Introduction

In the security market, the investment in debt security is considered a lower risk investment compared to equity or stock investment. Likewise, we usually make investments in debt security if we are unwilling to take a high-risk investment or if we want to diversify our investment portfolio.

In accounting, the investment in debt security is recorded as an investment asset on the balance sheet with its cost or purchase price that includes any brokerage or commission fees. And as debt investments usually come with the interest, we also need to record the interest that we receive from the investment during the period or at the end of the period to the income statement.

Although we usually invest in debt security in order to earn the interest as extra revenue until its maturity, we may decide to sell them back before their maturity. This usually happens when we are in urgent need of cash or when there is a significant change in the market interest rate. In this case, there is usually a gain or loss on the sale of the debt security that we also need to record to the income statement.

Purchase of investment in debt security

We can record the purchase of investment in debt security with the journal entry of debiting the debt investment account and crediting the cash account.

In this journal entry, the debt investment is recorded on the date of the purchase and at its cost or purchase price which includes any commissions or fees. And, this journal entry for the purchase of investment in debt security will increase one asset (debt investment) on the balance sheet while decreasing another asset (cash) at the same time. Hence, there is zero impact on the total assets of the balance sheet.

Interest on investment in debt security

As mentioned, debt security such as bonds, promissory notes, or commercial papers usually come with an interest attached in order to encourage the investors to buy.

In this case, as investors, we can record the interest that we receive from the investment in debt security by debiting the cash account and crediting the interest income account as in the journal entry below:

In this journal entry, both total assets on the balance sheet and total revenues on the income statement increase by the same amount as the cash and interest income increase.

Receive principal at maturity

When we receive the principal back at the maturity of the debt security that we have invested, we can record the principal cash received as a debit to the cash account and a credit to the debt investment account as in the journal entry below:

Investment in debt security example

For example, on January 1, we purchase a $100,000 commercial paper with an interest of 5% per annum and a maturity of 3 months. We will receive both interest and principal at the end of this debt maturity which is March 31.

In this case, we can record the investment in debt security of the $100,000 commercial paper on January 1 with the journal entry below:

In this journal entry, our investment assets on the balance sheet will increase by $100,000 while our cash balance decrease will by the same amount on January 1.

Later, on March 31, when we receive both the $100,000 principal and the $1,250 interest, we can record the journal entry below:

* ($100,000 x 5%) x 3/12 = $1,250

Sale of investment in debt security before maturity

As mentioned, we may sell the debt security back to the market before its maturity which results in a gain or loss for the transaction. In this case, we need to record any gain or loss as a result of sale to the income statement for the period.

Gain on sale of investment in debt security

We will have a gain on the sale of investment in debt security when the sale price of the debt investment is more than the cost that we purchased.

In this case, we can record the gain on the sale of investment in debt security with the journal entry of debiting the cash account and crediting the gain on sale of investment account and the debt investment account.

In this journal entry, the gain on sale of investment account is a revenue account on the income statement that we usually record under the other revenues section.

Loss on sale of investment in debt security

On the other hand, we will have a loss on the sale of investment in debt security when the sale price of the debt investment is less than the cost that we purchased.

In this case, we can record the loss on the sale of investment in debt security with the journal entry of debiting the cash account and the loss on sale of investment account and crediting the debt investment account.

In this journal entry, loss on sale of investment account is an expense account on the income statement that is usually recorded under the other expenses section.

Sale of investment in debt security example

For example, on January 1, we purchase a $50,000 debt security which is a type of corporate bond that has a 10-years maturity and give a 6% interest per annum. The interest is payable annually.

However, on June 30, as we are in urgent need of cash for our business operation, we decide to sell this $50,000 corporate bond that we purchased as a debt investment on January 1 for only $49,000. This results in us making a loss of $1,000 on the sale of the investment in this security.

In this case, we can record the purchase of the $50,000 debt security on January 1 with the journal entry below:

January 1:

And then, on June 30, when we sell the debt security for $49,000, we can record the $1,000 loss with the debit of the loss on sale of investment as in the journal entry below:

June 30:

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Most businesses deal in cash on a daily basis – it is the lifeblood of the organization. In accounting terms, cash is classified as a current asset on the balance sheet. This simply means that it is an easily liquidated asset that can be used to pay current liabilities. Given its liquidity, cash is often seen as the most important asset for a business.

However, it is also important to remember that cash can quickly disappear if it is not managed carefully. Therefore, businesses need to have systems and procedures in place to ensure that cash is properly accounted for and safeguarded. By doing so, they can ensure that they have the funds they need to meet their short-term obligations and continue operating smoothly.

