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What types of journal entries are tested on the CPA exam?

The CPA exam loves to test your understanding of journal entries. Even if you receive a question and it doesn’t require you to know the journal entry, knowing the journal entry reinforces your understanding of a particular topic! This is the ultimate list of journal entries!

Knowing these journal entries can be helpful for FAR, AUD, and BEC. Below is a long list of all the different types of journal entries that could be tested on the exam!

This is not a complete list, so if you can’t find a certain journal entry, let us know and we will add it to the list!

What is the journal entry to record revenue where the customer paid in cash? If a customer bought a $100 car and paid in cash, the debit would be to cash for $100 and the credit would be to revenue or net sales for $100.

What is the journal entry to record revenue where the customer paid on credit? If a customer bought a $100 car and the company extended credit to the customer, then that means the company needs to record an accounts receivable for the sale. The company would debit accounts receivable for $100 and credit revenue or net sales for $100.

What is the journal entry to record an accounts receivable? When a customer pays on credit and the revenue can be recognized, then the company would record the sale by debiting accounts receivable and crediting revenue or net sales.

What is the journal entry to record payment by a customer on an outstanding receivable? When a customers purchases on credit. the company records an accounts receivable. When the customer send a cash or check to pay the outstanding receivable or invoice, the company would debit cash and credit accounts receivable. There is no impact to the income statement.

What is the journal entry to record when a company factors their accounts receivable? When a company factors their receivables, they are basically selling them at a discount to a 3rd party factor. The company would debit cash since the factor will pay them cash.

The company would also debit factor expense as the factor charges a fee (typically a % of AR). If the factor holds back a portion of the cash, then the company would debit “due from factor”. The credit would be to remove the entire accounts receivable balance that is factored.

What is the journal entry to record the purchase of materials or supplies on credit? This transaction is between a vendor/supplier and a customer. Billy’s Burgers is the customer and Bighorn Ranch is the vendor/supplier.

When Billy’s Burgers purchases burger patties, they would debit burger patty expense and credit accounts payable. Billy’s Burgers could also capitalize the burger patties into inventory.

What is the journal entry to record bad debt expense under the allowance method? Under US GAAP, a company must maintain an allowance for bad debts reserve (a contra-asset account). If a company determines they need to record $100 of bad debt expense, that will increase the allowance for doubtful accounts reserve. The company would debit bad debt expense and credit allowance for doubtful accounts.

What is the journal entry to record a write-off of a receivable? When a company writes-off a receivable, they have determined there is zero chance of collecting the receivable. The company would debit the allowance for doubtful accounts and credit accounts receivable. There is no income statement impact since bad debt expense was previously recorded.

What is the journal entry to record deferred revenue when the customer prepays? If a customer pays a company, but the company cannot yet recognize the revenue, they must record a liability on the balance sheet. There is no impact to the income statement. The company would debit cash and credit deferred revenue.

What is the journal entry to recognize revenue that was previously categorized as deferred revenue? As soon as a company fulfill their all aspects of ASC 606 (revenue recognition), the company can recognize revenue that was previously deferred. This is common for tech companies that require customers to prepay for more than 1 month of service upfront.

The company would debit deferred revenue (reduces liability) and credit revenue. There is no impact to cash since the cash was previously recorded when the customer made the prepayment.

What is the journal entry to record a sales return? When a customer returns a product, the company must reimburse the customer with the cash they paid. Therefore, the company would debit revenue and credit cash.

What is the journal entry to record when a company declares a dividend? When a company declares a dividend, this is known as the declaration date. For example, if a company declares a cash dividend of $100, then the company would pay the dividend out of retained earnings. The company would debit retained earnings (reduces equity) and credit dividends payable, which is a liability.

What is the journal entry to record when a dividend is paid? A dividend is not paid when it is declared. The declaration date typically occurs weeks or months prior to a the dividend being paid. When a company actually makes a cash payment, the company would debit dividend payable (removes liability) and credit cash. The credit to cash occurs because there is a cash outflow for the payment to shareholders.

