cash change hands? Yes, we got cash. Well, cash is, of course, an asset, and our cash asset is money. increasing. Therefore, we should debit cash. So I write the word cash over here. And under debit, I write the amount of the debit $50,000. Okay, well, what's the other part of this? And well, I guess the other part is sort of outlined here, we signed a note payable, we signed a note promising to pay them back a note payable, not an asset, a note payable is a liability if it has the word Payable, that's a dead giveaway. It's a liability. Now, is our liability increasing or decreasing? Well, yesterday I owed the bank $0. Today I owe the bank $50,000. My liability has grown. My liability is going up. So we're going to credit notes payable for $50,000. Okay, our first entry is in the bag. Let's continue. Again, consider pausing this and solving this yourself. I won't say that every time. August 2nd, purchase landscaping equipment for cash, $10,000. First question I ask myself, did cash change hands? The answer here is definitely yes. So we got an asset, cash, that's changing hands. Is our cash asset going up or down as a result of buying this equipment? Of course it's going down, right? We are reducing our cash. We paid out cash. So to make cash go down, we credit cash. Again, beginning students screw this up. They look at their bank statement, it shows a credit to their account. They see the money go up. Not in accounting. It's the opposite of what would show up on a bank statement. Credit cash to make it go down. I'll leave room for a debit. I'm going to credit cash for $10,000. Now I have to think. What is the rest of this? And of course, it's what did we buy for our cash? What did we spend our money on? And in this case, we spend our money on some equipment. So I debit, well, first of all, what is equipment? Looking at my table, I keep referring to this table. I highly recommend you putting this table in the corner of your test papers. I think it's a useful thing to have, but in any event, equipment is an asset and equipment is increasing, right? We have more equipment as a result of this transaction than... we had before. So I debit equipment, my equipment account to make it go up. Debit equipment for $10,000. Let's continue. August 3rd, paid $100 to repair a broken wheel on a lawnmower. Okay, did cash change hands? The answer, yes. Paid, right? Paid is the giveaway here. So our cash asset, $100,000. Cash, of course, is an asset and it's decreasing. We paid cash. So let's credit cash for $100. The debit, well, it's to repair a broken wheel on a lawnmower. There might be some temptation to debit lawnmower, like we're adding value to our lawnmower, but that's not the case. A repair is a cost of doing business. A repair is... An expense. And luckily enough, repairs are always debited. And look at our journal entry. We're missing a debit. Of course, we need equal parts, debits and credits. And here we have it. Debit repair expense. And I just put it as EXP, but you might have to write out the whole amount. That just depends on your professor. Okay. August 3rd is in the bag. We'll keep going. August 4th provided landscaping service for a customer. The customer paid cash of $75 for the service. Did cash change hands? Yes. Is our company's cash going up or down? It's going up. So our cash asset is increasing. In this case, we debit cash, $75. If a customer is paying cash for a service that we have provided, this is us doing what we do to earn money, right? $75 for service means we did work for them. We did landscaping service. This is our company doing what it does to earn. And when we do what we do to earn, this is indeed a revenue earning situation. We're going to credit landscaping rev, landscaping revenue for $75. There we are. That's August 4th. Continuing on to August 5th. Purchased and used fuel in the lawnmowers. It cost $150 cash. Did cash change hands? Yes. I promise in some of these cash will not change hands, but so far cash has changed hands in every one. That makes our life a little easier because dealing with cash I find straightforward. And once you've got cash, and of course it's an asset, in this case it's decreasing. Once you've got cash, you're sort of halfway home. you know and if you can get halfway there easily it makes it makes the job easier right if you can get halfway done without any issues that's you got a head start okay well what's the other half of this well we bought fuel now if we were buying the fuel and storing it and going to use it for later you know we bought the fuel we put it in a storage container we kept the fuel i think we would be debiting a fuel asset It's something we own, control, it's useful, it gives us value in the future. It's a thing of value. I think we would be debiting a fuel supplies asset account. So I think that's a reasonable guess. I think more likely we put the fuel in the mower and we just used it right away. We just started using the mowers. And if that's the case, I think a normal company in this circumstance would debit fuel expense. This is a cost of running a lawn mowing business. Expenses are... costs. So fuel expense makes more sense to me. Fuel supplies isn't an outrageous answer. I think it's reasonable, but I would do fuel expense for sure for my August 5th transaction. Moving on to August 6th. Provided landscaping service for three customers, $100 each, two paid, one will pay next week. Okay. The two customers who paid, um, Cash change hands. And we are getting cash from two out of the three customers. So that's an asset. Cash asset is increasing. Let's debit cash. And the amount here is $200. Our credit in this case, well, actually, no, I jumped the gun here. What about the one who didn't pay the one who will pay next week? That's $100 of work I did for which I haven't been paid. If you've done work for which you haven't been paid. This creates a receivable. So this is, you know, an accounting concept you should be familiar with early on in your course. This is an account receivable. We did work, our customer didn't pay us, and accounts receivable are assets. Now, do we have more or less accounts receivable as a result of doing the work? We have more. They didn't owe us anything yesterday. Now they owe us a hundred bucks. So we're going to debit AR. So this entry, we have two debits. That's the first time we've had that. We've all been one debit, one credit, but it is very common to have more than one debit or more than one credit in a journal entry. Okay, well, what should we credit? Well, we did landscaping service. I would call this landscaping revenue. And of course, we credit revenue accounts. Now, not just for 200, not just for the money received, we earn revenue for work done. And even though I didn't get the money, I've done the work. So I've earned The revenue credit landscaping rev $300. Okay. Onto the next. August 7th received, but did not pay the telephone bill. $50. The bill is due in 30 days. Did cash change hands? No. Oh, okay. Well, let's break it down then. What, what happened here? If I'm not going to credit cash, what? What's going on? Well, let's start with a telephone bill. What is a telephone bill to a company? What is a telephone? Telephone's a cost, right? You got phone bills. That's a cost of doing business. This is an expense. Like a bill comes in, it's an expense. So we're going to debit either telephone or sometimes people will call this utilities expense. I'm going to call it telephone expense for $50. Our credit, normally you pay a telephone bill, you credit cash. An unpaid bill. When a client doesn't pay us, it's accounts receivable. When we don't pay our supplier, it's accounts payable. It's a liability, and our liability in this case is increasing. I didn't owe the telephone company anything, and then they sent the bill, and now I owe them $50. So I credit accounts payable, AP, for $50. Next, August 8th. Purchased a new piece of landscaping equipment, a line trimmer. for $500 on account. On account becomes a key thing because, of course, the first question I ask is, did cash change hands? The answer, no. How do I know? Because it was on account. You buy something on account means you didn't pay for it right away. You said, send me the bill. So let's start with what we got. We got a piece of landscaping equipment. Equipment, of course, is an asset and our asset is increasing. So let's debit equipment. $500 and our credit here well you know I would think