Question

There are four main classifications of journal entries, and each serves its own purpose and has several examples. Identify one specific type of journal entry and answer the following questions about it.

Briefly provide answers to the following questions:

1. What is the classification of the journal entry in question?
2. What accounts get debited and credited to account for the transaction?
3. How would the accounts be in error if the adjusting entry was not recorded at all?
4. Most journal entries have a counterpart on the other side of the transaction. For example, if we are buying something from a supplier, it would be an expense to us, but revenue to the supplier. Considering this, what is the counterpart adjusting journal entry for the one that you have selected?

Answer 1

SOLUTION :

(a) Journal Entry for ACCRUED REVENUE. For Example,

Date	General Journal	Debit ($)	Credit ($)
Apr-01	Party	1000.00
	Rental Income		1000.00

In this entry, we record the income which we have EARANED BUT NOT RECEIVED.

(b) The account from which income is to be received, gets debited. In the above example, we debit the party who is owing the rental for us. We credit such account that carries the income element. Here, it is the rental income.

(c) If the adjusting entry is not recorded at all, it is a violation of the principle of accrual. Both income account and accounts receivable account will be understated to the extent of the amount involved.

(d) The counterpart journal entry for the one which is mentioned here would be as follows :

Date	General Journal	Debit ($)	Credit ($)
Apr-01	Rent Expense	1000.00
	Party		1000.00

The other party acknowledges the expense element of rent on the debit side and the payable element of party's account on the credit side.