First Example

The company started business on June 6, 2013. The business was started with $300,000. The
transactions they engaged in during their first month of business are below:

Date Transaction

June 8 An amount of $50,000 was paid for six months of rent.

Equipment costing $100,000 was purchased using $40,000 cash. The remaining amount of
June 9 $60,000 is a one year note with an interest rate of 3.4%

June 10 Office supplies were purchased totaling $25,000 on account.

June 16 Received $39,400 in cash for services rendered to customers.

June 16 Paid the account for office supplies purchased June 10.

$63,900 worth of services were given to customers. Received cash amount of $43,700.
June 20 Customers promised to pay remaining amount of $20,200.

June 21 Paid employees’ wages for June 8-June 21. Wages totaled $23,500.

June 21 Received $20,200 in cash for services rendered to customers on June 20.

June 22 Received $6,300 in cash as advanced payment from customers.

June 27 Office supplies were purchased totaling $3,500 on account.

June 28 Electricity bill received totaling $1,850.

June 28 Phone bill received totaling $2,650.

June 28 Miscellaneous expenses totaled $4,320.

These events would then be recorded into the accounting journal. The table below records the journal
entries for the events above.

Date Account Debit Credit

June 6 Cash 300,000

June 8 Prepaid rent 50,000

Cash 50,000

June 9 Equipment 100,000

 Cash 40,000

Notes Payable 60,000

June 10 Office Supplies 25,000

Accounts Payable 25,000

June 16 Cash 39,400

Service Revenue 39,400

June 16 Accounts Payable 25,000

Cash 25,000

June 20 Cash 43,700

Accounts Receivable 20,200

Service Revenue 63,900

June 21 Wages Expense 23,500

Cash 23,500

June 21 Cash 20,200

Accounts Receivable 20,200

June 22 Cash 6,300

Unearned Revenue 6,300

June 27 Office Supplies 3,500

Accounts Payable 3,500

June 28 Electricity Expense 1,850

Utilities Payable 1,850

June 28 Telephone Expense 2,650

Utilities Payable 2,650

June 28 Miscellaneous Expense 4,320

Cash 4,320
The journal is then posted to the ledger accounts at the end of the period. Larger businesses separate
their ledgers into different books, one being the general ledger and the other being a subsidiary ledger.
The general ledger will include the main accounts and the following categories: assets, liabilities,
owner’s equity, revenue, expense, gains, and losses. The subsidiary ledger includes detailed records of
some accounts in the general ledger, the three main subsidiary ledgers being accounts receivable,
inventory, and accounts payable. When recording the transactions, it is important to know how to
record the debits and credits. When working with assets and expenses, an increase is recorded in debit,
and a decrease is recorded in credit. When working with liabilities, equities, and revenues, a decrease is
recorded in debit, and an increase is recorded in credit.

Second Example

This company was incorporated on March 1, 2013 with a starting of $1,500,000 and 10,000 common
stock shares at $50 par value. These are the company’s transactions for the first month:

Date Transaction

March 3 $300,000 was paid as advanced rent for six months.

March 4 Office supplies were purchased on account totaling $35,000.

March 6 Services were provided to customers, and the company received $54,000 in cash.

March 7 The accounts payable for office supplies purchased on March 4 was paid.

$200,000 in cash was used to purchase equipment costing $560,000. The remaining $360,000
March 7 became a one year note payable with interest rate of 4%.

March 9 Office supplies were purchased on account totaling $13,500.

March 12 Services were provided to customers, and the company received $43,500 in cash.

March 13 The accounts payable for office supplies purchased on March 9 was paid.

March 14 Employees were paid wages for March 3-March 14 totaling $356,000.

Services were provided to customers totaling $256,720. Customers paid $143,650 with a
March 14 promise to pay $113,070 remaining balance in the future.

March 20 Office supplies were purchased on account totaling $5,400.

Customers paid $100,000 toward the $113,070 remaining balance for services rendered
March 21 March 14.

March 23 The accounts payable for office supplies purchased on March 20 was paid.

March 25 Customers paid $13,070 for services rendered March 14.

March 27 Customers paid $23,000 in advance for services to be received.

March 28 Employees were paid wages for the final weeks of March, totaling $453,600.

