3.7 Create a Journal Entry | Scribe

    3.7 Create a Journal Entry

    • 12 steps
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    Start in the Sample company.
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    To complete this exercise, you must be in the Sample company. From your QBOA account, click on the Gear icon on the top right corner of the screen, then select Sample company.
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    Note that you will be logged out of your current account. If you are sure, click "Continue" to confirm.
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    Now let's get started with the exercise.
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    As a note, creating journal entries requires some knowledge of the "Debits & Credits" system of accounting. Explaining this system is beyond the scope of this exercise.
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    First, let's take a look at how the truck appears on the Balance Sheet.
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    From the left navigation bar, click "Reports".
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    In the Favorites section, click "Balance Sheet".
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    Notice that the original cost of the truck is listed as a fixed asset. We are going to reduce the value of the asset by $5,000, but we still want to remember the original cost.
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    In order to better understand this journal entry, we are going to do things in a different order than what is generally accepted for accounting.  If you are an accountant, this may hurt your brain a little bit. Please bear with me. If you are NOT an accountant, it will make a little more sense doing it this way.
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    The value of the depreciation is going to be recorded in two places. First, the total value of the truck will be reduced. Remember, we want to remember the original cost, so we don't want to adjust that. Instead, we're going to track the depreciation in a sub-account of the Truck asset so they stay together on the Balance Sheet.
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    Click on "Accountant Tools", then select "Journal entries".
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    Click on the first line under Account, select "Depreciation". *It should be the Sub-account of Truck account.*
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    Fixed Assets are debits. That means if you want the number to go ***down***, you must enter it as a ***credit***. If that doesn't make sense you, don't worry! Debits and credits are outside the scope of this exercise and are not part of the basic level certification test. You can learn more about Debits & Credits in our advanced course [here](https://fastandeasyqbo.samcart.com/products/fast-easy-qbo-advanced-certification).
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    In the Credits field, type "5000".
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    In the Description field, type "Annual depreciation".
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    You have now taken the money ***out*** of the fixed asset (Truck), but where did the money go? The amount of the depreciation is the amount of the asset that the business "used" during the year, so it is considered an ***expense***. We must now debit that expense account, which in the Sample company is also called "Depreciation."
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    Click on the second line under Account, select "Depreciation". *It should be the Other Expense account.*
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    Notice that QBO automatically filled in the amount of the debit, as well as the description. This is because debits and credits must always be equal.
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    If you are an accountant, or have studied accounting, then your heart may be racing right now because Debits should always be listed before Credits in journal entries. ***That's the rule***. QBO doesn't care what order you put them in as long as they balance, but you can easily move the rows to be absolutely correct.