if I bought it I would credit cash but this is just like my phone bill I didn't pay so unpaid bills are accounts payable and accounts payable of course going over to my table it's a liability and it's increasing I didn't owe the equipment company any money yesterday and now I owe them 500 bucks so my accounts payable increases here by 500 August 9th. Did social media advertising pay $200? Okay, well, we're back to good old cash. We paid. Cash is an asset. It is decreasing credit cash. The debit here, well, this is advertising. Advertising is a cost of running a business. Debit advertising expense for $200. There we have August 9th. On to August 10th. August 10th. Completed a SOD installation job. Billed $2,000. Payment is due in 30 days. We did work. We did not get paid. Cash did not change hands. We billed and they haven't paid us yet. So when I do work for which I am not paid, it is an asset. It is accounts receivable and our accounts receivable is increasing. So let's debit AR. debit accounts receivable for two thousand dollars and the key is we did work so you could call this a few different things you could call it sought installation revenue i think a lot of companies might do that or we could just put this in our general landscaping revenue account and i think that's also reasonable honestly if i were running the company i would split it out i would call this sought installation revenue so maybe i should have done that here but i'm calling it landscaping revenue whenever we have revenue in this problem i'm just going to keep it simple landscaping revenue will be the account and of course revenues do take a credit august 11th collected the amount owing from august 6th what happened on august 6th gotta scroll up august 6th oh we had one customer yeah that we had yet to collect from this 100 that was owing now we collected did cash change hands Yep. Is our cash going up or down? It's going up. So let's debit cash for the $100. And the credit here is to accounts receivable. Accounts receivable, also an asset. We had $100 AR from the customer and now it's going down. The idea being, oops, I scrolled a mistake. The idea being this customer owed us $100 and now we're saying, you don't owe us anymore. You're... We're ripping up the IOU, right? You've paid. We don't have anything receivable from you because you paid us the $100. This is a place students sometimes make a mistake. They sometimes credit the revenue account. They'll say landscaping revenue because we're getting paid for landscaping. But remember, we've already recorded the revenue before. To record it here again would be double counting. August 12th. Completed a major landscaping job. Billed $4,500. Collected half. Did cash change hands? You bet. Our cash is going up. So debit cash, $22.50. What's the other half? The other half, I hope it's fresh in your mind. We just talked about this account. It's a receivable of $22.50. And again, our cash and A are both assets and they're both increasing. We did the work. It means we have more money because of it. And we also have more receivables because of it. So those are both increasing. What's the other piece of this puzzle? It's revenue. This is landscaping work. We did work. We earned revenue. $4,500. Next, August 13th, received and paid the electricity bill. $400. Okay, did cash change hands? Yes. Is our cash going up or down? It's going down. We credit cash. The debit here, either to While this is a cost of doing business, it's either electricity expense or utilities expense. I'm going to call it utilities expense. If you call it electricity expense, I think you're totally fine. Cool with me. Again, be consistent with what your professor says to do in your own classes, but I think that's a pretty reasonable thing to do. August 14th, bought a new trailer for $1,200 cash. All right, well, did cash change ads? Yes. Is our cash going up or down? Down, we credit cash. And what do we get for our cash? A trailer. We can either debit equipment. I think that's totally reasonable. We can debit trailer. I think that's totally reasonable. I'm going to debit trailer. If you debit equipment though, I think that's absolutely fine. We got an asset, a trailer. We have more trailers today than we had yesterday. So that's why we debit it. Continuing. Paid wages to employees of $2,000. Does cash change hands when we pay someone wages? Yes. Our cash goes down. So we credit cash. Their cash goes up, but the company's cash decreases by $2,000. The debit here, well, what's a wage to a company? A wage is a cost. It's an expense. So we debit wages. Expense, $2,000. Next, August 16th, had a lawnmower repaired. We did a repair earlier. Cost $600. Payment is due in 30 days. That means we didn't pay. So we can't credit cash. Cash did not change hands. Let's deal with the repair though. If you see the word repair, you should be thinking expense. This is a cost of running business and is getting things repaired. And absolutely, that's what we're going to do here. Debit repair. expense and we do that for $600. And I'm not going to credit cash, I'm going to credit accounts payable for $600. This is a liability. This is an unpaid bill and it's increasing. So accounts payables and increasing liability in this case credit AP. August 17th paid the phone bill from August 7th. I got to scroll up quite a bit here. Let's go back to August 7th. Got to find that one. August 9th, 8th. 7th okay so we had a $50 phone bill now we're paying it right we said well we didn't pay it but we're gonna and now we did so did cash change hands yes what's happening here we're gonna credit cash $50 and let's think about the debit but definitely credit cash $50 as a starting point on August the 17th credit cash 50 and we debit accounts payable. Again, we don't want to debit phone expense. That would be double counting it. We want to debit AP to say that liability is no more. I don't owe them any more money. I've paid off my entire phone bill. So get rid of that liability. AP goes down by $50. August 18th, collected the other half owing from August 12th. I think this was that $22.50. vaguely remember the number. It's sort of rattling around my brain. Yeah. So it's saying, okay, we got paid $22.50 and we were waiting to collect $22.50 more. We had $22.50 receivable. Now we've received it. So did cash change hands? You bet. Debit cash, $22.50. And what do we do with the AR? We credit it, right? Our accounts receivable is no longer receivable. So Again, I debited the cash asset to make it go up. I credit the accounts receivable asset to make it decrease. Okay, I just want to check in with you. Make sure, please, that you're pausing the video and trying to solve this before I am. I know I'm going fast here, but the idea is I want to go fast to make sure you get a lot of practice in. You should be practicing, and I hope you are. August 19th. Judy Smith invested $25,000 into the company in exchange for common shares. Okay, did the company, did money change hands? The answer is yes. Judy Smith gave the company $25,000. Okay, so the company's cash is going up as a result of the shareholder or the new shareholder putting money into the company. We debit cash for $25,000. Now the credit here, a lot of people get it right. but they get it right for a confused reason. They get confused on share issuances. So I just want to pause and touch on it briefly. We credit here, I'll just tell you what we credit. We credit common shares. And a lot of beginning students, they see this as us losing an asset. They go, well, we're giving up shares. Shares are something of value and we're giving them away. Therefore, We credit it because we're crediting an asset. And that's just not the case. What's happening here is Judy Smith's equity in the company is growing. She has a growing piece of the company. Our shareholders'equity is increasing. She's given money. Her piece of the pie has gotten bigger. So. That's why we credit common shares. There are more common shares in the world today than there were yesterday. There's more value to our common shares today than there was yesterday because there's $25,000 associated with our common shares that was not associated with our common shares yesterday. Okay, let's continue. August 20th, rented tools for a special job, paid 350 cash. Did cash change hands? Our answer, yes. And our cash, of course, is going. down so we credit cash. What is renting tools? Well, to us, this is a cost of doing