March 28 Electricity bill was received totaling $6,750.

March 28 Phone bill was received totaling $8,754.

March 31 Miscellaneous expenses for the month were totaled at $15,450.

As in the example above, these transactions are then recorded into the accounting journal. Below is the
table that records the accounting journal for March 2013.

Date Account Debit Credit

March 1 Cash 1,500,000

Common Stock 500,000

March 3 Prepaid Rent 300,000

Cash 300,000

March 4 Office Supplies 35,000

Accounts Payable 35,000

March 6 Cash 54,000

Service Revenue 54,000

March 7 Accounts Payable 35,000

Cash 35,000

March 7 Equipment 560,000

Cash 200,000

Notes Payable 360,000

March 9 Office Supplies 13,500

Accounts Payable 13,500

March 12 Cash 43,500

Services Revenue 43,500

March 13 Accounts Payable 13,500

Cash 13,500

March 14 Wages Expense 356,000

Cash 356,000

March 14 Cash 143,650

Accounts Receivable 113,070

Services Revenue 256,720

March 20 Office Supplies 5,400

Accounts Payable 5,400

March 21 Cash 100,000

Accounts Receivable 100,000

March 23 Accounts Payable 5,400

Cash 5,400

March 25 Cash 13,070

Accounts Receivable 13,070

March 27 Cash 23,000

Unearned Revenue 23,000

March 28 Wages Expense 453,600

Cash 453,600

March 28 Electricity Expense 6,750

Utilities Payable 6,750

March 28 Phone Expense 8,754

Utilities Payable 8,754

March 31 Miscellaneous Expense 15,450

Cash 15,450
You can see why a larger company might have multiple journals instead of one general journal. This was
only a short list of transactions that could occur in a large business, but there are usually many more.
Looking at a table like this with sales and purchases mixed together could get confusing when there is so
much of it going on. It is easier for accountants to record sales and purchases separately so they do not
end up mixed.

Third Example

For this last example, transactions will be recorded in three separate tables to represent four separate
journals – purchases journal, sales journal, cash receipts journal, and cash disbursements journal. This
example should give you a greater understanding of the debit-credit rules.

This company was incorporated January 1, 2014. They started out with a cash value of $2,350,000, and
they have 25,000 stocks at $200 par value. These are their transactions for the first month:

Date Transaction

January 2 Rent was paid in advance for a full year totaling $750,000.

Equipment costing $830,000 was purchased. $310,000 was paid in cash, and the remaining
January 3 amount of $520,000 was a one year note payable with an interest rate of 4.6%.

January 3 Office supplies were purchased on account totaling $340,000.

January 4 Services were provided to customers, and the company received $570,000 in cash.

January 5 Sales were made, and the company received $350,000 in cash.

January 6 The accounts payable for office supplies purchased on January 3 was paid.

Sales were made totaling $475,000. Customers paid $235,000 in cash and promised to pay
January 7 the remaining $240,000 in the future.

Services were provided to customers totaling $654,000. Customers paid $300,000 in cash and
January 8 promised to pay the remaining $354,000 in the future.

January 9 Office supplies were purchased on account totaling $115,000.

January 10 Customers paid $25,000 for sales made on January 7 leaving a balance of $215,000.

January 11 Employees were paid wages totaling $457,000 for the first two weeks of January 2014.

January 12 The accounts payable for office supplies purchased on January 9 was paid.

January 13 Customers paid $65,000 for services rendered on January 8 leaving a balance of $289,000.

January 14
The company paid $35,000 to the note payable for equipment purchased January 3 leaving a
 balance of $485,000.

Janaury 15 Customers paid $53,000 for sales made on January 7 leaving a balance of $162,000.

January 16 Customers paid $43,000 for services rendered on January 8 leaving a balance of $246,000.

January 17 Office supplies were purchased on account for $75,000.

January 18 Customers paid $35,000 for services rendered on January 8 leaving a balance of $211,000.

January 19 The company paid $75,000 for equipment purchased January 3 leaving a balance of $410,000.

January 20 The accounts payable for office supplies purchased on January 17 was paid.

January 21 Customers paid $100,000 for sales made on January 7 leaving a balance of $62,000.