What is the journal entry to record a bonus accrual? The company would record a liability for a bonus if it has been earned by the employee and is payable at a future date. The company would debit expense and credit accrued bonus to record the liability.

What is the journal entry to record when a bonus is paid? Assuming that the bonus was previously accrued for, then the company would debit accrued bonus to remove the liability and credit cash for the cash outflow. There is no impact to the income statement.

What is the journal entry to record a payroll accrual? If employees have earned compensation that will not be paid until a future date, then the company would record a liability. This typically occurs at month or year-end. The company would debit payroll expense since the employee earned the compensation, and the credit would be to accrued payroll to record the liability.

What is the journal entry to reverse a payroll accrual? If the company recorded a payroll accrual, then they would remove the accrual in the subsequent period when the employees are paid cash that they previously earned. The company would debit accrued payroll to remove the liability and credit cash for the cash outflow from paying employees. There is no income statement impact.

What is the journal entry a company would record if they take advantage of an early pay discount? Assuming the company is the customer, they would record an outstanding invoice to accounts payable when the received. If the company takes advantage of an early pay discount, then that reduces the amount of cash they owe.

For example, if the invoice was originally for $5,000, and the company receives an early pay discount of 5%, then they would take $250 off the invoice. The company would debit accounts payable to remove the invoice that was previously recorded at the full amount, and then credit early pay discounts and cash.

What is the journal entry to record an expense? When a company records an expense, it will always be a debit to the applicable expense account. If the company paid with cash at the time of the transaction, then the company would debit the expense account and credit cash.

If the company deferred payment and chose to receive an invoice, they would debit the expense account at the time of the transaction and credit accounts payable to record the liability. At a future date when the invoice is paid, the company would debit accounts payable and credit cash.

What is the journal entry to record depreciation? Depreciation is a non-cash expense that is recorded to reduce to the net book value of certain types of fixed assets. To record depreciation, the company would debit depreciation expense and credit accumulated depreciation. Accumulated depreciation is a contra-asset account that reduces the gross or historical cost of fixed assets so that they are stated properly on the balance sheet.

What is the journal entry to record the purchase of raw materials? Assuming that the company purchased the raw materials on credit, they would receive an invoice and record the invoice to accounts payable. The company would debit inventory – raw materials to record the receipt of the inventory and credit accounts payable.

What is the journal entry to transfer raw materials to work-in-process inventory? As a company converts raw materials to finished goods, any goods that are incomplete or a work-in-process (WIP) will need to be quantified appropriately. The company would debit work-in-process inventory and credit raw materials. There is no income statement impact and the net change to inventory on the balance sheet is zero.

What is the journal entry to reclass items from work-in-process (WIP) to finished goods? When a company completes the production process, items are moved from WIP to finished goods. The company would debit finished goods inventory and credit work-in-process inventory. There is no income statement impact and the net change to inventory on the balance sheet is zero.

What is the journal entry to record cost of goods sold? When a company sells a product they must recognize cost of goods sold associated with that sale. The company would debit cost of goods sold (expense account) and credit inventory.

What is the journal entry to record a physical inventory adjustment? If a company performs a physical inventory count, then they are comparing the actual quantity on hand in their warehouse to inventory per the system. There are typically differences between actual inventory on hand and the inventory system.

If inventory on hand is higher than inventory in the system, then the company would debit inventory and credit cost of goods sold – inventory adjustment. This results in an increase to net income.

If inventory on hand is lower than inventory in the system, then the company would debit cost of goods sold – inventory adjustment and credit inventory. This result in a reduction to net income.

What is the journal entry to record scrapped or damaged inventory? If inventory is scrapped or damaged, then it is no longer sellable and the company must remove the inventory from its balance sheet. The company would debit cost of goods sold (damaged / scrap) and credit inventory. This will result in a reduction to net income and a reduction to total assets on the balance sheet.