business. I imagine they do have to rent tools. I would call this tool rental expense. You could call it rental expense or rent expense. The reason I wouldn't do that is so often companies have to rent like a facility or a building. And so you don't want to mix in your tool rental with your building rental. You'd want those separated. So I would be specific here and call this tool rental expense. By the way, you know, we've done 20 entries. We're going to do, I think, over 30 altogether. If this has been useful so far. Don't be shy about hitting that like button for me. It's a huge favor to me. I genuinely appreciate it. Don't be shy about hitting the subscribe button either. I genuinely do appreciate it. I hope you're getting value out of this. And if you are, it sends a signal to me. By the way, this is my first time doing this style of video. Is this good? I don't know. I hope so. I guess if you've gotten this far, you probably think it's all right. But please let me know in the comments if you'd like to see more videos like this. You can see my other style of videos. on my channel so this is a new boot camp style video for me i hope it's working and if it is please let me know send me that signal that you'd like to see more okay let's continue august 21st completed and billed for the special job for oh i guess because we got a tool for a special job here and now we did the special job and the client pays us eighteen hundred dollars did money change hands yes client paid Our cash is going up, so we debit cash $1,800. What should I credit here? Well, we did work. I'm going to call this, and we got a landscaping company, I'm going to call this a landscaping rev, $1,800. On to the next. August 22nd, an upset client threatened to sue. Our company paid legal fees of $400 to consult with a lawyer. The client eventually changed their mind about suing. So they decided not to sue us when we lawyered up. Good. Okay, well, what happened here in terms of a transaction? We paid legal fees. The rest of this is interesting story. We don't need it. Paid legal fees, $400. Did cash change hands? Yes. Our cash asset is decreasing credit cash. We're paying those greedy lawyers. Never like lawyers until you need one. And boy, are they helpful people. So I won't slag lawyers too much here. Credit cash, $400. Well, what is paying a lawyer? It's an expense. It's a cost of doing business. I would call this legal fees expense or legal expense. You could call it professional fees expense. You see that account used all the time. But there we go. Debit legal fees expense. We always debit expenses, and this is no exception. August 23rd, took a local business development training course through the local college, paid $180. Did cash change hands? Yes. Is our cash going up or down? Down. Credit cash. Cash is an asset. It is decreasing. We credit cash for 180 bucks. What's the other part of this? Well, we took a training course. I would call this training expense, right? We're making ourselves better. Maybe professional development expense. That could be, we could call this PD, professional development. Training seems just fine to me. And again, it's just a cost of doing a business. You train your employees, you train yourself. These are costs of running a business. August 24th, purchased a used leaf blower on account. The $275 bill is due next month. All right, so we bought some equipment. Did cash change hands? No, because the bill's due next month. So what did change hands? Well, leaf blowers changed hands. So let's deal with that. You could debit leaf blower or you could debit equipment. Either one I think would be acceptable. I'm sorry if I'm not being consistent. I remember I debited trailer and I was specific there. You know, companies will sort of make decisions about what they want to call their various assets. I think calling this equipment is very much appropriate. $275. I'm not going to credit cash because I didn't pay it. So unpaid bill. Unpaid bills are liability and we credit our liability. What kind of liability is it? It's an account payable. This is a normal supplier and a normal unpaid bill. August 25th, completed lawn mowing work at eight houses, billed $50 per house, received payment from three of the five, or three of the eight, pardon me, didn't receive payment from five of them. So it's $50 a house times three houses, we got. paid 150 and of course if there's eight houses then 50 times five there's 250 unpaid, right? Five houses at 50 did not pay. Okay, let's deal with the three that paid. Of course, this is cash changing hands and it's going up. Let's debit cash for 150. What about the other 250? Well, that's just receivable. It's work I've done for which I haven't been paid. My receivables are increasing by 250. The credit here. This goes to landscaping revenue. Again, we could call this a lawn mowing revenue. If we wanted to be a little more specific, I think that would be fine. I think landscaping rev as a catch-all would also be appropriate for this company. And $400. Doesn't matter that we got paid for it or not. What matters is we did the work. We did $400 worth of work. Let's continue. Received a bill for a business license fee. Our business license fees, 240 bucks. The bill hasn't been paid. Did cash change hands? No. All right, well, what's a business license fee? It's an expense. You gotta get a business license to operate. This is a cost of running a business. Debit, business license expense or business license fee expense. I like the word expense to be at the end of my expenses. So I'll put. It might seem redundant with fee and expense, but let's put it there. Business license fee expense. And we didn't pay for it, so don't credit cash. An unpaid bill, you credit AP. It's a liability and it is increasing. 240. August 27th. Collected full payment from the August 10th job. Good Lord, this is going to be a long scroll. August 10th. My goodness, we're almost there. August 10th. 2,000 bucks, right? We did a job, they didn't pay, and now they've paid. They brought in their $2,000. So did cash change hands? You bet. Debit cash, $2,000. Let's find the question again. There it is. Debit cash, $2,000, because we collected payment, and we credit AR. This is no longer receivable, and we have to give up on that receivable and say, we're not going to try to collect it anymore because it's been collected. August 28th. Paid the lawnmower repair bill from August 16th. Let's go up to August 16th and find it. There we are. $600 repair bill. Now we're paying. Well, you pay a bill, you credit cash. Cash is decreasing by $600. And the debit here not to repair expense because we already had the thing repaired and we've already incurred that expense back. Back on August 16th, we debit AP to say this is no longer a liability. This is no longer payable. August 29th, paid wages to employees, $2,000. Well, we did a very similar journal entry a couple of weeks back. We credit cash because we're paying, of course, $2,000. And we debit wages expense for $2,000. Pretty straightforward entry. August the 30th, paid interest of $250 on the note. Way back on the first journal entry, we had like a $50,000 note. Now we're paying interest on it. Well, paid. So did cash change hands? Yes. Is our cash going up or down? Down. So we credit cash, of course. It's an asset that's decreasing. We credit that to make it go down. The debit, well, what is interest? Interest is a cost. It's a borrowing cost. It's an expense. We debit. interest expense for $250. One more entry, the last day of August, August 31st, declared and paid a cash dividend of $1,000 to the shareholders. So we pay $1,000 to our shareholders. Did cash change hands? Yes. Company's cash is going down. We credit cash for $1,000. And at long last, we have a dividend. You just debit an account called dividends. for a thousand dollars not expense this is not an expense a dividend is a dividend it's shareholders pulling their profits from the company okay we've made it to august 31st we've done 31 journal entries hopefully in around 30 minutes here i hope this video helped and for goodness sakes if you made it all the way to the end i do hope you'll drop a like and or a subscribe on my channel thanks so much for watching and again let me know if this was useful let me know if i should do more of these boot camp style videos where I just go through a lot of accounting entries. Thanks for watching. Have a great day. Bye for now.

