Recording Transactions and Adjusting Entries

recording financial transactions help

Transactions on the Real Samples

According to the basic accounting equation, each transaction must be recorded on the debit and credit sides of the balance.

  1. If the company purchased a 1-year insurance policy, its asset account Prepaid Insurance will be increased by the amount, while other asset account Cash will be decreased by the same amount, As the result of the transaction, the ending balance of total assets remains the same.
Date Credit
Feb-01 Prepaid Insurance 4,800
Cash 4,800
  1. Recording transactions accounting of purchasing of supplies on an account will affect the debit side of the balance, Supplies account, as the credit side – Accounts Payable on the same amount.
Date Credit
May-17 Supplies 2,000
Accounts Payable 2,000
  1. Accounting recording transactions for buying a truck will change the left side of the balance, account Truck and decrease the assets account of Cash or liabilities account – Accounts Payable.
Date Credit
May-17 Truck 38,000
Cash 38,000
  1. The recording financial transactions of borrowing needed cash will rise as the Cash account, as the left side of the balance, Notes Payable account.
Sept-30 Cash  10,000
Cash 10,000
  1. Recording the transactions accounting of loaning cash to the employee is affecting only assets accounts Notes Receivable and Cash.
Nov-1 Notes Receivable 1,000
Cash 1,000
  1. Recording financial transactions of receiving advance payment are affecting the Cash account on the left side and Unearned Service Revenue on the right side of the balance.
Nov-20 Cash 5,000
Unearned Service Revenue 5,000

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Recording of Adjusting Entries at the End of Accounting Period

  1. Matching Insurance Expense for 11-month period will decrease the assets account of Prepaid Insurance on the calculated amount of $4,400 ($4,800/12 months x11 months).
Dec-31 Insurance Expense 4,400
Prepaid Insurance 4,400
  1. Correcting the Supplies account on the number of used items is raising the Supplies Expense account by $1,550 ($2,000 purchase less $450 on hand).
Dec-31 Supplies Expense 1,550
Supplies 1,550
  1. Recording partial depreciation of truck requires the using straight-line depreciation method when the cost of the truck of $38,000 is distributed equally through the useful life of 12 years. The depreciation of truck will be $3,166.67 per year ($38,000/12 years) and $1,056 for 4-month period ($3,166.67/12months x 4months).
Dec-31 Depreciation Expense 1,056
Accumulated depreciation – Truck 1,056
  1. Recording of incurred interest on the borrowing for 3 months the current year will affect Interest Expense account on the right side and Interest Payable on the other side of balance The amount of incurred interest will be calculated using the following formula:

Interest Expense = Borrowing x Interest Rate x Months Used / 12

Interest Expense = $10,000 x 7% x3/12 = $175


Dec-31 Interest Expense 175
Interest Payable 175
  1. According to matching principle, recording incurred interest revenue for the 2-month period on the loaned amount must be provided at the end of the accounting period. For this adjusting entries will be used Interest Receivable account on the left side and Interest Revenue account on the other side of the balance. The interest revenue will be defined similar to the interest expense and will record of $5 ($1,000 x3%x 2 months/12).
Dec-31 Interest Receivable 5
Interest Revenue 5
  1. Recording earned service revenue for one month requires adjusting the Unearned Service Revenue account by the $2,500 ($5,000/2months).
Dec-31 Unearned Service Revenue 2,500
Service Revenue 2,500

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