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Journal entries are the basic entries recoded as per the transactions being entered into by the business in its day to day operations in a chronological order.
Accounting rules regarding journal entries:
• Balance increases when: assets, losses and expenses are debited and liabilities, gains and incomes get credited.
• Balance decreases when: assets, losses and expenses get credited and liabilities, gains and incomes are debited.
Accounts receivable are the assets of the company. It depicts the amount to be received in future from the customers to whom the products have been sold. And thus it can be described as the potential asset addition sources hence an asset for the company.
To prepare: Journal entries
![Check Mark](/static/check-mark.png)
Explanation of Solution
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Nov 1 | Notes receivable | 4,800 | ||
Accounts receivable | 4,800 | |||
(Being 8% 90 day note accepted to grant time extension on past due accounts receivable) |
Table (1)
• Notes receivable increase the assets of the company as it creates potential income in future for grant of extension hence debit notes receivable.
• Accounts receivable is an income for the companies hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Dec 31 | Interest receivable | 96 | ||
Interest revenue | 96 | |||
(Being interest received on extension) |
Table (2)
• Interest has been received which will increase the current asset account so debited.
• As interest revenue is a revenue account since there is a decrease in revenue account so credited.
Working note:
Calculation of accrued interest,
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Jan 30 | Cash | 4,896 | ||
Notes receivable | 4,800 | |||
Interest revenue | 96 | |||
(Being payment received for interest and principal) |
Table (3)
• Cash is an asset which increases on receiving the payment of amount due, hence debit cash account.
• Notes receivable is incomes which increase the assets of the company hence credit all incomes and gains.
• Interest revenue is income which increase the assets of the company hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Feb.28 | Notes receivable | 12,600 | ||
Accounts receivable | 12,600 | |||
(Being 8% 30 day note accepted to grant time extension on past due accounts receivable) |
Table (4)
• Notes receivable increase the assets of the company as it creates potential income in future for grant of extension hence debit notes receivable.
• Accounts receivable is an income for the companies hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Mar 1 | Notes receivable | 6,200 | ||
Accounts receivable | 6,200 | |||
(Being 12% 60 day note accepted to grant time extension on past due accounts receivable) |
Table (5)
• Notes receivable increase the assets of the company as it creates potential income in future for grant of extension hence debit notes receivable.
• Accounts receivable is an income for the companies hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Mar. 1 | Interest | 84 | ||
Notes | 4,800 | |||
Accounts receivable | 4,884 | |||
(Being entry recorded for note dishonored) |
Table (6)
• Interest is an expense which decreases the assets of the company hence debit all expenses and losses.
• The notes were received on account of grant of extension to pay the liability which decreases the assets hence debit all expenses and losses.
• Accounts receivable is treated as income hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Apr. 30 | Cash | 6,944 | ||
Notes receivable | 6,200 | |||
Interest revenue | 744 | |||
(Being payment received for interest and principal) |
Table (7)
• Cash is an asset which increases on receiving the payment of amount due, hence debit cash account.
• Notes receivable is incomes which increase the assets of the company hence credit all incomes and gains.
• Interest revenue is income which increase the assets of the company hence credit all incomes and gains
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
June 15 | Notes receivable | 2,000 | ||
Accounts receivable | 2,000 | |||
(Being 8% 72 day note accepted to grant time extension on past due accounts receivable) |
Table (8)
• Notes receivable increase the assets of the company as it creates potential income in future for grant of extension hence debit notes receivable.
• Accounts receivable is an income for the companies hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
June 21 | Notes receivable | 9,500 | ||
Accounts receivable | 9,500 | |||
(Being 8% 90 day note accepted to grant time extension on past due accounts receivable) |
Table (9)
• Notes receivable increase the assets of the company as it creates potential income in future for grant of extension hence debit notes receivable.
• Accounts receivable is an income for the companies hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Aug 26 | Cash | 2,032 | ||
Notes receivable | 2,000 | |||
Interest revenue | 32 | |||
(Being payment received for interest and principal) |
Table (10)
• Cash is an asset which increases on receiving the payment of amount due, hence debit cash account.
• Notes receivable is incomes which increase the assets of the company hence credit all incomes and gains.
• Interest revenue is income which increase the assets of the company hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
June 21 | Cash | 9,690 | ||
Notes receivable | 9,500 | |||
Interest revenue | 190 | |||
(Being payment received for interest and principal) |
Table (11)
• Cash is an asset which increases on receiving the payment of amount due, hence debit cash account.
• Notes receivable is incomes which increase the assets of the company hence credit all incomes and gains.
• Interest revenue is income which increase the assets of the company hence credit all incomes and gains.
Date | Account Title and Explanation | Post ref | Debit ($) |
Credit ($) |
Nov.30 | Allowance for doubtful accounts | 12,600 | ||
Accounts receivable | 12,600 | |||
(Being amount written off as uncollectible accounts receivable.) |
Table (12)
• Allowance for doubtful accounts is an expense for the company which decreases the assets of the company hence debit allowance for doubtful accounts.
• Accounts receivable is an income which increases the assets of the company hence credit all incomes and gains.
2.
Need of reporting when business pledges receivables as security for loan and it is still outstanding at the end of the period and accounting principle being satisfied.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Following are the needs of reporting when business pledges receivables:
• The reporting records the transactions as to the value of pledge and the value of security for loan pledged through it. Because at times it may happen that the security is more value than the pledged amount, therefore reporting makes it easier to record the amount to be repaid.
• The amount outstanding at the end shows the liability to be fulfilled therefore they should be properly recorded so that during repayment a thorough recheck can be done.
• Reporting will also help authorities to analyze the worth of the properties and the liabilities associated with it.
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Chapter 9 Solutions
Fundamental Accounting Principles
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