Hello and welcome to Journal Entry Bootcamp. In this video we are going to practice journal entries. It assumes that you've heard of journal entries before and you've done a few before.

If you've never heard of journal entries or you need to start from ground zero, I'm going to link a video right now. You'll see it pop up. Please click on that and watch that video. This video is for those of us that have tried journal entries and we're struggling a little bit.

I'm a college professor, I teach accounting, and when a student fails my class, and it does happen unfortunately, often we can trace the root of their problem back to not understanding journal entries well enough. So this video is going to provide you with all kinds of practice. Now there's one rule, I shouldn't call this rules, I should call it a rule, and the rule is if you want to succeed, if you want to get the most out of this video, You need to pause the video each time a journal entry question is on the screen and answer it yourself, either by writing down the debit and credit or just by saying aloud what you think should be debited and credited. It's not enough just to watch me do it. I'm going to go fast here.

It's not enough just to watch me do it and go, uh-huh, uh-huh, uh-huh. No, no, no. You've got to be very active if you want to get the most out of this video.

Write down what you think the journal entry is, say it out loud, and that way when you make a mistake... You'll remember if you just say uh-huh as I do it in the video you're not gonna learn nearly as much So I do hope you'll follow my one and only rule I do hope you will try to write them down or try to answer these journal entries first Okay enough preamble one last thing before we get going I just want to remind you about how journal entries work. You should all know this but oops I got the wrong highlighter. Let me use my bigger highlighter If I want to make an asset increase, I debit the asset.

If I want it to decrease, I credit it. Liabilities and equity are the exact opposite. Credits make them go up.

