Understanding Journal entries from two perspectives
Not what you're looking for?
A bank/company just opened with no assets, cash or bills.
A company needs cash to operate and accept deposits from the public.
When they receive the money, the company will enter the following entry:
Cash 1,000
John Doe deposit 100
Mary Smith- deposit 200
Jack Jones-deposit 700
When you deposit money into a bank, the bank will have an increase in cash and also have created some liabilities. The liabilities are in the form that the bank owes you your money.
When you increase a liability, you credit the account. So, the bank took your money and credited your account (a liability to them). This is how the belief started that when I receive money from the bank, they give me a credit. Its not really a credit, but actually an increase in the bank's liabilities because they have your money and they don't own it. If they don't own it, then they owe it. When a company owes somebody, it is actually a liability on the financial statement.
Now when you use your debit card, the bank is actually paying back your money. So, the bank will record the following entry when you purchase something for $150.
Jack Jones-deposit 150
Cash 150
When you use your debit account, the bank pays the store in which you bought something. So, the bank will decrease an asset by crediting cash. Now, they paid this amount on your behalf, so, they now don't owe you as much money. So, they will reduce their liability to you. When you decrease a liability, it is a actually a debit entry.
When a store says that they will credit your account. What do they really mean? Can you provide the entry necessary to support your answer?
Purchase this Solution
Solution Summary
The solution compares the entries made by the bank and the individual to demonstrate both transactions and the terms used by each.
Solution Preview
See attached file.
The best way to understand these ...
Purchase this Solution
Free BrainMass Quizzes
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Team Development Strategies
This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.