doing math

courses › Bookkeeping

Journal Entries

level 26 course

Record prepayments, bills, draws, loan payments, and depreciation correctly.

Pen and paper is fine · no calculator needed why?

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Opens at level 26.

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Builds on: Debits & Credits (not open yet)

the lesson

The idea, the techniques and a tip for each skill, right here. The Learn page adds worked examples for every skill and untimed practice.

Read the lesson · about 3 minutes

The idea

A journal entry records one transaction as debits and credits that add up to the same amount. Most slips are about timing: when the work happens and when cash moves.

Cash that arrives before the work is still owed to the customer, so it waits in unearned revenue, a liability. A bill or wages you owe but have not paid wait in a payable account, like accounts payable. Depreciation moves no cash, and an owner's draw is not an expense.

Techniques

Let timing pick the accounts

Cash and the work or cost happen at different times.

  1. Cash before the work: debit cash, credit unearned revenue. When the work is done, debit unearned revenue, credit revenue.
  2. Cost before cash: debit the expense, credit a payable. Paying later: debit the payable.
  3. Depreciation: debit depreciation expense, credit accumulated depreciation.
worked example

Example: A customer prepays a design studio $2,000. The studio then finishes $1,500 of that work. How much is still recorded as unearned revenue?

  1. Prepayment: debit Cash $2,000, credit Unearned revenue $2,000.
  2. Work done: debit Unearned revenue $1,500, credit Revenue $1,500.
  3. Left: $2,000 − $1,500 = $500.

Answer: $500

Split the loan payment

Interest is a stated percent of the loan balance.

  1. Interest is the balance times the monthly rate: debit interest expense.
  2. The rest of the payment is principal: debit the loan.
  3. Credit cash for the whole payment.
worked example

Example: A loan balance is $10,000, and this month's interest is 1% of the balance. You pay $600. How much should be debited to the loan account (principal)?

  1. Interest: $10,000 × 0.01 = $100.
  2. Principal: $600 − $100 = $500.

Answer: $500

Count only cash lines

Finding the cash balance after a list of events.

  1. Start with opening cash.
  2. Add money in: collections, loans, owner investments.
  3. Subtract money out: equipment, fees, bills paid.
  4. Skip new invoices and depreciation: no cash moved.
worked example

Example: Cash starts at $3,000. This month: collect $800 from a customer, pay a $40 bank fee, record $200 of depreciation, and invoice $1,000 of new work to be paid next month. What is the ending cash balance?

  1. Skip the depreciation and the new invoice.
  2. Cash: $3,000 + $800 − $40 = $3,760.

Answer: $3,760

Tips by skill

  • TipPick the journal entry: Ask when the work happens and when cash moves. Cash before work creates a liability; a cost before cash creates a payable.
  • TipSplit a loan payment: Interest is the balance times the monthly rate. The rest of the payment reduces the loan.
  • TipCash balance after the entries: Add money in, subtract money out, and skip anything with no cash, like new invoices and depreciation.

Watch out for

  • Crediting revenue when a customer prepays. A prepayment is work you owe until it is done.
  • Debiting the whole loan payment to the loan and skipping the interest expense.
  • Debiting the expense again when paying a bill already recorded. That counts it twice.
  • Counting a new invoice or depreciation as cash.

skills · practice stats

From rounds of this course only: box, review and test-out answers are left out. Once a skill has 40 tries, it compares your first 20 tries with your last 20.

rest ladder

Win 3 of your last 4 rounds and the course rests. A win is 90% right, within 2× the round's par. Pass the review when it comes back and the next rest is longer.

  1. 1 day
  2. 3 days
  3. 7 days
  4. 14 days
  5. 30 days
  6. 60 days
  7. mastered · every 90 days

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