Overview of Journal Entry Examples
The following journal entry examples provide knowledge of the most prevalent form of journal entries used by companies in their day-to-day economic operations. In the finance parlance, the term “journal” refers to the records of each financial transaction of a company as per relevant accounting methodology. It is also known as a journal entry. According to the double-entry Bookkeeping standards, each journal entry involves a credit entry to one or more accounts and a debit entry to one or more accounts for exactly the same amount. -Perfect journal entry recordings result in correct and accurate financial information being conveyed to the shareholders of the company, other stakeholders, analysts, etc. As such, journal entries can be called the heart and soul of a company’s accounting system.
Examples of Journal entry in accounting
Now, let us look at some of the examples below to understand the concept better:
Journal Example #1
Let us take the example of SAF Ltd that purchased the equipment at the beginning of the financial year 2019 i.e. April 01, 2018, and the equipment is worth $150,000. As per the user manual of the equipment, its useful life is estimated to be 15 years and beyond that, it will probably be worthless. Show the journal entry for the depreciation expense to be recorded at the end of the financial year i.e. March 31, 2019.
For ease of calculation, the depreciation expense has been assumed to be charged on the straight-line method. Therefore, the yearly depreciation expense can be computed as,
Solution:
Depreciation Expense = (Purchase Value – Salvage value) / Useful Life
- Depreciation Expense= ($150,000 – $0) / 15
- Depreciation Expense= $10,000
It will be recorded as per the golden rule of accounting.
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- Debit Depreciation Expense Account
- Credit Accumulated Depreciation Account
Journal Entry for the Depreciation Expense:
Now, the journal entry can be recorded as shown below,
Journal Example #2
Let us take another example of ABC Ltd which is in the business of ice cream manufacturing and recently bought production equipment. Calculate the depreciation expense charged during the life of the equipment and capture the journal entry in the respective financial statements. Use the following facts:
- On April 01, 2016 the ABC Ltd purchased production equipment worth $60,000
- The equipment has an estimated useful life of 3 years
- The company will dispose of the equipment at the end of 3 years
- The company will follow the straight-line method of depreciation
Therefore, the yearly depreciation charge can be calculated using the straight-line method as,
Solution:
Depreciation Expense = (Purchase Value – Salvage value) / Useful Life
- Depreciation Expense = ($60,000 – $0) / 3
- Depreciation Expense = $20,000
Journal Entry for the Depreciation Expense:
Now, the journal entry for the depreciation expense for the financial year 2017, 2018 and 2019 is to be recorded as shown below,
Journal Example #3
Let us take the example of PQR Ltd that has to pay interest on the outstanding loan of $500,000 for the month of March 2019 on 4th April 2019. The effective rate of interest being charged is 0.5% per month. Calculate the interest to be paid and record the journal entry for the transaction given that PQR Ltd reports the year ending as of March 31 of every year.
According to the matching concept, PQR Ltd will be recording the interest expense of $2,500 (= 0.5% * $500,000) in the financial statements for the year ending on 31st March 2019. However, the interest will be actually paid in the following month which means the next accounting period. Therefore, the accounting will again be reversed in the following month on the day of payment of the interest, i.e. 4th April 2019.
Solution:
Journal Entry for the Interest Expense:
Now, the journal entry for the interest expense will be recorded as shown below,
Journal Example #4
Let us now take the example of company SDE Ltd that was incorporated recently. The following transactions were recorded during its first month (April 2019) of operations:
Solution:
The journal entry for SDE Ltd for the month of April 2019.
Conclusion – Journal Examples
The journal entry is a very important concept to understand from the point of view of accounting and financial reporting because any mismatch in the financial statements eventually boils down to the journal entries. So, accountants must lay greater emphasis on the preparation of journals.
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This is a guide to Journal Examples. Here we talk about the top 4 examples of journal entries in accounting used by business enterprises. You may also have a look at the following articles to learn more –