While cash may seem like the simplest and most convenient form of payment, it actually comes with a number of risks. Perhaps the most obvious risk is that cash can be easily stolen. If you lose your wallet or have it stolen, you may be out of a significant amount of money. Even if you’re careful with your belongings, there’s always the possibility that your home could be broken into and your cash taken.

In addition to the risk of theft, cash is also difficult to replace if it is lost or damaged. If your house burns down or you suffer some other type of disaster, chances are your cash will be gone for good. Finally, cash is also one of the easiest ways for criminals to launder money. For all these reasons, it’s important to consider the risks associated with keeping cash on hand before making any decisions about payments.

Journal Entry for Cash Lost by Thief

The company record the cash balance on the financial statement. But when the cash was stolen, we need to remove it from the balance sheet. It needs to record as an expense on the income statement.

The journal entry is debiting Cash Lost by Thief and credit cash.

The entry will increase the expense on the income statement. The cash balance will be reduced as it was stolen already.

Example

Company ABC is the supplier which sell clothes to local customers. One day the thief has broken into the office and steal cash on hand amount $ 5,000. Please prepare journal entry for cash stolen.

The cash was stolen from the company, so we must get ride of it and record the expense.

The journal entry is debiting cash lost by thief $ 5,000 and credit cash on hand $ 5,000.

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Capital refers to the money or assets that a business uses to generate revenue. This can include cash on hand, investments, inventory, and equipment.

Without capital, businesses would be unable to purchase the supplies they need to produce goods or services, pay their employees, or cover other operating expenses. While businesses can receive cash through loans, capital, and other forms of borrowing, sooner or later they need to replenish their capital through profits. That’s why generating positive cash flow is essential for the long-term success of any business.

A company can receive capital from the investment of the owner or shareholders. The investment of the owner or shareholders is the act of committing money to an enterprise with the expectation of obtaining an income or financial return. In order to raise capital, a company may approach investors who will provide the necessary funding in exchange for equity stakes in the business.

Equity is simply a share in the ownership of a company and entitles the holder to a portion of the company’s profits (or losses). In addition to providing capital, investors may also offer their expertise and experience to help grow the business. For example, an investor with experience in marketing may help to develop and implement a new marketing strategy. Ultimately, the goal of any investment is to generate a return for the investor. There are many different types of investments, but they all share one common goal.

Journal Entry for Capital Introduced

Capital is the resource that the owner invested into the business to kick start the operation. Most businesses require capital at the beginning when the operation is not yet provided enough profit to support itself.

The capital can be cash, fixed assets, and other assets. However, most of the time capital refers to cash which allows the company to purchase any required items.

The journal entry is debiting cash and credit capital.

The transaction will increase the capital which is the equity on the balance sheet. It also increases the cash balance.

Example

Mr. A has started the company XYZ which imports goods from oversea. In order to start the operation, XYZ requires some cash to pay for the investment and operating expenses. Mr. A decides to invest $ 100,000 as capital into the company. Please prepare a journal entry for the capital introduction.

The owner of company has made an investment of $ 100,000 as capital. It is the transaction of capital investment.

The journal entry is debiting cash $ 100,000 and credit owner capital $ 100,000.

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The company purchased the computer for internal use and it is classified as a fixed asset.

Fixed assets are the assets that company purchase for use only, not for sale. The definition of a fixed asset can vary from company to company, but usually includes long-term assets such as land, buildings, machinery, and computer equipment. These assets are not intended for resale, but rather for use in the production of goods or services. Because they are not easily converted to cash, fixed assets are often financed through long-term loans or lines of credit.

In addition to being used in the production process, fixed assets can also be leased to other businesses. Leasing is a popular option for companies that do not have the upfront capital to purchase their own fixed assets. Whether used internally or leased out to others, fixed assets play a vital role in the operation of many businesses.

Computers are an essential piece of equipment for any business. They can be used to support operations, manage customer information, and process transactions. When choosing a computer for your business, it is important to choose one that will meet your specific needs and have a long lifespan.

When selecting a business computer, pay careful attention to the processor speed, memory, and storage capacity. Also consider the software that comes pre-installed on the machine. Make sure that it is compatible with any other software that you use in your business. By taking the time to select the right computer for your business, you can ensure that it will provide years of reliable service.

The computer, that uses in the company, meets the definition of fixed assets. So it has to be recorded on the balance sheet as fixed assets.