Debits make them go down. And the final piece of the rule, revenues, expenses, and dividends, well, these are all sub-accounts of shareholders'equity. So revenues always help our shareholders'equity. Revenues, therefore, take a credit because credits make equity go up.

Expenses and dividends always hurt your shareholders equity so they always take a debit because again they make shareholders equity go down. Okay, those are the rules. You should be familiar with them from before and if you're not you should go back and watch that earlier video that I've linked before because I really go through it in some slow detail.

This is meant for people who have an idea about journal entries but just need more practice. Here we go. Let's get down to business. This problem is linked right below the video.

You'll see a... a link to a pdf file of the problem and a few of my others speedy landscaping has been in business for years the company has the following transactions during the month of august record the needed journal entries okay so we've got a big job we got to do a bunch of journal entries um okay so the first one uh and again here's where you should be pausing your video and doing this yourself but i'm not gonna say that every time i'm just gonna do the problems and I'll go reasonably quickly. August 1st, borrowed $50,000 from the bank, signed a note payable.

The first thing I'm thinking about when I see a journal entry is, did cash change hands? And if you borrow $10 from your friends, did cash change hands? Yeah, I've borrowed $10 from my friend, I got cash.

Borrowed $50,000 from our friend, the bank, did cash change hands? Yes, we got cash. Well, cash is, of course, an asset, and our cash asset is money.

increasing. Therefore, we should debit cash. So I write the word cash over here.

And under debit, I write the amount of the debit $50,000. Okay, well, what's the other part of this? And well, I guess the other part is sort of outlined here, we signed a note payable, we signed a note promising to pay them back a note payable, not an asset, a note payable is a liability if it has the word Payable, that's a dead giveaway.

It's a liability. Now, is our liability increasing or decreasing? Well, yesterday I owed the bank $0. Today I owe the bank $50,000. My liability has grown.

My liability is going up. So we're going to credit notes payable for $50,000. Okay, our first entry is in the bag.

Let's continue. Again, consider pausing this and solving this yourself. I won't say that every time.

August 2nd, purchase landscaping equipment for cash, $10,000. First question I ask myself, did cash change hands? The answer here is definitely yes.

So we got an asset, cash, that's changing hands. Is our cash asset going up or down as a result of buying this equipment? Of course it's going down, right? We are reducing our cash. We paid out cash.

So to make cash go down, we credit cash. Again, beginning students screw this up. They look at their bank statement, it shows a credit to their account.

They see the money go up. Not in accounting. It's the opposite of what would show up on a bank statement.

Credit cash to make it go down. I'll leave room for a debit. I'm going to credit cash for $10,000.

Now I have to think. What is the rest of this? And of course, it's what did we buy for our cash?

What did we spend our money on? And in this case, we spend our money on some equipment. So I debit, well, first of all, what is equipment?

Looking at my table, I keep referring to this table. I highly recommend you putting this table in the corner of your test papers. I think it's a useful thing to have, but in any event, equipment is an asset and equipment is increasing, right? We have more equipment as a result of this transaction than... we had before.

So I debit equipment, my equipment account to make it go up. Debit equipment for $10,000. Let's continue.

August 3rd, paid $100 to repair a broken wheel on a lawnmower. Okay, did cash change hands? The answer, yes. Paid, right? Paid is the giveaway here.

So our cash asset, $100,000. Cash, of course, is an asset and it's decreasing. We paid cash. So let's credit cash for $100. The debit, well, it's to repair a broken wheel on a lawnmower.

There might be some temptation to debit lawnmower, like we're adding value to our lawnmower, but that's not the case. A repair is a cost of doing business. A repair is...

An expense. And luckily enough, repairs are always debited. And look at our journal entry. We're missing a debit.

Of course, we need equal parts, debits and credits. And here we have it. Debit repair expense.

And I just put it as EXP, but you might have to write out the whole amount. That just depends on your professor. Okay.

August 3rd is in the bag. We'll keep going. August 4th provided landscaping service for a customer. The customer paid cash of $75 for the service. Did cash change hands?

Yes. Is our company's cash going up or down? It's going up. So our cash asset is increasing. In this case, we debit cash, $75.

If a customer is paying cash for a service that we have provided, this is us doing what we do to earn money, right? $75 for service means we did work for them. We did landscaping service.

This is our company doing what it does to earn. And when we do what we do to earn, this is indeed a revenue earning situation. We're going to credit landscaping rev, landscaping revenue for $75. There we are.

That's August 4th. Continuing on to August 5th. Purchased and used fuel in the lawnmowers. It cost $150 cash.

Did cash change hands? Yes. I promise in some of these cash will not change hands, but so far cash has changed hands in every one.

That makes our life a little easier because dealing with cash I find straightforward. And once you've got cash, and of course it's an asset, in this case it's decreasing. Once you've got cash, you're sort of halfway home. you know and if you can get halfway there easily it makes it makes the job easier right if you can get halfway done without any issues that's you got a head start okay well what's the other half of this well we bought fuel now if we were buying the fuel and storing it and going to use it for later you know we bought the fuel we put it in a storage container we kept the fuel i think we would be debiting a fuel asset It's something we own, control, it's useful, it gives us value in the future. It's a thing of value.

I think we would be debiting a fuel supplies asset account. So I think that's a reasonable guess. I think more likely we put the fuel in the mower and we just used it right away.

We just started using the mowers. And if that's the case, I think a normal company in this circumstance would debit fuel expense. This is a cost of running a lawn mowing business.

Expenses are... costs. So fuel expense makes more sense to me. Fuel supplies isn't an outrageous answer. I think it's reasonable, but I would do fuel expense for sure for my August 5th transaction.

