Learning Module 3
Journal Entries
The Accounting Equation
Balance Sheet
Assets
Dr.
Cr.
=
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Recording journal entries is the step before posting to the T-accounts. Debits are left
side entries. Credits are right side entries. For example, if a company issues $50,000 in
common stock, the journal entry would be as follows:
1 Cash
Common Stock
To record issuance of common stock
50,000
50,000
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of
Directors, a COO and started to do business. First, we borrowed $10,000 from the
bank and bought a new cart for that amount. The loan carries an 8% interest rate.
During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and
buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid
our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Issue Stock (1)
Record journal entry
1 Cash
9,000
Common Stock
To record issuance of 90 shares of stock for $100 each
9,000
Hot Dogs, Inc. – Issue Stock (1)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
1
Cash
9,000
=
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Common Stock
9,000 1
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Borrow Money (2)
Record journal entry
2 Cash
Note Payable
To record money borrowed from bank
10,000
10,000
Hot Dogs, Inc. – Borrow Money (2)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
1
2
Cash
9,000
10,000
=
Liabilities
Dr.
Cr.
Income Statement
+
Note Payable
10,000 2
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Purchase Cart (3)
Record journal entry
3 Cart
Cash
To record purchase of cart
10,000
10,000
Hot Dogs, Inc. – Purchase Cart (3)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
=
1
2
Cash
9,000 10,000 3
10,000
3
Cart
10,000
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Buy Hot Dogs & Buns (4)
Record journal entry
4 Inventory
3,000
Cash
3,000
To record purchase of 15,000 hot dogs and buns for $0.20 each
Hot Dogs, Inc. – Buy Hot Dogs & Buns (4)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
1
2
4
=
Cash
9,000 10,000 3
10,000
3,000 4
Inventory
3,000
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Sell Hot Dogs (5+6)
Record journal entries
5 Cash
Sales
To record sale of 14,000 hot dogs for $2 each
28,000
28,000
6 Cost of Goods Sold
2,800
Inventory
2,800
To record cost of 14,000 hot dogs and buns for $0.20 each
Hot Dogs, Inc. – Sell Hot Dogs (5+6)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
=
1
2
5
Cash
9,000 10,000 3
10,000
3,000 4
28,000
4
Inventory
3,000
2,800 6
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Sales
28,000 5
Cost of Goods Sold
6
2,800
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Pay Expenses (7)
Record journal entry
7 Wage Expense
Office Expense
Interest Expense
Cash
To record payment of expenses
7,200
3,600
800
11,600
Hot Dogs, Inc. – Pay Expenses (7)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
1
2
5
=
Cash
9,000 10,000 3
10,000
3,000 4
28,000 11,600 7
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
7
Wage Expense
7,200
7
Office Expense
3,600
7
Interest Expense
800
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Issue Stock (8)
Record journal entry
8 Cash
6,000
Common Stock
To record issuance of 20 shares of stock for $300 each
6,000
Hot Dogs, Inc. – Issue Stock (8)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
1
2
5
8
=
Cash
9,000 10,000 3
10,000
3,000 4
28,000 11,600 7
6,000
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Common Stock
9,000 1
6,000 8
Revenue
Dr.
Cr.
-
Expenses
Dr.
Cr.
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Wages Owed (9)
Record journal entry
9 Wage Expense
Wages Payable
To record wages owed
100
100
Hot Dogs, Inc. – Wages Owed (9)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
=
Liabilities
Dr.
Cr.
Income Statement
+
Wages Payable
100 9
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
7
9
Expenses
Dr.
Cr.
Wage Expense
7,200
100
Hot Dogs, Inc. – Income Statement
How much is gross profit?
Sales
Cost of Goods Sold
Gross Profit
$ 28,000
2,800
25,200
Hot Dogs, Inc. – Income Statement
How much is operating income?
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Wage Expense
Office Expense
Total Operating Expenses
Operating Income
$ 28,000
2,800
25,200
$
7,300
3,600
10,900
14,300
Hot Dogs, Inc. – Income Statement
How much is income before taxes?
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Wage Expense
Office Expense
Total Operating Expenses
Operating Income
Other Revenue & (Expenses)
Interest Expense
Income before Taxes
$ 28,000
2,800
25,200
$
7,300
3,600
10,900
14,300
(800)
13,500
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Taxes Owed (10)
Record journal entry
10 Tax Expense
Taxes Payable
To record income taxes owed = $13,500 x 30%
4,050
4,050
Hot Dogs, Inc. – Taxes Owed (10)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
=
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
Revenue
Dr.
Cr.
-
Taxes Payable
4,050 10
10
Expenses
Dr.
Cr.
Tax Expense
4,050
Hot Dogs, Inc. – Income Statement
How much is net income?