Journal Entry for Computer Purchase

Purchasing a computer is the process that a company acquires fixed assets to use in the business process.

The company requires to record fixed assets when it is ready to use, the cost is measured reliable and the company is able to use the assets.

When the company purchases computer, the fixed assets are ready to use. The company has to record the computer when supplier delivers the items to the office. It must be classified as fixed assets on the balance sheet.

The journal entry of purchasing computers is debiting fixed assets and credit accounts payable.

The computer is classified as the fixed assets on balance sheet. And it also increases the accounts payable which is the company obligation to the supplier.

Example

Company ABC has purchased a set of computers which cost $ 15,000 on credit. The company will use the computers for internal use. They are not purchased for the purpose of reselling. Please prepare journal entry for purchasing computers.

The company purchases computers for internal use, so they are classified as fixed assets. The cost has to record on the balance sheet and depreciate over the estimated lifetime.

The journal entry of purchasing computers is debiting fixed assets $ 15,000 and credit accounts payable $ 15,000.

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Introduction

In business, we may need to make some improvements on the leased building that we rent from the landlord for our business operation. In this case, we can capitalize the costs of improvements as a fixed asset on the balance sheet by recording the costs to the leasehold improvement account.

The costs of leasehold improvement include the costs that we spend on making alterations or customizations on the leased property such as painting the walls, changing the carpets, adding the lighting fixture, making overall improvements to the ceilings, etc.

And similar to the other fixed assets, this leasehold improvement will also need to be amortized in order to spread its cost over the useful life of the improvement or the lease contract. Hence, at the period-end adjusting entry, we also need to make the journal entry for amortization of leasehold improvement in order to charge the allocated or amortized cost of leasehold improvement to the income statement as an expense for the period.

Later, when the lease contract ends or if we decide to stop leasing the property before the end of the lease contract for some reason, we need to make another journal entry in order to dispose of the leasehold improvement. This is made to remove all the costs of improvements we have previously recorded as fixed assets from the balance sheet.

Capitalization of leasehold improvement

We can make the journal entry to capitalize the leasehold improvement with the debit of the leasehold improvement account and the crediting of accounts payable or the cash account.

This journal entry will increase the total non-current assets on the balance sheet by the capitalized amount of the improvement done to the leasehold.

Amortization of leasehold improvement

Later, we need to make the amortization of the leasehold improvement in order to spread the cost of the improvement over the accounting periods.

In this case, we can make the journal entry for the amortization of leasehold improvement by debiting the amortization expense account and crediting the accumulated amortization account.

In this journal entry, the accumulated amortization account is a contra account to the leasehold improvement account above. Likewise, this journal entry for amortization of leasehold improvement will increase total expenses on the income statement while decreasing total assets on the balance sheet by the same amount.

The amortization of leasehold improvement can be done by dividing the costs of leasehold improvement by the remaining term of the lease contract or the useful life of the improvement itself if the useful life is shorter than the remaining lease term.

Leasehold improvement example

For example, we spend a total of $20,000 in cash on the improvement of the leasehold building that we rent from the landlord for our business operation. And the leasehold improvement is expected to have a useful life of 10 years which is the same as the remaining term of the lease contract.

In this case, we can make the journal entry to capitalize the $20,000 as the leasehold improvement with the debit of the leasehold improvement account and credit of the cash account.

Later, we can amortize the $20,000 leasehold improvement by dividing the $20,000 by the 10 years. This results in a $2,000 amortization per year which we can record on the income statement as an expense.

Likewise, we can make the journal entry for the amortization of the leasehold improvement by debiting the $2,000 amortization to the amortization expense account and crediting the same amount to the accumulated amortization account.

This journal entry will increase total expenses on the income statement by $2,000 while decreasing total assets on the balance sheet by the same amount of $2,000.

Disposal of leasehold improvement

As mentioned, when we stop leasing the property from the landlord, we need to remove the leasehold improvement from the balance sheet. And by the end of the lease period, the leasehold improvement should have been fully amortized.

In this case, we can make the journal entry for disposal of leasehold improvement by debiting the accumulated amortization account and crediting the leasehold improvement account if the leasehold improvement has been fully amortized.

This journal entry will remove the costs of leasehold improvements together with its related accumulated amortization from the balance sheet. However, as the leasehold improvement has already been fully amortized, its net book value (cost – accumulated amortization) will already become zero. Hence, there is zero impact on total assets on the balance sheet.