Moving on to August 6th. Provided landscaping service for three customers, $100 each, two paid, one will pay next week. Okay. The two customers who paid, um, Cash change hands.

And we are getting cash from two out of the three customers. So that's an asset. Cash asset is increasing. Let's debit cash.

And the amount here is $200. Our credit in this case, well, actually, no, I jumped the gun here. What about the one who didn't pay the one who will pay next week? That's $100 of work I did for which I haven't been paid. If you've done work for which you haven't been paid.

This creates a receivable. So this is, you know, an accounting concept you should be familiar with early on in your course. This is an account receivable. We did work, our customer didn't pay us, and accounts receivable are assets.

Now, do we have more or less accounts receivable as a result of doing the work? We have more. They didn't owe us anything yesterday. Now they owe us a hundred bucks. So we're going to debit AR.

So this entry, we have two debits. That's the first time we've had that. We've all been one debit, one credit, but it is very common to have more than one debit or more than one credit in a journal entry. Okay, well, what should we credit? Well, we did landscaping service.

I would call this landscaping revenue. And of course, we credit revenue accounts. Now, not just for 200, not just for the money received, we earn revenue for work done. And even though I didn't get the money, I've done the work. So I've earned The revenue credit landscaping rev $300.

Okay. Onto the next. August 7th received, but did not pay the telephone bill. $50.

The bill is due in 30 days. Did cash change hands? No. Oh, okay. Well, let's break it down then.

What, what happened here? If I'm not going to credit cash, what? What's going on? Well, let's start with a telephone bill. What is a telephone bill to a company?

What is a telephone? Telephone's a cost, right? You got phone bills. That's a cost of doing business. This is an expense.

Like a bill comes in, it's an expense. So we're going to debit either telephone or sometimes people will call this utilities expense. I'm going to call it telephone expense for $50. Our credit, normally you pay a telephone bill, you credit cash. An unpaid bill.

When a client doesn't pay us, it's accounts receivable. When we don't pay our supplier, it's accounts payable. It's a liability, and our liability in this case is increasing.

I didn't owe the telephone company anything, and then they sent the bill, and now I owe them $50. So I credit accounts payable, AP, for $50. Next, August 8th.

Purchased a new piece of landscaping equipment, a line trimmer. for $500 on account. On account becomes a key thing because, of course, the first question I ask is, did cash change hands? The answer, no. How do I know?

Because it was on account. You buy something on account means you didn't pay for it right away. You said, send me the bill.

So let's start with what we got. We got a piece of landscaping equipment. Equipment, of course, is an asset and our asset is increasing. So let's debit equipment.

$500 and our credit here well you know I would think if I bought it I would credit cash but this is just like my phone bill I didn't pay so unpaid bills are accounts payable and accounts payable of course going over to my table it's a liability and it's increasing I didn't owe the equipment company any money yesterday and now I owe them 500 bucks so my accounts payable increases here by 500 August 9th. Did social media advertising pay $200? Okay, well, we're back to good old cash. We paid.

Cash is an asset. It is decreasing credit cash. The debit here, well, this is advertising. Advertising is a cost of running a business. Debit advertising expense for $200.

There we have August 9th. On to August 10th. August 10th. Completed a SOD installation job. Billed $2,000.

Payment is due in 30 days. We did work. We did not get paid.

Cash did not change hands. We billed and they haven't paid us yet. So when I do work for which I am not paid, it is an asset. It is accounts receivable and our accounts receivable is increasing. So let's debit AR.

debit accounts receivable for two thousand dollars and the key is we did work so you could call this a few different things you could call it sought installation revenue i think a lot of companies might do that or we could just put this in our general landscaping revenue account and i think that's also reasonable honestly if i were running the company i would split it out i would call this sought installation revenue so maybe i should have done that here but i'm calling it landscaping revenue whenever we have revenue in this problem i'm just going to keep it simple landscaping revenue will be the account and of course revenues do take a credit august 11th collected the amount owing from august 6th what happened on august 6th gotta scroll up august 6th oh we had one customer yeah that we had yet to collect from this 100 that was owing now we collected did cash change hands Yep. Is our cash going up or down? It's going up. So let's debit cash for the $100. And the credit here is to accounts receivable.

Accounts receivable, also an asset. We had $100 AR from the customer and now it's going down. The idea being, oops, I scrolled a mistake.

The idea being this customer owed us $100 and now we're saying, you don't owe us anymore. You're... We're ripping up the IOU, right? You've paid. We don't have anything receivable from you because you paid us the $100.

This is a place students sometimes make a mistake. They sometimes credit the revenue account. They'll say landscaping revenue because we're getting paid for landscaping. But remember, we've already recorded the revenue before. To record it here again would be double counting.

August 12th. Completed a major landscaping job. Billed $4,500. Collected half. Did cash change hands?

You bet. Our cash is going up. So debit cash, $22.50.

What's the other half? The other half, I hope it's fresh in your mind. We just talked about this account. It's a receivable of $22.50.

And again, our cash and A are both assets and they're both increasing. We did the work. It means we have more money because of it.

And we also have more receivables because of it. So those are both increasing. What's the other piece of this puzzle?

It's revenue. This is landscaping work. We did work. We earned revenue.

$4,500. Next, August 13th, received and paid the electricity bill. $400. Okay, did cash change hands?

Yes. Is our cash going up or down? It's going down.

We credit cash. The debit here, either to While this is a cost of doing business, it's either electricity expense or utilities expense. I'm going to call it utilities expense. If you call it electricity expense, I think you're totally fine.

