Accounting for a Service Business

The Journal

The Journal

All business transactions are first recorded in a journal. The journal is a chronological record of the business’s business transactions.

The process of recording transactions in a journal (making journal entries) is called journalizing.

The JournalPage 110 of your text shows you a sample

general journal.Notice:

how the date is set uphow the debit is listed first and is flush with the left-hand

marginhow the credit it listed second and is indented several

spaces the explanation following the entry - don’t leave anything up

to your memoryhow we skip a space between journal entries: this lends

itself to readability the reference column. We will refer to this later.

The Journal

What is the difference between a compound entry and a simple entry?

A simple entry has only one account debited and one account credited.

A compound entry has one or more accounts debited and one or more accounts credited.

Journal EntriesPeg deposits $15,000 in a bank account in

the name of Kline Consulting (KC)

Cash (an asset) will increase, therefore a debit

Capital (capital account) will increase, a credit

Nov. 1 Cash 15,000

Kline, Capital 15,000

(owner’s investment of cash in the business)

Journal EntriesPeg buys equipment for $10,000 cash to

operate her business.

Equipment (an asset) will increase…debit

Cash (an asset) will decrease…credit

Nov.2 Equipment 10,000

Cash 10,000

(purchase of equipment for cash)

Journal EntriesPeg buys supplies for $1,350, agreeing to

pay the supplier in the near future.

Supplies (an asset) will increase…debitAccounts Payable (a liability) will increase…credit

Nov.3 Supplies 1,350 Accounts Payable 1,350

(purchase of supplies on account)

Journal Entries

KC earns fees of $7,500 and receives the amount in cash.

Cash (an asset) will increase…debitFees Earned (a revenue) will increase…credit

Nov.4 Cash 7,500 Fees Earned 7,500

(received cash for services provided)

Journal Entries

KC receives a bill for $300 for advertising. KC will pay this bill at a later date.

Advertising Expense (an expense) will increase

Accounts Payable (a liability) will increase

Nov. 5 Advertising Expense 300

Accounts Payable 300

(purchased advertising on account)

Journal EntriesKC earns fees of $12,000. KC receives 4,000 in

cash and 8,000 is billed to customers on account.

Cash(an asset) will increaseAccounts receivable (an asset) will increaseFees Earned (revenue) will increase

Nov. 6 Cash 4,000 Accounts Receivable 8,000 Fees Earned 12,000

(customer paid cash and account receivable for services provided)

Journal Entries

KC pays expenses of $500 for rent, $200 for insurance, and $175 for utilities.

Rent expense, insurance expense, and utilities expense (all expenses) will increaseCash (an asset) will decrease

Nov. 7 Rent Expense 500Insurance Expense 200Utilities Expense 175

Cash875

(paid monthly expenses)

Journal Entries

KC pays it advertising bill of $1,350 in cash.

Accounts Payable (a liability) will decrease

Cash (an asset) will decrease

Nov. 8 Accounts Payable 1,350

Cash 1,350

(made a payment on account)

Journal Entries

KC receives $1,750 cash from customers on account.

Cash (an asset) will increaseAccounts Receivable (an asset) will decrease

Nov.9 Cash 1,750Accounts Receivable 1,750

(received payment from a customer on account)

Journal Entries

Peg Kline withdraws $1,500 in cash from the business for her personal use.

Owner’s withdrawals (drawing) will increase…debit

Cash (an asset) will decrease…credit

10 Kline, Drawing 1,500

Cash 1,500

(withdrew cash for personal use)