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Worked-example setupScope and assumptions
- This example uses the same accepted classifications and amounts as EX:transactions-to-statements/mixed-events-from-order-to-accrual.
- Northline Studio is a sole proprietorship that opens with $20,000 Cash and a $20,000 balance in Owner, Capital; all other listed accounts open at zero.
- Every event meets the simplified recording assumptions stated in the classification example.
- Period
- One reporting month
- Units
- USD
- Rounding
- Whole US dollars; no rounding required
Problem
Northline Studio begins the month with $20,000 Cash and $20,000 in Owner, Capital. During the month, Northline receives $4,000 of supplies on credit, pays $1,500 of the payable, performs $6,000 of work on credit, and collects $2,000 of the receivable. It also pays $1,000 for current utility service, receives a $3,000 customer advance for future work, and borrows $5,000 from a bank. Prepare the journal entries, compute the ending balances and trial balance, and explain what equal debit and credit totals do and do not show. Assume no other opening balances or events, control passes when the supplies are received, and completed customer work gives an unconditional right to payment.
Entries
Each entry balances independently. Together, the entries contain $22,500 debit activity and $22,500 credit activity.
Ending trial balance
| Account | Debit | Credit |
|---|---|---|
| Cash | $27,500 | — |
| Supplies | $4,000 | — |
| Accounts Receivable | $4,000 | — |
| Utilities Expense | $1,000 | — |
| Accounts Payable | — | $2,500 |
| Unearned Revenue | — | $3,000 |
| Note Payable | — | $5,000 |
| Owner, Capital | — | $20,000 |
| Service Revenue | — | $6,000 |
| Total | $36,500 | $36,500 |
The trial balance also supports the accounting equation. Assets are $35,500, liabilities are $10,500, and equity after revenue and expense is $25,000.
Distinguish account activity from ending balances
The entries record each event in specific accounts with debits and credits. The account classifications explain why each amount appears on its debit or credit side.
The $22,500 activity total does not equal the $36,500 trial-balance total. The first sums entry lines during the month; the second sums ending balances, including the $20,000 opening Cash and equity. They answer different questions.
Common wrong paths
- Credit the receivable when service is performed: Accounts Receivable is a debit-normal asset increasing at performance.
- Credit Revenue when cash is collected: Revenue was already recorded; the collection credits the receivable.
- Credit revenue for the bank loan: The credit belongs in Note Payable because Northline must repay the bank.
- Credit revenue for the customer advance: The credit belongs in Unearned Revenue because Northline still owes the promised work.
- Treat the trial balance as transaction evidence: Equality tests the record, not whether the events occurred or belong in the period.
Verified calculation · journal entry
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- accounts
- 9 fields
Inspect data
{
"accounts_payable": {
"classification": "liability",
"opening": 0
},
"accounts_receivable": {
"classification": "asset",
"opening": 0
},
"cash": {
"classification": "asset",
"opening": 20000
},
"customer_advance": {
"classification": "liability",
"opening": 0
},
"note_payable": {
"classification": "liability",
"opening": 0
},
"owners_equity": {
"classification": "equity",
"opening": 20000
},
"service_revenue": {
"classification": "revenue",
"opening": 0
},
"supplies": {
"classification": "asset",
"opening": 0
},
"utilities_expense": {
"classification": "expense",
"opening": 0
}
}- entries
- 7 items
Inspect data
[
{
"label": "supplies delivered on credit",
"lines": [
{
"account": "supplies",
"credit": null,
"debit": 4000
},
{
"account": "accounts_payable",
"credit": 4000,
"debit": null
}
]
},
{
"label": "partial payment of supplier payable",
"lines": [
{
"account": "accounts_payable",
"credit": null,
"debit": 1500
},
{
"account": "cash",
"credit": 1500,
"debit": null
}
]
},
{
"label": "customer service performed on credit",
"lines": [
{
"account": "accounts_receivable",
"credit": null,
"debit": 6000
},
{
"account": "service_revenue",
"credit": 6000,
"debit": null
}
]
},
{
"label": "partial collection of receivable",
"lines": [
{
"account": "cash",
"credit": null,
"debit": 2000
},
{
"account": "accounts_receivable",
"credit": 2000,
"debit": null
}
]
},
{
"label": "current utilities paid",
"lines": [
{
"account": "utilities_expense",
"credit": null,
"debit": 1000
},
{
"account": "cash",
"credit": 1000,
"debit": null
}
]
},
{
"label": "customer cash received before performance",
"lines": [
{
"account": "cash",
"credit": null,
"debit": 3000
},
{
"account": "customer_advance",
"credit": 3000,
"debit": null
}
]
},
{
"label": "cash borrowed from bank",
"lines": [
{
"account": "cash",
"credit": null,
"debit": 5000
},
{
"account": "note_payable",
"credit": 5000,
"debit": null
}
]
}
]Recomputed result
| Measure | Value |
|---|---|
| accounts payable | 2,500 |
| accounts receivable | 4,000 |
| cash | 27,500 |
| customer advance | 3,000 |
| ending credit balances | 36,500 |
| ending debit balances | 36,500 |
| note payable | 5,000 |
| owners equity | 20,000 |
| service revenue | 6,000 |
| supplies | 4,000 |
| total credits | 22,500 |
| total debits | 22,500 |
| trial balance difference | 0 |
| utilities expense | 1,000 |