Journalizing transactions is a simple matter of deciding what took place in an exchange. You record what you received and you record what you gave up. It makes no sense to try to memorize journal entries. The idea is to analyze what was exchanged. You received or gave up assets and you use the debit and credit rules to record that. You incurred a liability (gave a promise to pay later) or you got your promise back because you discharged the liability. Again a credit or debit. Similarly with capital. You issued stock for cash so you received cash (a debit) and record a credit in owners’ equity representing the owner’s interest in the business assets. Or bought back stock giving up cash (a credit) and reducing the owner’s interest in the business (a debit in a capital account). You increase capital (credit revenue) by providing a service or product. You decreases capital (debit an expense) by using up assets or services. As long as you understand what was exchanged, you can decide what to debit and credit.

What happened on Oct. 7? The company sold goods or services and in exchanged received a promise from the customer to pay the amount later. The promise is in the form of the company's own credit card. Providing a service increases capital, recorded as a revenue account--Sales. The promise by the customer to pay later is an Account Receivable. An Oct 12 the same thing happened, but in this case Master card promised to pay you on behalf of the customer, and for that service it charges a commission. What did you give up? A service. What did you receive in exchange?

You collected the Demaster note. What did you receive? Cash. What did you give up? The note. What else happened? You earned some interest. so calculate how much cash you received and record it. 8,000 * .08 * 60/360 = ?

Oct. 25. This is not a transaction. Skinner did not pay. You did not exchange anything. All you do here is reclassify the note as past due. At the end of the month you will have to record the interest earned but not yet collected. by then interest is for 66 days.

Adjusting entries pose difficulties for students but they are actually very logical. The necessary information is given and you have to use it to decide what to do. Essentially you decide what is in an account, you use the information to decide what should be in the account, and you debit or credit the account to bring it to the correct balance. You also have to make a matching credit or debit entry. Now if you adjusted a permanent account, the other entry has to be a temporary account, and vice versa. And the two accounts have to be related. The relationships are normal relationships that occur between a balance sheet and an income statement. Here is a list of some related accounts:

Sales -- Accounts receivables

Purchases or inventory – Accounts payable

Prepaid rent – Rent Expense

Supplies -- Supplies expense.

Interest receivable – Interest income

Interest expense – interest payable

Unearned rent – rent revenue

Tax expense – taxes payable

Depreciation expense – accumulated depreciation

Bad debts expense – Allowance for bad debts.

On October 31 you have two notes that earn interest. You know the date of the note, the number of days that passed and the interest rate. How much is in your interest revenue account? Nothing. How much should be in it? The amount of interest accrued on the notes. OK, calculate the amount and record it. Then balance the entry by a debit to a permanent account.

Hilo company closes books monthly. On September 30th, selected ledger account balances are:

Aug. 16 : Demaster Inc. Face of note: $8,000, Term: 60 days Interest: 8%

Aug.25 : Skinner Co. Face of note: $9,000, Term: 60 days Interest: 10%

Sept. 30: Almer Corp. Face of note: $14000, Term: 6 months Interest: 9%



Interest is computed using a 360-day year. During October the following transactions were completed:

Oct. 7: Made sales of $6,300 on Hilo Credit cards

12: Made sales of $1,200 on MasterCard credit cards. Service charge is 3%

15 : Added $460 to Hilo customer balance for finance charges on unpaid balances

15 : Received payment in full from Demaster Inc. on the amount due

24 : Received notice that Skinner's note has been dishonored. (Assume that Skinner is expected to pay in the future)

I'm suppose to journalize all transactions AND the October 31 adjusting entry for accrued interest receivable.

I don't quite know how compute the accrued receivable and my accounts receivable's balance is coming out wrong no matter how many times I've checked and retried. PLEASE HELP!