However, if we end the lease agreement before the end of the lease period, the leasehold improvement that we have recorded on the balance sheet may have not been fully amortized yet. In this case, we need to record the remaining unamortized amount of leasehold improvement as an expense to the income statement.

Likewise, we can make the journal entry for the disposal of leasehold improvement that is not fully amortized by recording the remaining unamortized amount to the loss on disposal of fixed assets account as below:

Hence, this journal entry for disposal of not-fully amortized leasehold improvement will increase total expenses on the income statement while decreasing total assets on the balance sheet.

Example for disposal of leasehold improvement

For example, on January 1, we make the disposal of a $20,000 leasehold improvement as we move to a new and bigger leased building for our business operations. At the time of disposal, the $20,000 leasehold improvement has already been amortized for 8 years, in which there is a $16,000 accumulated amortization on the balance sheet.

(There were 2 years remaining on the lease contract of the old office building. However, we had informed the landlord six months prior; hence, there was no penalty for ending the lease contract before the end of the lease term.)

In this case, we can record the $4,000 remaining unamortized amount ($20,000 – $16,000) as an expense to the income statement.

Hence, we can make the journal entry for disposal of the $20,000 leasehold improvement by debiting the $16,000 and the $4,000 to the accumulated amortization account and the loss on disposal of fixed assets account respectively while crediting the leasehold improvement account with the $20,000 amount.

In this journal entry, the $4,000 loss on disposal of fixed assets will be charged to the income statement as an expense for the period. At the same time, total assets will decrease by the same amount of $4,000 as we remove the leasehold improvement that has a net book value of $4,000 ($20,000 – $16,000) from the balance sheet.

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Introduction

In accounting, a subsidiary company is an investee company that we, as a parent company, have more than 50% shares of ownership. In this case, we can record the net income that the investee company earned as the income from the investment on our income statement.

Additionally, the net income that the investee company earned during the period represents an increase in its net worth. Hence, we will also treat it as an increase in the investment in subsidiary account on our balance sheet.

Alternatively, if the subsidiary company makes a loss, the balance of the investment in subsidiary account on our balance sheet will decrease instead. After all, the subsidiary company’s net worth or equity, which represents the value of our investment in the subsidiary, will decrease if it makes a loss for the period.

Journal entry to record income from subsidiary

We can record the income from the subsidiary company with the journal entry of debiting the investment in subsidiary account and crediting the income from investment account.

Income from subsidiary:

This journal entry will increase the total assets on the balance sheet as a result of the increase in the net worth of the subsidiary. At the same time, the total revenues on the income statement will increase as well as a result of the good performance of the subsidiary.

Loss on investment in subsidiary

As mentioned, if the subsidiary makes a loss, we need to record the loss on the investment in subsidiary as a decrease in the balance of investment in subsidiary account.

In this case, we can make the journal entry for the loss on the investment in subsidiary by debiting the loss on investment account and crediting the investment in subsidiary account.

In this journal entry, the loss on investment account is an expense that we need to charge to the income statement for the period. Likewise, this journal entry will decrease total assets on the balance sheet (credit of investment in subsidiary) while increasing the total expenses on the income statement (debit of the loss on investment).

Income from subsidiary example

For example, the company ABC, which is our subsidiary company, in which we have a 70% share of ownership, reported a $500,000 net income after tax for the period.

In this case, we can record the $350,000 ($500,000 x 70%) as an income from subsidiary as in the journal entry below:

This journal entry will increase the total assets on the balance sheet and the total revenues on the income statement by $350,000.

Example 2:

For another example, on December 31, we receive a report that one of our subsidiaries, that we have an 80% share of ownership, make a net loss of $200,000 for the period.

In this case, we can make the journal entry to record a $160,000 loss ($200,000 x 80%) to the loss on investment account and the investment in subsidiary account as below:

This journal entry will reduce the balance of investment in subsidiary on the balance sheet by $160,000. And at the same time, it will increase the total expenses by the same amount as a result of the bad performance of one of our subsidiaries.

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Introduction

In the business, there may be a case of inventory loss for various reasons. In this case, we need to make the journal entry to write off the lost inventory in order to remove them from our balance sheet.

In accounting, the inventory is recorded as a current asset on the balance sheet. Likewise, the lost inventory should be removed from the balance sheet as it no longer exists on the balance sheet.

Hence, writing off the lost inventory is necessary in this case as it helps to prevent the overstatement of the total assets on the balance sheet. Additionally, as the lost amount needs to be charged to the income statement as an expense for the period, writing off the lost inventory will also prevent the understatement of total expenses on the income statement.