Cool with me. Again, be consistent with what your professor says to do in your own classes, but I think that's a pretty reasonable thing to do. August 14th, bought a new trailer for $1,200 cash. All right, well, did cash change ads? Yes.

Is our cash going up or down? Down, we credit cash. And what do we get for our cash?

A trailer. We can either debit equipment. I think that's totally reasonable.

We can debit trailer. I think that's totally reasonable. I'm going to debit trailer.

If you debit equipment though, I think that's absolutely fine. We got an asset, a trailer. We have more trailers today than we had yesterday.

So that's why we debit it. Continuing. Paid wages to employees of $2,000.

Does cash change hands when we pay someone wages? Yes. Our cash goes down. So we credit cash. Their cash goes up, but the company's cash decreases by $2,000.

The debit here, well, what's a wage to a company? A wage is a cost. It's an expense. So we debit wages. Expense, $2,000.

Next, August 16th, had a lawnmower repaired. We did a repair earlier. Cost $600. Payment is due in 30 days.

That means we didn't pay. So we can't credit cash. Cash did not change hands. Let's deal with the repair though. If you see the word repair, you should be thinking expense.

This is a cost of running business and is getting things repaired. And absolutely, that's what we're going to do here. Debit repair. expense and we do that for $600.

And I'm not going to credit cash, I'm going to credit accounts payable for $600. This is a liability. This is an unpaid bill and it's increasing.

So accounts payables and increasing liability in this case credit AP. August 17th paid the phone bill from August 7th. I got to scroll up quite a bit here.

Let's go back to August 7th. Got to find that one. August 9th, 8th.

7th okay so we had a $50 phone bill now we're paying it right we said well we didn't pay it but we're gonna and now we did so did cash change hands yes what's happening here we're gonna credit cash $50 and let's think about the debit but definitely credit cash $50 as a starting point on August the 17th credit cash 50 and we debit accounts payable. Again, we don't want to debit phone expense. That would be double counting it.

We want to debit AP to say that liability is no more. I don't owe them any more money. I've paid off my entire phone bill.

So get rid of that liability. AP goes down by $50. August 18th, collected the other half owing from August 12th. I think this was that $22.50. vaguely remember the number.

It's sort of rattling around my brain. Yeah. So it's saying, okay, we got paid $22.50 and we were waiting to collect $22.50 more. We had $22.50 receivable.

Now we've received it. So did cash change hands? You bet. Debit cash, $22.50. And what do we do with the AR?

We credit it, right? Our accounts receivable is no longer receivable. So Again, I debited the cash asset to make it go up. I credit the accounts receivable asset to make it decrease. Okay, I just want to check in with you.

Make sure, please, that you're pausing the video and trying to solve this before I am. I know I'm going fast here, but the idea is I want to go fast to make sure you get a lot of practice in. You should be practicing, and I hope you are. August 19th. Judy Smith invested $25,000 into the company in exchange for common shares.

Okay, did the company, did money change hands? The answer is yes. Judy Smith gave the company $25,000. Okay, so the company's cash is going up as a result of the shareholder or the new shareholder putting money into the company.

We debit cash for $25,000. Now the credit here, a lot of people get it right. but they get it right for a confused reason. They get confused on share issuances.

So I just want to pause and touch on it briefly. We credit here, I'll just tell you what we credit. We credit common shares.

And a lot of beginning students, they see this as us losing an asset. They go, well, we're giving up shares. Shares are something of value and we're giving them away.

Therefore, We credit it because we're crediting an asset. And that's just not the case. What's happening here is Judy Smith's equity in the company is growing.

She has a growing piece of the company. Our shareholders'equity is increasing. She's given money. Her piece of the pie has gotten bigger.

So. That's why we credit common shares. There are more common shares in the world today than there were yesterday.

There's more value to our common shares today than there was yesterday because there's $25,000 associated with our common shares that was not associated with our common shares yesterday. Okay, let's continue. August 20th, rented tools for a special job, paid 350 cash.

Did cash change hands? Our answer, yes. And our cash, of course, is going. down so we credit cash. What is renting tools?

Well, to us, this is a cost of doing business. I imagine they do have to rent tools. I would call this tool rental expense. You could call it rental expense or rent expense.

The reason I wouldn't do that is so often companies have to rent like a facility or a building. And so you don't want to mix in your tool rental with your building rental. You'd want those separated. So I would be specific here and call this tool rental expense. By the way, you know, we've done 20 entries.

We're going to do, I think, over 30 altogether. If this has been useful so far. Don't be shy about hitting that like button for me. It's a huge favor to me.

I genuinely appreciate it. Don't be shy about hitting the subscribe button either. I genuinely do appreciate it.

I hope you're getting value out of this. And if you are, it sends a signal to me. By the way, this is my first time doing this style of video.

Is this good? I don't know. I hope so. I guess if you've gotten this far, you probably think it's all right.

But please let me know in the comments if you'd like to see more videos like this. You can see my other style of videos. on my channel so this is a new boot camp style video for me i hope it's working and if it is please let me know send me that signal that you'd like to see more okay let's continue august 21st completed and billed for the special job for oh i guess because we got a tool for a special job here and now we did the special job and the client pays us eighteen hundred dollars did money change hands yes client paid Our cash is going up, so we debit cash $1,800. What should I credit here?

Well, we did work. I'm going to call this, and we got a landscaping company, I'm going to call this a landscaping rev, $1,800. On to the next.

August 22nd, an upset client threatened to sue. Our company paid legal fees of $400 to consult with a lawyer. The client eventually changed their mind about suing. So they decided not to sue us when we lawyered up. Good.

