How Do You Journalize Received Earned Cash?
Double-entry accounting has been around for a long time. Luca Pacioli first wrote about double-entry accounting in the 15th century. Some say that the Industrial Revolution of the nineteenth and twentieth century in the the United States could not have happened without it. Double-entry accounting means that each transaction has two entries in two separate accounts, one debit entry and one credit entry. The debits and credits must always be equal in each transaction. These equal entries make it easier to reconcile accounts for errors, because one incorrect entry will cause the books not to balance.
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Instructions
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Record the cash in the way that your business normally records received cash. If you use a cash register, enter the transaction into the register correctly, or enter it into a receipt book. Complete your daily cash reconciliation as you usually do. If your business enters all of the day's receipts under one entry in the journal, prepare the appropriate totals for total cash received and all of the other transaction details, including cost of goods.
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Debit the business cash account for the total amount that you took in for the day or transaction. A debit increases the balance of an asset account. Credit the liability account sales tax payable for the amount of sales taxes that were collected. A credit increases the balance of the liability account sales tax payable. Enter a credit for the cost of sold item or items to the inventory asset account to decrease its value.
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Credit the income account for the amount of profit made on the sale, or the amount of the total sale less the cost. A credit increases an income account. Debit the cost of goods sold from the expense account for the cost of the item or items that you sold, which will increase the value of the expense account. If you have made these entries correctly, all of the debits and credits will equal.
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Enter any cash that you receive on a customer's account differently. Enter a debit to cash to increase its value, and enter a credit under accounts receivable for the amount to decrease its value. The revenues and cost of goods sold have already been accounted for when the sale was made.
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Tips & Warnings
It is easier to follow this with an example: Say you sold an item that cost you $50 for $100, plus $5 in sales tax, which you collected. You would debit your cash account for $105, and credit your inventory account for $50. Credit the sales tax payable account for $5. Enter a debit to the cost of goods sold account for $50, and enter a credit to the income account for $50. If your sale is not for cash, but on account, you would debit the accounts receivable account instead of the cash account.
Make certain that your books balance by completing a trial balance before completing the income statement at the end of the accounting period.