Journal entry to write off the lost inventory

We can make the journal entry to write off the lost inventory by debiting the loss on inventory write-off account and crediting the inventory account.

In this journal entry, the loss on inventory account is an expense account that we need to charge to the income statement for the period. At the same time, the credit of the inventory account represents the decrease of the inventory balance on the balance sheet as a result of the loss that occurred.

Writing off the lost inventory example

For example, on December 31, we have performed the physical count of the merchandise inventory in order to close the company’s accounts at end of the accounting period as we use the periodic inventory system.

However, after the count and reconciliation, we found out that there was a $10,000 loss in the merchandise inventory for some reason. Hence, we decide to write off the lost inventory in order to remove them from the balance sheet.

In this case, we can make the journal entry to write off the lost inventory by debiting the $10,000 to the loss on inventory write-off account and crediting this same amount to the inventory account to remove this lost amount of inventory from the balance sheet.

This journal entry will decrease the total assets on the balance sheet by $10,000 as of December 31. And at the same time, it will increase total expenses on the income statement by the same amount.

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Introduction

In accounting, when we make the sale of plant assets, we need to remove such plant assets from the balance sheet as well as record the gain or loss as a result of the sale to the income statement. In this case, we need to make the journal entry for sale of plant assets in order to properly account for the sale transaction.

Plant assets are physical non-current assets that we acquire to use in the business operation. These plant assets are also known as property, plant, and equipment which is usually referred to in short as “PPE” in accounting terms.

When we sell the plant asset, there is usually a gain or a loss from the sale as the estimated salvage value is usually not 100% accurate at the time of registration. The gain or loss on the sale of plant assets can be determined by comparing the proceeds that we receive from the sale to the net book value of the assets.

Journal entry for sale of plant assets

Gain on sale of plant assets

We have a gain on the sale of the plant assets when the sale proceeds of the assets are higher than the net book value recorded on the balance sheet at the date of the sale.

In this case, we can make the journal entry for gain on the sale of plant assets by debiting the cash account and the accumulated depreciation account and crediting the plant asset account and the gain on sale of plant assets account.

This journal entry will remove the plant asset and its associated accumulated depreciation from the balance sheet. At the same time, the amount of the gain on sale of plant assets will be recorded in the income statement as the other revenues.

Loss on sale of plant assets

On the other hand, we have a loss on the sale of the plant assets when the net book value of the assets is higher than the sale proceeds.

In this case, we can make the journal entry for loss on sale of plant asset by debiting the difference between sale proceeds and the net book value of the asset to the loss on sale of plant assets account as below:

In this journal entry, the amount of the loss on sale of plant assets will be charged to the income statement as an expense.

Sale of plant asset example

For example, on January 1, we sell office equipment which is a type of plant asset that we recorded on the balance sheet for $1,200. We purchased this office equipment four years ago for $5,000.

At the time of sale, the equipment has a $4,000 accumulated depreciation recorded on the balance sheet.

In this case, we can determine the net book value of the equipment on the date of the sale to be $1,000 ($5,000 – $4,000). Hence, we have a $200 gain on the sale of the equipment ($1,200 – $1,000).

In this case, we can make the journal entry for the $200 gain on the sale of the equipment which is a plant asset as below:

This journal entry will remove the $5,000 equipment as well as its $4,000 accumulated depreciation from the balance sheet as of January 1. At the same time, the $200 gain on the sale of plant assets will be recorded in the income statement as other revenues.

Example 2:

For another example, assuming that we sell the office equipment in the example above for only $800.

In this case, there will be a loss of $200 instead as the sale price would be $800 which is $200 below the $1,000 net book value of the equipment.

If that is the case, we can make the journal entry for the $200 loss on the sale of plant assets as below:

In this journal entry, the $200 loss on the sale of plant assets will be recorded in the income statement as other expenses.

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Introduction

In accounting, loan payable is a liability that occurs when we take the loan from the creditor. In this case, we need to make the journal entry for loan payable in order to account for the cash that we receive as a result of taking a loan as well as to account for the liability that exists at the time of receiving the cash money.

In business, we may need to take a loan from a creditor such as a bank in order to start or expand our business. And such loan usually comes with interest that we need to pay together with the loan principal at the end of the maturity of the loan or at certain dates during the loan period.

In this case, we also need to record the interest on the loan payable during the loan period in order to account for the interest expense that occurs due to the existence of the loan payable.

Journal entry for loan payable

Loan payable

We can make the journal entry for loan payable by debiting the cash account and crediting the loan payable account.