What is the journal entry to record a prepaid asset? When a company makes a prepayment to a vendor (for rent, insurance, software, etc.), the company would debit prepaid expense (asset account) and credit cash. The company is purely a balance sheet impact and there there is no chance in total assets.

What is the journal entry to recognize an expense related to a prepaid asset? When a company makes a prepayment to a vendor, the company records a prepaid. When the company must recognize the expense, the company would debit the appropriate expense account and credit the prepaid asset.

What is the journal entry to record freight-in? Freight-in is considered a product cost and is capitalized into inventory and expensed when the product or service is sold. To record freight-in, the company would debit inventory (freight-in) and credit cash. The company could also credit accounts payable if they choose to defer payment. There is no income statement impact.

What is the journal entry to record freight-out? Freight-out is an expense incurred by the company to transport inventory to a distributor or retailer. Freight-out is a period expense and would be classified as an operating expense. Freight-out is expensed as incurred and would not be capitalized onto the balance sheet like freight-in.

The company would debit freight-out expense and credit either cash or accounts payable (if payment is deferred).

What is the journal entry to record sales tax as a purchaser or customer? If your are customer purchasing a good or service, you may be required to pay sales tax. In this situation, sales tax would be an expense that would be recorded in the income statement. For example, the company would debit materials expense for $5, debit sales tax expense for $1, and then credit cash for $6, which is the entire cash outflow.

What is the journal entry to record a warranty that is offered to a customer? If a company includes a warranty to a customer with their purchase, then there is no separate sale that is recorded. The company would only need to record warranty expense and an accrued warranty liability based on estimated warranty claims.

What is the journal entry recorded when a company pays a warranty claim? Assuming that the company has properly established a warranty liability, then there is no income statement impact when a customer claims a warranty. The company would debit accrued warranty liability and credit cash.

What is the journal entry to include the sale of a warranty contract to a customer? If the warranty contract is sold with a product or service, the company must defer the recognition of any warranty revenue until the warranty period expires. At the time of sale, the company would debit cash and credit sales revenue and credit unearned revenue from warranty.

What is the journal entry to record a stock split? There is no journal entry needed to record a stock split. In a stock split, the par value of the stock will decrease and the number of shares outstanding will increase.

What is the journal entry to record a reverse stock split? There is no journal entry needed to record a reverse stock split. In a reverse stock split, the par value will increase while the number of shares outstanding will decrease.

What is the journal entry to record a company borrowing money? When a company borrows money from a bank, owner, or related party, they would debit cash for the cash received and credit a liability account. The liability could be partially recorded to current liabilities and/or long-term liabilities depending on the terms.

What is the journal entry to record a company paying off debt? When a company pays off debt on the balance sheet, either in partial or in full, the company will debit the liability account to remove or reduce the debt, and credit cash. The credit to cash it for the cash outflow.

What is the journal entry to record dividend income? If a company receives dividend income from an investment, the debit would be to cash and the credit would be to dividend income. The dividend income account would would be an income statement account and would like be classified as non-operating income.

What is the journal entry to record stock option compensation? If the company issues stock options, then the company would debit stock option compensation (expense account) and credit equity – additional paid-in capital. The entry would only record the portion of the stock option compensation that has vested, and options can vest over a specific period or at the end of a period.

What is the journal entry to record a troubled debt restructuring settlement as the borrower? In a troubled debt restructuring settlement, the borrower would likely record a gain on the restructuring of debt. The example below illustrates what a creditor (lender) and debitor (borrower) would record:

What is the journal entry to record the purchase of equipment? Assuming that the equipment meets the company’s capitalization thresholds, then the company would debit fixed assets and credit cash or accounts payable. The company would only credit accounts payable if the invoice is outstanding. There is no income statement impact until the company begins to depreciate the fixed asset.