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Wage Expense
Office Expense
Total Operating Expenses
Operating Income
Other Revenue & (Expenses)
Interest Expense
Income before Taxes
Tax Expense
Net Income
$ 28,000
2,800
25,200
$
7,300
3,600
10,900
14,300
(800)
13,500
4,050
$ 9,450
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone
in the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of
Directors, a COO and started to do business. First, we borrowed $10,000 from the
bank and bought a new cart for that amount. The loan carries an 8% interest rate.
During the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and
buns are $0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid
our worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Hot Dogs, Inc. – Income Statement
How much is earnings per share?
Shares
Outstanding
Jan 1
Sep 30
90
110
Weighted
Average Shares
Outstanding
Fraction
of Year
x
x
9/12
3/12
=
=
67.50
27.50
95
EPS
=
$
9,450
95
=
$ 99.47
Hot Dogs, Inc.
Income Statement
For the Year Ended December 31, 2015
Sales
Cost of Goods Sold
Gross Profit
Operating Expenses
Wage Expense
Office Expense
Total Operating Expenses
Operating Income
Other Revenue & (Expenses)
Interest Expense
Income before Taxes
Tax Expense
Net Income
Earnings per share
$ 28,000
2,800
25,200
$
7,300
3,600
10,900
14,300
(800)
13,500
4,050
$ 9,450
$
99.47
Hot Dogs, Inc. – Close Books for Year (11)
Record journal entry
All temporary accounts (revenue and expenses) are closed out to retained earnings at the end
of each period. Only assets, liabilities, and owner’s equity are permanent accounts.
11 Sales
Cost of Goods Sold
Wage Expense
Office Expense
Interest Expense
Tax Expense
Retained Earnings
To close books for the year
28,000
2,800
7,300
3,600
800
4,050
9,450
Hot Dogs, Inc. – Close Books for Year (11)
Post to T-account
Balance Sheet
Assets
Dr.
Cr.
=
Liabilities
Dr.
Cr.
Income Statement
+
Owners' Equity
Dr.
Cr.
+
11
Retained Earnings
9,450 11
Revenue
Dr.
Cr.
Sales
28,000 28,000
-
Expenses
Dr.
Cr.
Cost of Goods Sold
2,800
2,800 11
Wage Expense
7,300
7,300 11
Office Expense
3,600
3,600 11
Interest Expense
800
800 11
Tax Expense
4,050
4,050 11
Hot Dogs, Inc.
Statement of Owners' Equity
For the Year Ended December 31, 2015
Beginning Balance, December 31, 2014
Common Stock Issued
Net Income
Less: Dividends Declared
Ending Balance, December 31, 2015
Common
Stock
Retained
Earnings
$
$
-
$
9,450
9,450
15,000
$ 15,000
Total
$
15,000
9,450
$ 24,450
Hot Dogs, Inc.
Balance Sheet
December 31, 2015
Assets
Current Assets
Cash
Inventory
Total Current Assets
Fixed Assets
Cart
Net Fixed Assets
$ 28,400
200
28,600
$ 10,000
10,000
Other Assets
None
$
Total Assets
$ 38,600
-
Liabilities & Owners' Equity
Liabilities
Current Liabilities
Wages Payable
Taxes Payable
Total Current Liabilities
Long-Term Debt
Note Payable
Total Liabilities
Owners' Equity
Common Stock
Retained Earnings
Total Owners' Equity
Total Liabilities & Owners' Equity
$
100
4,050
4,150
$ 10,000
14,150
$ 15,000
9,450
24,450
$ 38,600
Hot Dogs, Inc.
January 1, 2015…We formed a corporation, Hot Dogs, Inc., and you and everyone in
the class invested $100 each in our venture. Everyone got one share of stock for
that $100 investment. Assume there are 90 of us. We elected a Board of Directors,
a COO and started to do business. First, we borrowed $10,000 from the bank and
bought a new cart for that amount. The loan carries an 8% interest rate. During
the year, we bought 15,000 dogs and 15,000 buns. Dogs cost $0.15 and buns are
$0.05 each. For our first year, we sold 14,000 dogs for $2 each. We paid our
worker $7,200, paid office expenses of $3,600, and paid $800 for interest. On
September 30, we sold 20 more shares for $300 each. At the end of the year, we
owed our worker $100. The tax rate is 30% and we will pay our taxes next year.
How did we do? Are we rich yet? Was it a good investment?
Homework
Complete the BBBB, Inc. problem on page 50 of The Map – record journal entries
(including closing entry after you generate the income statement), post them to Taccounts, and generate financial statements
Complete the Fluff, Inc. problem on page 57 of The Map – record journal entries
(including closing entry after you generate the income statement), post them to Taccounts, and generate financial statements