Journalizing a Business Transaction – Example 5
On January 11th, 'X' business mailed check No. 307 for $600 as a first installment of the truck purchased from Y-Auto on January 10th.
Step 1: Analysis:
The accounts affected in the transaction are:
- Accounts Payable: Y-Auto
- Cash in Bank
- Accounts Payable: Y-Auto is a Liability account
- Cash in Bank is an Asset account
- Accounts Payable: Y-Auto decreases by $600
- Cash in Bank decreases by $600
Step 2: Debit – Credit Rule:
- Decrease in the Liability account is recorded as debit. Debit Accounts Payable: Y-Auto for $600.
- Decrease in the Asset account is recorded as credit. Credit Cash in Bank for $600.
Step 3: Prepare a T Account:
Step 4: Pass a Journal Entry:
