QuickBooks 2022 All-in-One For Dummies. Stephen L. Nelson

QuickBooks 2022 All-in-One For Dummies

Totals $4,000 $4,000

I’m assuming that no year-to-date revenue or expenses exist yet for the hot dog stand. In other words, the operation is at a starting period.

You may want to take a quick peek at Table 2-1, shown earlier. It summarizes the business activities of the hot dog stand. The journal entries that follow show how the information necessary for this statement would be recorded.

Recording rent expense

Suppose that the first transaction to record is a $1,000 check written to pay rent. In this case, the journal entry appears as shown in Table 2-8. In this example, $1,000 is debited to rent expense, and $1,000 is credited to cash.

TABLE 2-8 Journal Entry 4: Recording the Rent Expense

Account	Debit	Credit
Rent	$1,000
Cash		$1,000

Recording wages expense

If you need to record $4,000 of wages expense, you use the journal entry shown in Table 2-9. This journal entry debits wages expense for $4,000 and credits cash for $4,000. In other words, you use $4,000 of cash to pay wages for the business.

TABLE 2-9 Journal Entry 5: Recording the Wages Expense

Account	Debit	Credit
Wages expense	$4,000
Cash		$4,000

Recording supplies expense

To record $1,000 of supplies expense paid for by writing a check, you record the journal entry shown in Table 2-10. This transaction debits supplies expense for $1,000 and credits cash for $1,000.

TABLE 2-10 Journal Entry 6: Recording the Supplies Expense

Account	Debit	Credit
Supplies	$1,000
Cash		$1,000

Note that for each of the preceding transactions, debits equal credits. As long as debits equal credits, you know that the transaction is in balance. This balance is one of the ways that double-entry bookkeeping prevents errors.

Recording sales revenue

Suppose that you sell $13,000 worth of hot dogs. To record this transaction in a journal entry, you debit cash for $13,000 and credit sales revenue for $13,000, as shown in Table 2-11. I should tell you, however, that in the case of the hot dog stand selling hot dogs for a dollar or two apiece, you wouldn’t necessarily use a single journal entry to record sales revenue amounts. Though you could use a single journal entry that tallied the entire day’s sales, if you’re selling hot dogs at a dollar a dog, you could also record 13,000 $1 transactions. Each of these $1 transactions debits cash for $1 and credits sales revenue for $1.

TABLE 2-11 Journal Entry 7: Recording the Sales Revenue

Account	Debit	Credit
Cash	$13,000
Sales revenue		$13,000

Recording cost of goods sold

You must record the expense of the hot dogs and buns that you sell. You must also record the fact that if you use up your inventory of hot dogs and buns, your inventory balance has decreased. Table 2-12 shows how you record these items. Cost of goods sold gets debited for $3,000, and inventory gets credited for $3,000.

TABLE 2-12 Journal Entry 8: Recording the Cost of Goods Sold

Account	Debit	Credit
Cost of goods sold	$3,000
Inventory		$3,000

If you’re confused about this cost-of-goods-sold transaction — it represents the first transaction that doesn’t use cash — read Book 1, Chapter 1, where I describe the two accounting principles. In short, these two principles go like this:

Expense principle: This principle says that an expense gets counted when the item gets sold. This means that the inventory isn’t counted as cost of goods sold or as an expense when it’s purchased. Rather, the expense of each hot dog and bun you sell gets counted when the item is actually sold to somebody.

Matching principle: This principle says that expenses or cost of a sale get matched with the revenue of the sale. This means that you recognize the cost of goods sold at the same time that you recognize the sale. Typically, in fact, you can combine journal entries

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