Okay, well, what happened here in terms of a transaction? We paid legal fees. The rest of this is interesting story.

We don't need it. Paid legal fees, $400. Did cash change hands?

Yes. Our cash asset is decreasing credit cash. We're paying those greedy lawyers.

Never like lawyers until you need one. And boy, are they helpful people. So I won't slag lawyers too much here.

Credit cash, $400. Well, what is paying a lawyer? It's an expense.

It's a cost of doing business. I would call this legal fees expense or legal expense. You could call it professional fees expense.

You see that account used all the time. But there we go. Debit legal fees expense. We always debit expenses, and this is no exception.

August 23rd, took a local business development training course through the local college, paid $180. Did cash change hands? Yes.

Is our cash going up or down? Down. Credit cash.

Cash is an asset. It is decreasing. We credit cash for 180 bucks. What's the other part of this? Well, we took a training course.

I would call this training expense, right? We're making ourselves better. Maybe professional development expense. That could be, we could call this PD, professional development. Training seems just fine to me.

And again, it's just a cost of doing a business. You train your employees, you train yourself. These are costs of running a business. August 24th, purchased a used leaf blower on account.

The $275 bill is due next month. All right, so we bought some equipment. Did cash change hands? No, because the bill's due next month. So what did change hands?

Well, leaf blowers changed hands. So let's deal with that. You could debit leaf blower or you could debit equipment.

Either one I think would be acceptable. I'm sorry if I'm not being consistent. I remember I debited trailer and I was specific there. You know, companies will sort of make decisions about what they want to call their various assets. I think calling this equipment is very much appropriate.

$275. I'm not going to credit cash because I didn't pay it. So unpaid bill.

Unpaid bills are liability and we credit our liability. What kind of liability is it? It's an account payable.

This is a normal supplier and a normal unpaid bill. August 25th, completed lawn mowing work at eight houses, billed $50 per house, received payment from three of the five, or three of the eight, pardon me, didn't receive payment from five of them. So it's $50 a house times three houses, we got. paid 150 and of course if there's eight houses then 50 times five there's 250 unpaid, right? Five houses at 50 did not pay.

Okay, let's deal with the three that paid. Of course, this is cash changing hands and it's going up. Let's debit cash for 150. What about the other 250?

Well, that's just receivable. It's work I've done for which I haven't been paid. My receivables are increasing by 250. The credit here.

This goes to landscaping revenue. Again, we could call this a lawn mowing revenue. If we wanted to be a little more specific, I think that would be fine. I think landscaping rev as a catch-all would also be appropriate for this company.

And $400. Doesn't matter that we got paid for it or not. What matters is we did the work.

We did $400 worth of work. Let's continue. Received a bill for a business license fee. Our business license fees, 240 bucks. The bill hasn't been paid.

Did cash change hands? No. All right, well, what's a business license fee?

It's an expense. You gotta get a business license to operate. This is a cost of running a business. Debit, business license expense or business license fee expense.

I like the word expense to be at the end of my expenses. So I'll put. It might seem redundant with fee and expense, but let's put it there.

Business license fee expense. And we didn't pay for it, so don't credit cash. An unpaid bill, you credit AP. It's a liability and it is increasing.

240. August 27th. Collected full payment from the August 10th job. Good Lord, this is going to be a long scroll.

August 10th. My goodness, we're almost there. August 10th.

2,000 bucks, right? We did a job, they didn't pay, and now they've paid. They brought in their $2,000.

So did cash change hands? You bet. Debit cash, $2,000. Let's find the question again.

There it is. Debit cash, $2,000, because we collected payment, and we credit AR. This is no longer receivable, and we have to give up on that receivable and say, we're not going to try to collect it anymore because it's been collected.

August 28th. Paid the lawnmower repair bill from August 16th. Let's go up to August 16th and find it.

There we are. $600 repair bill. Now we're paying. Well, you pay a bill, you credit cash. Cash is decreasing by $600.

And the debit here not to repair expense because we already had the thing repaired and we've already incurred that expense back. Back on August 16th, we debit AP to say this is no longer a liability. This is no longer payable.

August 29th, paid wages to employees, $2,000. Well, we did a very similar journal entry a couple of weeks back. We credit cash because we're paying, of course, $2,000. And we debit wages expense for $2,000. Pretty straightforward entry.

August the 30th, paid interest of $250 on the note. Way back on the first journal entry, we had like a $50,000 note. Now we're paying interest on it. Well, paid. So did cash change hands?

Yes. Is our cash going up or down? Down.

So we credit cash, of course. It's an asset that's decreasing. We credit that to make it go down. The debit, well, what is interest? Interest is a cost.

It's a borrowing cost. It's an expense. We debit.

interest expense for $250. One more entry, the last day of August, August 31st, declared and paid a cash dividend of $1,000 to the shareholders. So we pay $1,000 to our shareholders. Did cash change hands? Yes.

Company's cash is going down. We credit cash for $1,000. And at long last, we have a dividend. You just debit an account called dividends.

for a thousand dollars not expense this is not an expense a dividend is a dividend it's shareholders pulling their profits from the company okay we've made it to august 31st we've done 31 journal entries hopefully in around 30 minutes here i hope this video helped and for goodness sakes if you made it all the way to the end i do hope you'll drop a like and or a subscribe on my channel thanks so much for watching and again let me know if this was useful let me know if i should do more of these boot camp style videos where I just go through a lot of accounting entries. Thanks for watching. Have a great day.

Bye for now.

Transcript for:Mastering Journal Entries in Accounting

Transcript for:
Mastering Journal Entries in Accounting