Super Sample Accounting Transactions
Author: Patricia Lynn
Disclaimer:: every transaction is unique, so please use the examples in this article only as a guide. No guarantee whatsoever is made or implied that these sample transactions will pertain to the reader's environment. Consult with an accounting professional for assistance with your unique requirements.
Whenever you record an accounting transaction, one account is debited and another account is credited. In some cases, two accounts may receive the debit or credit. Even if you have a good understanding of debits and credits, it is handy to have examples of common accounting transactions that you will be using to make sure you properly enter the information into your accounting software.
For basic accounting information, see the separate article Making Sense of Debits and Credits
Example 1: Owner invests $5,000 in the company. Analysis: Since money will be deposited into the checking account, Cash is debited (the balance increased by $5,000). Therefore, the other account will receive a credit. It will be an Equity account called Owner’s Equity, or Capital Contribution. Equity accounts are ‘negative’ accounts, so by crediting the Equity account you increase its balance by $5,000.
debit Cash (increase its balance)
credit Owner’s Equity (increases its balance)
Example 2: The Company borrowed $8,000 from a bank. Analysis: Since the money will be deposited into the checking account, Cash is debited (the balance increased by $8,000.) The account to receive the credit is a Liability account called Loans Payable (you may create a separate account for each loan). Liability accounts are credit accounts, so crediting the Liability account increases its negative balance by $8,000 (move to the left on the number line).
debit Cash (increases its balance)
credit Loans Payable (increases its balance)
Example 3: Your bank charges you a $14 a month statement fee. Analysis: Since money will be removed from the checking account, Cash is credited (the balance decreased by $14.) Therefore, the other account will receive a debit. It is the Expense account called Bank Service Charges.
debit Bank Fees (increases its balance)
credit Cash (decreases its balance)
Example 4: You write a check for a loan payment of $540 for the $8,000 loan you acquired in Example 2. Of this amount, $500 goes to principal, and $40 is loan interest. Analysis: The $40 of interest is an expense. The $500 principal payment is not, but it decreases the balance in your Loans Payable liability account. (Remember, if you add a positive number to a negative number, you get a smaller negative number.). So this transaction results in two debits and one credit.
debit Loans Payable $500 (decreases its balance)
debit Interest Expense $40 (increases its balance)
credit Cash $540 (decreases its balance)
Example 5: the Company wrote a check for $8,500 of equipment. Analysis: Since a check was written, QBP will automatically credit Cash. We will debit an Asset account called Equipment or something similar. Note: Remember, if you purchase an item for more than about $500, you must depreciate the item; you cannot write it off as an expense. The $500 cutoff is rule of thumb many folks use, but I am not suggesting you use it. Please consult your accountant regarding the purchase of company assets.
debit Equipment (increases its balance)
credit Cash (decreases its balance)
[Remember: A debit adds a positive number and a credit adds a negative number. But you NEVER put a minus sign on a number you enter into QBP.]
Example 6: the Company wrote a check for $318 of office supplies. Analysis: Since a check was written, QBP will automatically credit Cash. We debit the Expense account called Office.
debit Office (increases its balance)
credit Cash (decreases its balance)
Example 7: the Company purchased $318 of office supplies on credit and you entered a bill into QBP. Analysis: When you enter a bill, QBP automatically credits the Liability account called Accounts Payable. And since you purchased office supplies, the Office expense account is debited.
debit Office (increase its balance)
credit Accounts Payable (increases its balance)
Example 8: You paid the bill for $318 of office supplies purchased in Example 7. Analysis: When the bill was entered, Office was debited and A/P was credited. Now as we write a check to pay the bill, QBP will automatically credit Cash. And QBP will debit Accounts Payable - in effect, reversing the earlier credit.
debit Accounts Payable (decreases its balance)
credit Cash (decrease its balance)
Example 9: the Company paid $450 cash for Product A - a COGS part. Analysis: When you write the check, QBP will automatically credit Cash. In the check window, choose the COGS account from the Expenses tab, or choose an Item from the Items tab and then the COGS account associated with the Item will be debited.
debit COGS (increase its balance)
credit Cash (decrease its balance)
Example 10: the Company sold Product A for $650 cash. Analysis: When you enter the cash sale, QBP automatically debits Cash (or you could choose to deposit to Undeposited Funds - see Example 14). You will have to choose an Item for the sale … it might be “Prod A income” and associated with the Sales account.
debit Cash (increases its balance)
credit Sales (increases its balance)
Example 11: the Company sold Product A for $650 on credit. Analysis: When you create an invoice, you must specify an Item for each separate charge on the invoice. QBP will automatically credit the revenue account(s) associated with these Items. And QBP automatically debits the Invoice amount to A/R.
debit Accounts Receivable (increases the balance)
credit Sales (increases the balance)
Example 12: the Company received a payment for the $650 invoice above. Analysis: When you created the invoice, QBP automatically debited the A/R account. When you post the invoice payment, QBP will automatically credit A/R - in effect reversing the earlier debit. QBP will debit Cash.
debit Cash (increases the balance)
credit A/R (decreases the balance)
Example 13: The owner’s writes himself a check for $1,000. Analysis: When an owner takes money out of the business, the amount must be posted to Owner/Shareholders Draw or Distribution. Since a check was written, QBP will automatically credit Cash. The account you chose for the debit is Owner/Shareholder Draw.
debit Owner’s Draw (increases its balance)
credit Cash (decrease its balance)
Example 14: the Company has many sales receipts during the day, but you would like one deposit to Cash for the entire day's sales. Scenario: You receive over 50 cash payments each day, enter each transaction into QBP, put the money/check in the cash drawer, and take the lot to the bank at day’s end. For each cash sale, you use Create Sales Receipt. For payment of an invoice, you use Receive Payments. You may also opt to enter a payment directly using Record Deposits. (Terminology may vary with different versions of QBP.) For each transaction, you must tell QBP where to deposit the money. If you choose Cash each time, you will have over 50 transactions in your QBP check register for that day and every day! Not good. Wouldn't it be nice if you had just one deposit to Cash in QBP to mirror the actual bank deposit? This would also make balancing your checkbook easier. You can accomplish this by using the Undeposited Funds account - the “cash drawer” of QBP.
The Undeposited Funds account acts as a temporary holding place. When you enter each transaction into QBP, deposit the money to Undeposited Funds instead of Cash. THEN, at day’s end, transfer the money from Undeposited Funds to Cash. This gives you one deposit (debit) to Cash in QBP for the day as desired. How do you do this? Click Record Deposits. In the Payments to Deposit window you should see all the payments you posted to Undeposited Funds. To deposit them to Cash, click “Select All” and click OK. You will now have one deposit in your QBP check register … just like the actual deposit you will take to the bank.
Important Note: Once you have deposited to Undeposited Funds, each time you go into Record Deposits, you will first be presented with the Payments to Deposit window. If you do not want to transfer the money sitting in Undeposited Funds but want to actually make a deposit, just X out of this window and then you will be presented with the Record Deposits window.
Example 15: How QBP handles payroll. Please click here for a PDF file which analyses in detail what accounts are debited and credited by Quickbooks Pro (c. 2004).
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► Related tutorial: Making Sense of Debits and Credits.
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