10 Examples of Double Entry Accounting 1683305482

10
Liabilities
Assets ue
en
Rev
Credits
COGS
Debits
Expense
s
Examples of Double
Entry Accounting... With
Helping You Grow In Finance & Accounting 1

About
this guide
In this guide you will learn
about 10 examples of Double

Entry Accounting, with Debits
& Credits
Helping You Grow In Finance & Accounting

Contents
What is Double Entry
1 4
Accounting?
2 How do debits & credits work? 7
What are some examples of

3 10
Double Entry Accounting?
Investing money in a business 11
Generating a sale - cash basis 13
Generating a sale - accrual basis 15
Purchasing legal services via AP 17
Purchasing a 12 month subscription 19
Converting inventory to COGS 21
Recording an accrued expense 23
Depreciating a fixed asset 25
Paying off debt 27
Paying employees 29

1
What is Double
Entry Accounting?
What is Double Entry Accounting?

Josh Aharonoff Swipe
Helping You Grow In Finance & Accounting 4

Double Entry Accounting is a
system used to record the
financial activity of a business
it shows how every

transaction has 2 parts to it,
which are summarized via
DEBITS & CREDITS

Debits & Credits help
explain which accounts are
INCREASING or
DECREASING
They must always

equal each other
No Exceptions!

2
How do Debits &

Credits work?
How do Debits & Credits work?

BALANCE SHEET
ASSETS = LIABILITIES + OWNERS EQUITY
PROFIT & LOSS
ALL INCOME - ALL EXPENSES = NET INCOME
REVENUE + COGS + EXPENSES + = NET INCOME

OTHER INCOME OTHER EXPENSES
Your Profit & Loss flows into your

Owners equity through an account called
Retained Earnings

BALANCE SHEET Income Statement
Assets Revenue
Cash, Accounts Receivable COGS

(Gross profit - Expenses)
Fixed Assets Gross Profit (Revenue - COGS)
Liabilities Expenses
AP, Credit Cards Net Operating Income

(Other Income - Other Expenses)
Other Current Liabilities Other Income
Owners Equity Other Expense
Common Stock Net Other Income
Retained Earnings Net income (Other Income - Other Expenses)

3
What are some

examples of Double
Entry Accounting?
What are some examples of Double Entry Accounting?

Investing money
in a business
1
What are some examples of Double Entry Accounting? - Investing money in a business

What Happened:
Investing money in a business is

most commonly done via equity,
debt
If the investment is made via equity,
it can be via common stock, or
preferred stock
Areas affected: Debits & Credits:
What are some examples of Double Entry Accounting? - Investing money in a business

Generating a sale
- cash basis
2
What are some examples of Double Entry Accounting? - Generating a sale - cash basis

What Happened:
When you generate sales

under the cash basis, you
record the sale as the
amount equal to the cash
you collected
What are some examples of Double Entry Accounting? - Generating a sale - cash basis

Generating a sale
- accrual basis
3
What are some examples of Double Entry Accounting? - Generating a sale - accrual basis

What Happened:
Under the accrual basis, your

revenue is dependent on the
products / services DELIVERED…
regardless of cash collections
When sale is made: When sale is made:
When product / services is delivered When product / services is delivered
What are some examples of Double Entry Accounting? - Generating a sale - accrual basis

Purchasing legal
services via AP
4
What are some examples of Double Entry Accounting? - Purchasing legal services via AP

What Happened:
It’s common to purchase services

that get paid in future periods.
This is done via an account called Accounts

Payable
When service is incurred but not yet paid: When service is incurred but not yet paid:
When payment is made: When payment is made:

Purchasing a 12 month
software subscription
under accrual accounting
5
What are some exam... - Purchasing a 12 month software subscription under accrual accounting

What Happened:
Sometimes you may purchase something

where you will have access to the
benefit over multiple months
Under accrual accounting, this requires you to
record a PREPAID asset
When purchase is made When purchase is made
When benefit is incurred When benefit is incurred

