Imagine the following scenario:
Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.
How would you record this journal entry? Let's go phrase-by-phrase and figure out!
Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.
Transaction | Debit | Credit |
---|---|---|
??? | ??? | |
??? | ??? | |
Sales Revenue | $50 |
Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.
Transaction | Debit | Credit |
---|---|---|
Cash | $20 | |
??? | ??? | |
Sales Revenue | $50 |
Scenario: On March 5th, Johnny buys a GBD hoodie. The hoodie costs $50, and Johnny pays you $20 cash at the time of purchase. He promises to pay back the remaining $30 at a later date.
Transaction | Debit | Credit |
---|---|---|
Cash | $20 | |
Accounts Receivable | $30 | |
Sales Revenue | $50 |
Before moving on, let's verify that the sum of our debits and credits in this journal entry still equal each other:
Transaction | Debit | Credit |
---|---|---|
Cash | $20 | |
Accounts Receivable | $30 | |
Sales Revenue | $50 | |
Total | $50 | $50 |
Awesome, this is a good indicator that we've successfully written this journal entry!
This journal entry, since it's debiting two accounts (Cash & Accounts Receivable), is what we call a "compound journal entry".
A compound journal entry is one in which there are more than one debits or credits occuring in the same transaction. The sum of the debits and credits for the transaction still must equal each other!