General Journal Entries and Journal Entry Format – Part 3

Here we continue with our example, how to generalize transactions and we come to the transaction number 6 all inventory were solved and Zeta are in the sales revenue so how this transaction was generalized.  Since customers paid by cash for the inventory so we have increasing cash and cash account is debited and we have decrease in inventory in assets so in order to generalize this part of the transaction we credit inventory account to show decrease in it.

What else?  Since all inventory were sold and Zeta earned sales revenue we credit income account and since income has a positive impact on equity it is credited and we include cost of inventory into expenses with debit cost of inventory account and with debit all expenses accounts since they have a negative impact on equity they decrease equity and again we include description of the transaction the sale of inventory.

And now we are ready to go to the last transaction of Zeta for February and to show how it is generalized.  Under this transaction you remember that Zeta earned office space revenue and part of that rent was paid by customers to the bank account and remaining part will be received in March and during the next month so how to generalize this transaction?  We get cash in bank so with debit banking account we have increase in cash in bank and since customers owe us part of the rent for February we have an increase in accounts receivable and with debit accounts receivable account.

And on the other side we get income, income has the positive impact on equity and therefore we accredit income account and we provide the description of the transaction.  So these were examples how to generalize transactions and next step we will be posting on this data to the general ledger accounts.

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