Skip to main content
Pearson+ LogoPearson+ Logo
Start typing, then use the up and down arrows to select an option from the list.

Journal Entries: Business Formation

Brian Krogol
265
6
Was this helpful?
Alright, Clutch received payments on account from customers totaling $3500. So, remember when we had those reviews for the customers. Well, they were allowed to pay us on account, we didn't tell them to pay us right away. They could pay us in the future. We had some accounts receivable, Right? And what's happening in this transaction is we're receiving some of that money, right? We had an iou where people were gonna pay us money in the future and the time has finally come, the money has been received Um and we have now received it. Right? So that's exactly what I'm getting at. So, we received $3,500. Right? So there's actual cash that we received in the mail or whatever. We got 3500. So this 3500. It's cash, right? That we received. But what's the other side of the transaction here? Well, if you think about it, we were previously owed $5,000. Right? The accounts receivable was $5,000, but we're no longer owed $5,000. We received some of that money. So, our accounts receivable need to go down, right? We no longer have the 5000 in accounts receivable. We have less. Right, minus this 30 500. So the other side received payments when we see this received payments on account, we're receiving something. So it had to be receivable. So this is accounts receivable is the other side of the transaction, accounts receivable. And I'm gonna take this liberty right now to uh use an acronym for accounts receivable. A. R is a very common acronym that we use. Sorry, a ar for accounts receivable. Okay, so throughout the course, we'll probably just start using a r to save time And we'll get used to all sorts of little uh acronyms and stuff that we'll use throughout the class. So what happened here? Cash? We received 3500 in cash. So is that a debit or a credit? Well, we debit cash, right, assets, go up with a debit. That's an asset right there. So we're gonna have 3500 right here. And that's a debit to cash to increase the cash since we just receive some and the other side is going to be the accounts receivable. Right? We have to credit that we have to decrease the value of accounts receivable because we're no longer owed the same amount of money. Some of that money has come in. So I'm gonna go ahead and I'll just write it all out here since it's still early accounts receivable. And that was 3500. Right, So there's our credits for 3500. So we decreased the amount of money that is owed to us because we received some of it. All right, So we ended the last transaction with 60,000 in assets, 8000 in liabilities and 5200 in equity. Excuse me. 52,000. All right. So what happened in this transaction? Cash is an asset? Accounts receivable is also an asset. Right, So we're gonna increase our cash, excuse me, increase our assets by 3500, but then also decrease our assets by 3500. And we're left with 60,000 in assets again, 8000 in liabilities and 52,000 and equity. Alright. So nothing changed in the accounting equation, but the balance of the accounts changed. Right? Cash. Now, there's more cash on our books. There's less accounts receivable on our books. Right? So that that's about it for that transaction. Let's go ahead and pause and move on to the next one.
Divider