Journal Entry/T-Account Tips & Step-by-StepRemember:Step 1: Determine what accounts are affected or involved. *Must be at least two!*Ex: Cash, Account Payable, Contributed Capital, Note Payable, etc.Step 2: Determine what type of account each account is.Ex: Cash is an asset, N/P is a liability, Contributed Capital is a SHE, etc.Step 3: Determine whether the account is decreasing or increasing and by how much.Ex: If we’re receiving cash, cash is increasing. If we’re taking out a loan, we’re increasing N/P. Step 4: Determine which account(s) are debited and which account(s) are credited. *Debits MUST equal Credits*Ex: Increases of assets (i.e. cash, equipment, etc) are debited. Decreases of assets are credited. Increases in liabilities (i.e. loans, A/P, etc) are credited. Decreases in liabilities (i.e. paying off loans, A/P, etc) are debited. *See chart above*Step 5: Journal Entry. Debit(s) always go first, then credit(s) are slightly indented below.Ex: Debit $$Credit $$Step 6: T-Account. Debits to the left; Credits to the right. Ex: Receive $2000 from issuing stock.**Full Example: Bought $10,000 of equipment; paid $2,000 cash, signed a note for balance**Step 1: Accounts involved- Cash, N/P, EquipmentStep 2: Cash is an asset, N/P is a liability, Equipment is an asset.Step 3: Cash is being spent, therefore is decreasing by $2,000. N/P is increasing by $8,000. Equipment is increasing by $10,000.Step 4: Assets increase with a debit and decrease with a credit. Liabilities increase with a credit and liabilities decrease with a credit. Therefore—Equipment will be debited while Cash and N/P will be credited.Step 5: Journal EntryEquipment 10,000Cash 2000N/P 8000Step 6:
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