January 22 Sales were made, and the company received $235,000 in cash.

January 23 Customers paid $211,000 for services rendered on January 8.

January 24 Customers paid $65,000 in advance for services to be rendered.

Employees were paid wages totaling $545,000 for the third and fourth weeks of January
January 25 2014.

January 26 Customers paid $62,000 for sales made on January 7.

January 27 Sales were made, and the company received $345,000 in cash.

January 28 Office supplies were purchased on account totaling $215,000.

January 29 The accounts payable for office supplies purchased on January 28 was paid.

January 30 Services were provided to customers, and the company received $765,000 in cash.

January 31 Dividends were paid totaling $1,000,000.

January 31 Electricity bill totaling $15,450 was received.

January 31 Phone bill totaling $17,850 was received.

January 31 Miscellaneous expenses for the month totaled to $650,000.

You can see that such a long list of transactions would be quite confusing if kept in one single journal.
Some companies use QuickBooks to keep track of transactions and journals.Below is the table
representing the purchases journal.

Purchases Journal
Date Account Debit Credit

Janaury 3 Equipment 830,000

Notes Payable 520,000

January 3 Office Supplies 340,000

Accounts Payable 340,000

January 9 Office Supplies 115,000

Accounts Payable 115,000

January 17 Office Supplies 75,000

Accounts Payable 75,000

January 27 Office Supplies 215,000

Accounts Payable 215,000

It is obvious that a journal written as such is a lot easier to read than a longer, larger general journal
keeping track of everything. Notice that this table only recorded purchases on account, not payments
for the purchases or cash payments for purchases.

Sales Journal

Date Account Debit Credit

January 7 Accounts Receivable 240,000

Sales 240,000

January 8 Accounts Receivable 354,000

Service Revenue 354,000

Again, this journal does not record payments of sales or services purchased by customers on credit, and
it does not record sales or services paid with cash. This only records the credit.

Cash Disbursements

Cash 457,000

Date Account Debit Credit

January 2 Prepaid Rent 750,000

 Cash 750,000

January 3 Equipment 310,000

Cash 310,000

January 6 Accounts Payable 340,000

Cash 340,000

January 11 Wages Expense 457,000

Cash 457,000

January 12 Accounts Payable 115,000

Cash 115,000

January 14 Notes Payable 35,000

Cash 35,000

January 19 Notes Payable 75,000

Cash 75,000

January 20 Accounts Payable 75,000

Cash 75,000

January 25 Wages Expense 545,000

Cash 545,000

January 29 Accounts Payable 215,000

Cash 215,000

January 31 Dividends 1,000,000

Cash 1,000,000

January 31 Utilities Payable – Electricity 15,450

Cash 15,450

January 31 Utilities Payable – Phone 17,850

Cash 17,850
January 31 Miscellaneous Expenses 650,000

Cash 650,000

This journal records all payments that the company makes to any responsibilities they may have
including accounts payable recorded in the purchases journal.

Cash Receipts

Date Account Debit Credit

January 4 Cash 570,000

Service Revenue 570,000

January 5 Cash 350,000

Sales Revenue 350,000

January 7 Cash 235,000

Sales Revenue 235,000

January 8 Cash 300,000

Service Revenue 300,000

January 10 Cash 25,000

Accounts Receivable – Sales 25,000

January 13 Cash 65,000

Accounts Receivable – Service Revenue 65,000

January 15 Cash 53,000

Accounts Receivable – Sales 53,000

January 16 Cash 43,000

Accounts Receivable – Service Revenue 43,000

January 18 Cash 35,000

Accounts Receivable – Service Revenue 35,000

January 21 Cash 100,000

 Accounts Receivable – Sales 100,000

January 22 Cash 235,000

Sales Revenue 235,000

January 23 Cash 211,000

Accounts Receivable – Service Revenue 211,000

January 24 Cash 65,000

Unearned Revenue 65,000

January 26 Cash 62,000

Accounts Receivable – Sales 62,000

January 27 Cash 345,000

Sales Revenue 345,000

January 30 Cash 765,000

Service Revenue 765,000

These are all payments made by customers with cash. This includes any advanced payments, listed as
unearned revenue.