Bookkeeping Basics and the Rules of Journal Entries

Accounts payable is the obligation to pay later for goods purchased, so it is a liability. Accounts receivable is the right to receive payment later for goods sold, so it is an asset. Commission revenue is revenue earned from fees, and rent expense is an expense from paying rent; neither is a liability.

Simply receiving an order does not change any asset, liability, net assets, revenue or expense, so it is not a bookkeeping transaction. A fire that destroys goods reduces an asset (merchandise), and a theft reduces an asset (cash), so both are bookkeeping transactions even though we would not call them "transactions" in everyday language. Buying equipment on credit increases an asset (equipment) and a liability (other payables), so it is a transaction.

Liabilities appear on the right (credit) side of the balance sheet, so an increase is recorded on the credit side. A decrease in an asset is recorded on the credit side, so "debit" is wrong. Revenue is recorded on the credit side when it arises, so "debit" is wrong. An increase in net assets is recorded on the credit side, so "debit" is wrong.

Cash (an asset) increases, so it goes on the debit side; borrowings (a liability) increase, so they go on the credit side. The reversed entry is the form used when the loan is repaid. Loans receivable is the asset account used when the company lends money, not when it borrows. Capital stock is money contributed by shareholders, which is different from a bank loan.

When goods are purchased, purchases (an expense) arise and are recorded on the debit side; the obligation to pay later is an increase in accounts payable (a liability), recorded on the credit side. Accounts receivable is the right to receive payment after a sale, so it is not used for a purchase. The reversed entry is wrong. Dr Accounts receivable / Cr Sales is the entry for selling goods on credit.

Equipment (an asset) increases by 250,000 yen, so it is debited. On the credit side, cash (an asset) decreases by 50,000 yen and the obligation to pay later is 200,000 yen. A deferred payment for something other than merchandise uses other payables; accounts payable is used for merchandise purchases, so using it here is wrong. An entry covering only the cash part leaves out the obligation and the full cost of the equipment. The reversed entry looks as if the equipment had been given up, so it is wrong.

Cash (an asset) increases, so it is debited; commission revenue (revenue) arises, so it is credited. Reversing the sides would look like cancelling revenue, so it is wrong. Commission expense is the expense account used when the company pays a fee. Sales is the revenue account for selling goods, not for an introduction fee.

Other payables is on the credit side of the entry, so it is posted to the credit side of the Other payables account. The description column shows the opposite account, "Equipment", not the account's own name. Posting to the debit side does not match the entry, so it is wrong. Writing the account's own name, "Other payables", in the description is also wrong.

Net assets at the beginning were 800,000 - 300,000 = 500,000 yen, and at the end 1,050,000 - 400,000 = 650,000 yen. With no capital increases or dividends, the increase in net assets, 650,000 - 500,000 = 150,000 yen, is the net income. 100,000 yen is the increase in liabilities and 250,000 yen is the increase in assets; neither is the change in net assets. 650,000 yen is the ending net assets itself.

Total debits are 200,000 + 150,000 + 100,000 = 450,000 yen, and total credits are 120,000 + 60,000 = 180,000 yen. The balance is the difference, 450,000 - 180,000 = 270,000 yen, and since debits are larger it is a debit balance. 450,000 yen is the debit total and 180,000 yen is the credit total, not the balance. 630,000 yen is debits plus credits, which is not how a balance is found.