Converting
inventory to COGS
6
What are some examples of Double Entry Accounting? - Converting inventory to COGS

What Happened:
When goods are shipped

to customers, it moves
from your inventory
account to your cost of
goods sold account
What are some examples of Double Entry Accounting? - Converting inventory to COGS

Recording an
accrued expense for
accounting fees
7
What are some examples of Double Entry Accounting? - Recording an accrued expense for accounting fees

What Happened:
Under accrual accounting, when an

expense is incurred but not yet paid,
you must record what is called an
accrued expense.
If a bill is received, this accrued expense is
typically represented by Accounts Payable
If a bill is not received, this liability is often times
represented by an account called Accrued Expenses
What are some examples of Double Entry Accounting? - Recording an accrued expense for accounting fees

Depreciating
a fixed asset
8
What are some examples of Double Entry Accounting? - Depreciating a fixed asset

What Happened:
Depreciation refers to the

“wear & tear” of a fixed asset.
Because the fixed asset will lose value over
time, you expense a portion of it’s value in
each period
(via a contra asset account)
*Note that Accumulated Depreciation is really a

“contra asset” account, which means it gets shown in
the assets section, but gets represented by a negative
What are some examples of Double Entry Accounting? - Depreciating a fixed asset

Paying off
debt
9
What are some examples of Double Entry Accounting? - Paying off debt

What Happened:
Debt has been

incurred, and now
you are paying back
the principal
What are some examples of Double Entry Accounting? - Paying off debt

Paying
employees
10
What are some examples of Double Entry Accounting? - Paying employees

What Happened:
When you pay employees, it’s

common to show the cost broken out
by:
Salaries & Wages
Payroll taxes
Health Benefits
Payroll processing fees
This helps the company understand where their

cash is going via their often times largest expense
10
What are some examples of Double Entry Accounting? - Paying employees

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10

Helping You Grow In Finance & Accounting 1

In this guide you will learn

about 10 examples of Double

Helping You Grow In Finance & Accounting

2 How do debits & credits work? 7

What are some examples of

Helping You Grow In Finance & Accounting

What is Double Entry Accounting?

Helping You Grow In Finance & Accounting 4

it shows how every

What is Double Entry Accounting?

Helping You Grow In Finance & Accounting

They must always

What is Double Entry Accounting?

Helping You Grow In Finance & Accounting

How do Debits &

How do Debits & Credits work?

Helping You Grow In Finance & Accounting

ASSETS = LIABILITIES + OWNERS EQUITY

PROFIT & LOSS

ALL INCOME - ALL EXPENSES = NET INCOME

REVENUE + COGS + EXPENSES + = NET INCOME

Your Profit & Loss flows into your

How do Debits & Credits work?

Helping You Grow In Finance & Accounting

Cash, Accounts Receivable COGS

AP, Credit Cards Net Operating Income

Owners Equity Other Expense

Common Stock Net Other Income

Retained Earnings Net income (Other Income - Other Expenses)

How do Debits & Credits work?

Helping You Grow In Finance & Accounting

What are some

What are some examples of Double Entry Accounting?

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

Investing money in a business is

Areas affected: Debits & Credits:

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

When you generate sales

Areas affected: Debits & Credits:

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

Under the accrual basis, your

Areas affected: Debits & Credits:

When sale is made: When sale is made:

When product / services is delivered When product / services is delivered

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

It’s common to purchase services

This is done via an account called Accounts

Areas affected: Debits & Credits:

When payment is made: When payment is made:

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

Sometimes you may purchase something

Areas affected: Debits & Credits:

When purchase is made When purchase is made

When benefit is incurred When benefit is incurred

Helping You Grow In Finance & Accounting

Helping You Grow In Finance & Accounting

What are some examples of Double Entry Accounting? - Paying employees

What are some examples of Double Entry Accounting? - Paying employees