Every transaction you make requires a journal entry when running a business. Companies account for the transactions and translate them into meaningful information that you, your accountant, or bookkeeper employ to file taxes and prepare financial reports.
But while in school, you learn this drill, so if you work as a bookkeeper or an accountant, you know how to make journal entries correctly. For this, you need to study accounting journal entries practice problems. Get in touch with accounting homework help experts now for the help.
This guide will discuss everything you must know about journal entries. Toward the end, we will also share some of the most common journal entries, practice questions, and answers. Continue reading as we explore further.
What is a journal entry?
Journal entries define the process of recording a financial transaction. To make a journal entry, you must input the details of a transaction into the company’s books. In the second stage of the accounting cycle, the journal entries are transferred into the general ledger.
A journal entry needs to have the following details:
- The date of the transaction.
- Amount
- Account number
- Affected accounts
- Description
Beyond this, some journal entries might also contain a reference number, for instance, the check number with the transaction’s description. It may seem tricky but is not. If you work on several journal entry practice problems, you will get adept at them. The general ledger is the backbone of the financial reporting process. It helps prepare the statements like balance sheets, income statements, and depending on the accounting employed, the cash flow statement.
Financial statements can help monitor your business performance and file your taxes accurately. It can help you get an overview of your business’s performance.
Examples of journal entries
As stated, the more time you dedicate to journal entry practice exercises, the better acquainted you are. Here is a list of journal entry examples in accounting that can offer an in-depth understanding of some popular entries employed by enterprises in their routine business transactions. Journal entries will summarize the credits and debits of the financial transactions with a general note stating the accounts these transactions will affect. Please note the entries are listed in chronological order. Let us discuss some of the accounting journal entries practice problems.
Examples of journal entries practice questions.
Here are some of the popular journal entries’ practice questions and answers:
Basic accounting journal entries practice
1. Sales Journal Entry for the sales made on credit
When you make sales on credit, two accounts are affected – the sales account and the accounts receivables. The former is increased. Hence, a credit in the account, and you debit your receivables.
Journal Entry
Accounts Receivables A/C Dr. XXX
To Sales A/c XXX
If this sale was made in cash, the cash amount is debited as the cash is coming into the business.
2. Accounts Payable Journal Entry
An accounts payable journal entry is a record of a transaction that involves the purchase of goods or services on credit.
Here is an example of accounts payable journal entry:
Assume a company has purchased $5,000 worth of office supplies on credit from a vendor.
The first step is to record the purchase of office supplies on credit. So, the journal entry is:
Office Supplies Expense A/c. Dr. $5000
To Accounts Payable A/c $5000.
Now, when you receive the payment, the journal entry will be:
Accounts Payable A/c Dr. $5000
To Cash A/c $5000
Hence, the payable balance is reduced as the payment is received.
3. Accrued Expense Journal Entry
An accrued expense journal entry is made to record the expense incurred by the company, payment for which is not yet made. Here is an example of one such journal entry.
Example: A company received consulting services worth $300 in a month, but the consultant has not yet sent an invoice for this service.
So, the journal entry is:
First Step – Record the expense that has been incurred.
Consulting Expense A/c Dr. $300
To Accrued Expense Payable A/c $300.
Second Step – When the invoice is received and paid for
Accrued Expense Payable A/c Dr. $300
To Cash A/c $300
Consequently, the balance for the accrued expenses is reduced by the amount of the payment received. It is imperative to record the accrued expenses as soon as you incur them, regardless of the payment status. You will most commonly find problems related to this in journal entry practice exercises.
4. Journal Entry for Depreciation
Depreciation implies allocating the cost of the asset towards its useful life. Here is a journal entry for depreciation:
Depreciation Expense A/c Dr.
To Accumulated Depreciation A/c
The amount you debit to the Depreciation expense a/c is the total depreciation of the period, and the amount credited to the Accumulated depreciation a/c is the depreciation accumulated over time. The latter is a contra asset, and you present it as a reduction from the original asset cost in the balance sheet.
Let us understand this with an example.
A company bought a truck for $20,000. It has an estimated useful life of five years with no salvage value. So, employing the straight-line method, the depreciation expense for this truck will be $20,000/5 = $4000 per year. So, for the first year, the journal entry to record depreciation will be as follows:
Depreciation Expense A/c Dr. $4000
To Accumulated Depreciation A/c $4000.
Hence, after the first year, the accumulated depreciation account has a balance of $4000. Thus, the truck’s carrying value is $16,000. You will make this entry in the subsequent years till the asset is fully depreciated over its useful life.
You can get adept at these complicated entries with basic accounting journal entries practice.
5. Allowance for doubtful accounts journal entry
Allowance for doubtful accounts is a contra asset employed to lower the amount of accounts receivables to the net realizable value. Hence, you will reduce the sum of customers who may not pay back their outstanding expenses. So, the journal entry is:
Bad debt expense A/c Dr.
To Allowance for doubtful accounts
The amount debited to the Bad Debt Expense account is an estimate of the total amount of accounts receivable that are expected to be uncollectible based on experience and other factors. The amount credited to the Doubtful Accounts represents the accounts receivable that will be uncollectible. The Allowance for Doubtful Accounts account is a contra-asset account. It is subtracted from the accounts receivable on the balance sheet.
Let us understand this with an example.
A company has accounts receivable of $10,000. Based on its experience in the last couple of years, it is estimated that five percent of the accounts receivables are almost always uncollectible. So, the journal entry for this would be:
Bad Debt Expense Dr. $500
To Allowance for Doubtful Accounts A/c $500
Once you make this entry, the net realizable value of the accounts receivable comes to $9500. When the company collects its receivables, it will credit the Accounts Receivables A/c and simultaneously debit the Cash a/c. Consequently, the Allowance for Doubtful Accounts A/c will be reduced accordingly.
Beyond this, you can look for other accounting journal entries exercises to get well-versed.