PC.5.I.8 - Using Journal Entries
- 8 steps
Fast & Easy QBO
QuickBooks
The Sample Company
1
To complete this exercise, you must be in the Sample company. To get into it, click on the Gear icon on the top right corner of the screen, then select Sample company.
Note that you will be logged out of your current account. If you are sure, click "Continue" to confirm.
Hands On Practice
Now let's get started with the exercise. Here is the full scenario:
Your client, Craig, received a $12k bill in November for an annual insurance policy that runs from December 1 this year to November 30 the following year. He paid the bill in November, posting the total amount to the Prepaid Expenses account.
You need to reclassify December’s portion of the bill payment from the Prepaid Expenses account to the Insurance account.
Here’s what you need to do:
- Create a journal entry for December 31 to record the monthly bill portion of $1,000
- The journal entry should debit the Insurance account and credit the Prepaid Expenses account
2
Click the "+New" button, then select "Journal entry".
3
In the Journal date field, select "December 31".
*Note: for the purposes of this exercise, it does not matter if selecting last year or this year. We simply need to show that a portion of the November bill payment is reallocated to December.*
Leave the Journal no. field as is. In a real life scenario, you may want to use something more descriptive to identify what this Journal entry is for.
4
On the first line, in the Account field, select "Insurance". *This is an Expense account.*
5
In the Debits field, type "1000".
6
In the Description field, type "Monthly portion of insurance expense for the year".
7
On the second line, in the Account field, select "Prepaid Expenses". *This is an Other Current Asset account.*
After selecting Prepaid Expenses, the Credits field will automatically populate with $1,000, matching the Debits field (this is because debits and credits must always equal each other).
Also, the Description field will automatically fill in to match what is on the first line. This may be left as is.
We have now created the Journal Entry for this portion of the bill.
In a real life scenario, we would need to create one at the end of each month, or alternatively, make it recurring (this is the ideal choice so the monthly entry is not forgotten about). Doing so is outside of the scope of this exercise.
For now, we can save and close the Journal Entry.
8
Click the "down arrow" next to Save and new, then select "Save and close".
🏋️♀️ Get More Practice
This exercise was featured as an Exercise of the Week in the QBO Gym. Do more hands-on exercises just like this by joining our FREE, 5-day Bookkeeping Challenge. [Just click here.](https://www.fastandeasyqbo.com/gym5)
📝 Feedback
Questions/Problems/Concerns? [Send feedback.](https://www.bookwidgets.com/play/k6rmQMKk-iQAEzXMdagAAA/BEXUQBE/feedback-scrib?teacher_id=6434462993219584)