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Journal Entries Made Easy

Step 1: Determine the accounts that are affected by the transactions Step 2: Determine how the accounts are affected by the transaction (increase or decrease) Step 3: Determine the type of account (asset, liability, revenue, etc.) in Step 1 and translate Step 2 into Debit and Credit entries Helpful tips: 1) Paid something and it does not say on account assume it was paid in cash 2) Receive something and it does not say on account assume cash was received 3) If you pay on account it is Accounts Payable (you will pay them cash later) 4) If someone pays you on account it is Accounts Receivable (you will receive cash from them later)

Example 1: Paid ABC Company for monthly rent of $600. Step 1: The accounts that are affected are Cash and Rent Expense Step 2: Cash decreases (since it was paid out) and Rent Expense increases (since you are paying for rent month after month) Step 3: Classification: Cash is an asset and Rent Expense is an expense Translation: Assets decrease with credits and Expenses increase with

debits (see chart if needed)

Journal entry: Rent Expense 600 Cash 600 Example 2: Received cash from Mary Palmer on account for $400 Step 1: The accounts that are affected are Cash and Accounts Receivable Step 2: Cash increases (since it was received) and Accounts Receivable decreases (since the customer is paying you back she no longer owes you money)

Step 3: Classification: Cash is an asset and Accounts Receivable is an asset Translation: Assets increase with debits and Assets decrease with

credits (see chart if needed)

Journal entry: Cash 400 Accounts Receivable-Mary Palmer 400

Reference table:

Classification Normal Balance Increase Decrease

Asset Debit Debit Credit

Liability Credit Credit Debit

Owners Equity-Capital Credit Credit Debit

Owners Equity-Draw Debit Debit Credit

Revenue Credit Credit Debit

Formulas: Assets=Liabilities + Owners Equity Debits=Credits The two equations stay in balance because Assets have debit balances and Liabilities and Owners Equity have credit balances Expense Debit Debit Credit

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