This journal entry will increase both total assets and total liabilities on the balance sheet as a result of receiving the cash for the loan taken from the creditor.

Accrued interest on loan payable

Later, we may need to record the accrued interest on the loan payable if we make the period-end adjusting entry before the date of paying the interest. This is because the interest expense occurs through the passage of time.

Hence, we need to record the interest expense at the period end adjusting entry in order to account for the interest expense that has already occurred as well as the interest liability that has already existed.

In this case, we can make the journal entry for the accrued interest on the loan payable with the debit of the interest expense account and the credit of the interest payable account.

This journal entry is made at the period end adjusting entry when there is an accrued interest on the loan payable and we have not paid for it yet. This is to avoid both the understatement of total expenses on the income statement and the understatement of total liabilities on the balance sheet.

Payment of interest on loan payable

When we make the cash payment for the interest on the loan payable, we can make the journal entry to clear the interest payable that we have recorded previously with the debit of the interest payable and the credit of the cash account.

Loan payment

At the end of the loan period, we can make the journal entry for the loan payment by debiting the loan payable account and crediting the cash account.

This journal entry will remove the loan payable (partial or all) from the balance sheet. Likewise, the journal entry will decrease total liabilities as well as total assets on the balance sheet for the cash outflow (credit) from the business.

Loan payable example

For example, on January 1, 2022, we obtained a $10,000 loan from the bank with an interest of 10% per annum in order to expand our business operations. The loan has a one year maturity in which we need to pay back both the interest and principal on January 1, 2023.

In this case, we can make the journal entry for the loan payable on January 1, 2022, by debiting the $10,000 to the cash account and crediting the same amount to the loan payable account.

January 1, 2022:

In this journal entry, both total assets and total liabilities on the balance sheet increase by $10,000 as a result of taking a $10,000 loan from the bank.

Later, on December 31, 2022, when we make the period-end adjusting entry to close the company’s accounts, we can make the journal entry for the $1,000 ($10,000 x 10%) of the accrued interest on the loan payable that we obtained with the debit of the interest expense account and the credit of the interest payable account.

December 31, 2022:

This journal entry of accrued interest expense is necessary to avoid a $1,000 understatement of the expenses on the income statement as well as an understatement of the same amount on liabilities of the balance sheet.

Then when we make the $11,000 cash payment to the bank for both the principal and interest of the loan payable on January 1, 2023, we can make the journal entry as below:

January 1, 2023:

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Purchase furniture with cash is the process the company uses the cash to acquire the furniture from the supplier.

The company records furniture when they purchase them for internal use. The company expects to use them to support the business operation. Company records furniture as fixed assets as it is purchased for use, not for resell. The company expects to use it for more than a year.

The same furniture may be recorded as the inventory if the company purchases the items for reselling to the customer for profit. The initial purchase will be recorded as the inventory which is the current assets on the balance sheet. After the items are sold to the customer, the company has to record them as the cost of goods sold which is on the income statement.

When the company purchase furniture, they can require credit from the supplier which is a common business practice. It is very normal for the supplier to provide credit to the customers. It can be negotiated based on the term between both parties.

In some circumstances, company can use cash to purchase furniture. There is nothing wrong with using cash for such a purchase. The company has enough cash flow to support such kind of transaction. They are not bothered with the credit purchase.

The company will record the furniture which is the fixed assets on the balance sheet. At the same time, it will reduce the company’s cash as well. If they use the cash at bank, it will reduce the bank balance. If they use the cash on hand, it will reduce the cash account.

Journal Entry for Purchase Furniture by Using Cash

The company has to recognize the fixed assets when they are ready to use with expected future economic inflow. If the company purchases the fixed assets, it will not be different from the delivery date. The furniture is most likely to be ready to use when the supplier delivers it to the customer’s location.

The journal entry is debiting fixed assets – furniture and credit cash account.

The transaction will increase the fixed balance on the balance sheet. It also reduces the cash balance that needs to be paid to the supplier as well.

Example

Company ABC is a digital marketing agency. During the month, company purchased a set of furniture cost $ 10,000 from the supplier. It was delivered within the month. And ABC uses the cash on hand to pay for the purchase. Please prepare a journal entry for purchasing furniture by using cash.

The company has used the cash to pay for the purchase of furniture. The fixed assets arrive during the month and company also makes payments to the supplier.

The journal entry is debiting fixed assets – furniture $ 10,000 and credit cash on hand $ 10,000.

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