*Journal entry format: Practice putting indention before the credited accounts.
Source of Assets
These transactions refer to sources of assets, and how they came about to the business.
1. Source is Investment
"Owner invested P1,000,000.00 to the business", or, "Owner deposited P1,000,000.00 to the bank account of the business."
In this transaction, the company obtained an Asset "Money" from the investment of the owner. "Money" is accounted for with "Cash". Cash is an asset. Assets increase with debits. Therefore Cash is debited. The entry is:
Cash - P1,000,000.00
Owner's Capital - P1,000,000.00
*Owner's Capital is not an Asset Account but is an Equity account.
2. Source is Liability
"The company borrowed P1,000,000.00 from BDU Bank."
In this transaction, the company obtained an Asset "Money" from entering into a loan contract with a bank. "Money" is accounted for with "Cash". Cash is an asset. Assets increase with debits. Therefore Cash is debited. The entry is:
Cash - P1,000,000.00
Loans Payable - P1,000,000.00
*Loans Payable is not an Asset Account but is a Liability account.
3. Source is Income
"The time deposit of the company in BPE Bank has earned interest of P1,000.00 and was automatically credited to the company's account."
Cash - P1,000.00
Interest Income - P1,000.00
"The loan the company lent out to Person A has earned interest of P1,000.00. Person A has paid the same."
Cash - P1,000.00
Interest Income - P1,000.00
"The loan the company lent out to Person A has earned interest of P1,000.00. Person A has not paid the interest yet."
Interest Receivable - P1,000.00
Interest Income - P1,000.00
"The business performed services for a fee of P1,000,000.00."
Cash - P1,000.00
Service Revenue- P1,000.00
"The business performed services for a fee of P1,000,000.00 but was not paid for immediately."
Accounts Receivable - P1,000.00
Service Revenue- P1,000.00
Exchange of Assets
These transactions refer to exchanges of assets where one asset is given up for another.
"Purchased delivery vehicle for P1,000,000.00 cash."
The money of the company will decrease because they will transfer it to the seller. Again, money is accounted for with "Cash". Cash is an asset. Assets decrease with credits. Therefore, Cash is credited.
On the other hand, the company will obtain a new form of asset which is the vehicle. Assets increase with debits. Therefore, the entry is:
Vehicle - P1,000,000.00
Cash - P1,000,000.00
"Lent out P1,000,000.00 to a friend company by issuing a contract of loan."
Loans Receivable - P1M
Cash ------------------P1M
"Collected P1,000,000.00 from loan lent out."
Cash - P1M
Loans Receivable - P1M
"Purchased bond papers, Staplers, etc for a total of P1,000.00."
Supplies - P1,000.00
Cash --- P1,000.00
"Paid rent in advance for P1,000,000.00"
Prepaid rent - P1,000,000.00
Cash ---------P1,000,000.00
"Unused building was sold for P1,000,000.00"
Cash ------ P1M
Building ------P1M
Use of Assets
These transactions refer to the use of assets where an item of asset is used to pay for debts that have fallen due or assets that have been consumed or have expired from the passage of time.
1. Payment of Debt
"Paid debt of P1,000,000.00"
Accounts Payable - P1,000,000.00
Cash - P1,000,000.00
*Accounts Payable is not an Asset Account but is a Liability Account.
2. Consumption of asset
"60% of Supplies of that originally was P1,000,000.00 was consumed."
Supplies Expense - P600,000.00
Supplies----------------- P600,000.00
3. Payment of expenses
"The company paid for electricity and water for a total of P1,000,000.00"
Utilities Expense - P1,000,000.00
Cash ------------------P1,000,000.00