What is the journal entry to record a refundable deposit received from a customer? When a company receives a deposit that will be returned to a customer in the future, then the company would debit restricted cash (current asset) and credit customer deposits, which is a liability account.

When the customer has the right to receive their deposit back, then the company would debit customer deposits (to remove the liability) and credit restricted cash. There is no impact to the income statement for refundable deposits.

What is the journal entry to record sales tax on a customer order or purchase? Depending on the type of good or service the company sells, the company may be required to charge and collect sales tax on the transaction.

Any sales tax collected by a company is considered a liability until it is remitted to the government. The journal entry to record sales tax is a debit for 100% of the cash received, and then a credit to sales revenue for the cash related to the sale and the remaining amount is credited to sales tax payable (the liability).

What is the journal entry recorded when a company remits sales tax to the government? When a company collects sales tax from a customer, they record a liability on their balance sheet until they remit (pay) the cash to the government (or taxing authority). The entry would be a debit to sales tax payable and a credit to cash.

What is the journal entry to record when common stock is issued? A company would issue common stock to shareholders in exchange for cash. This activity qualifies as a financing activity on the statement of cash flows. The debit will be to cash, and then the credit will be to common stock and APIC. The credit to common stock depends on the par value, and the credit to APIC is the difference between the issuance price and the par value.

What is the journal entry to record treasury stock? When a company repurchases outstanding common stock from the general public, this becomes treasury stock for the company. The company would debit treasury stock (equity account) and credit cash. The debit to treasury stock reduces the amount of common stock outstanding.

What is the journal entry to record a foreign exchange loss on a sale to a customer? This would only be applicable if the customer pays on credit and the company has to record an accounts receivable. If the exchange rate declines for the company, they have to record an FX transaction loss because the customer will pay them less cash than the original receivable was recorded for. The company would debit cash, debit FX transaction loss, and credit accounts receivable.

What is the journal entry to record a foreign exchange gain on a sale to a customer? This would only be applicable if the customer pays on credit and the company has to record an accounts receivable. If the exchange rate increases for the company, they have to record an FX transaction gain because the customer will pay them more cash than the original receivable was recorded for. The company would debit cash, credit FX transaction gain , and credit accounts receivable.

What is the journal entry to record net income from an equity method investment? When a company has an equity investment, they would debit the investment account and credit income from investment. If the company has a net loss in an equity investment, they would debit loss from investment and credit the investment account in the asset section of the balance sheet. The company doesn’t actually record cash unless the company issues a dividend.

What is the journal entry to record a dividend from an equity investment? When a company receives a dividend from an equity investment, they would debit cash and credit the investment asset account.

What is the journal entry to record a loss on a purchase commitment? As soon as a company is aware of a potential loss on a purchase commitment, they should record the liability and expense in the financial statements. The company would debit estimated loss on purchase commitment and credit estimated liability on purchase commitment.

What is the journal entry to record a loss contingency? Assuming that the loss contingency is probably and can be reasonably estimated, the company would debit the appropriate expense account and credit contingent liabilities.

What is the journal entry for a change in accounting principle? When a company has a change in accounting principle, they must restate the prior year balance to be under the same method as the current year. For example, if the company switched from LIFO to FIFO in Year 2, they would need to record a prior period adjustment to restate the Year 1 inventory balance to be on a FIFO basis.

If we assume that this results in a $1,000 positive impact, the company would record an adjustment to increase the Year 2 opening inventory and retained earnings balance. The journal entry would be as follows:

What is the journal entry to capitalize legal expenses related to patent infringement? A company would capitalize legal expenses if they successfully defended their patent. The company would debit the patent intangible asset on the balance sheet and credit cash. For example, if they company incurred $600,000 of legal expenses and they successfully defended the patent, they would debit the patent asset for $600,000 and credit cash for $600,000.

If they unsuccessfully defended their patent, then the company would expense the legal expenses in the period incurred. The company would debit legal expense and credit cash.


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