Journal Entry for Recognition
In this article we would discuss
the journal entry or entries for recognition of a financial item. Recognition
means the inclusion of financial item in the financial statements. The
inclusion is done by recording the journal entry in the books of accounts. The
books of accounts are source record for the preparation of financial statement.
Journal entry for Asset Recognition
If asset satisfy the
recognition conditions, then asset shall be recognized or recorded in the
financial statement as asset. The recognition entry for asset would be done a
by recording the following journal entry in the books of accounts.
The asset shall be debited
and other aspect would be credited.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Asset
|
XXX
|
||
01-05-2016
|
Cash/Liability
|
XXX
|
For example machinery one is
purchased for 20,000 in cash and machinery 2 is purchased at price of 30,000 from
ali on credit. Then these assets would be recognized by the following journal entries
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Machinery
1
|
20,000
|
||
01-05-2016
|
Cash
|
20,000
|
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Machinery
2
|
20,000
|
||
01-05-2016
|
Ali
|
20,000
|
Journal entry for Income Recognition
If income satisfies the
recognition criteria, then it would be included in the financial statement as
income by the following journal entry. The income would be credited and the
other aspect is debited which may be cash, receivables or any other account.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Cash
|
XXX
|
||
01-05-2016
|
Income
|
XXX
|
For example cash sales
amounting 70,000 is made to ali and credit sales amounting 60,000 is made to Aslam shall be recognized in books of accounts by following journal entries as
under
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Cash
|
70,000
|
||
01-05-2016
|
Sales
|
70,000
|
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Aslam
|
60,000
|
||
01-05-2016
|
Sales
|
60,000
|
Journal Entry for Recognition of Expenses
Expenses are recognized by
the following journal entry subject to fulfillment of recognition conditions.
The expenses shall be debited and other aspect shall be credited which may be
cash, bank or liability.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Salary
|
XXX
|
||
01-05-2016
|
Cash
|
XXX
|
For example the salary paid
in cash amounting 10,000 and salary payable to an employer Saleem amounting
6000 shall be recognized in financial statement by following journal entry.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Salary
|
10,000
|
||
01-05-2016
|
Cash
|
10,000
|
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Salary
|
6,000
|
||
01-05-2016
|
Saleem
|
6,000
|
Journal entry for Recognition of Liability
Liability is also an
financial item and have some recognition criteria, so liability can also be
recorded in books of accounts , once recognition criteria is met by the
liability. The liability shall be credited and other aspect shall be debited.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Salary
|
XXX
|
||
01-05-2016
|
Salary payable
|
XXX
|
For example the credit purchases amounting 5,000 and rent
payable amounting 7000 shall be recognized as liability in the financial statement
by following journal entries.
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Purchases
|
5000
|
||
01-05-2016
|
Creditor
|
5000
|
Date
|
Particular
|
Ledger Folio
|
Dr.
|
Cr.
|
01-05-2016
|
Rent
|
7000
|
||
01-05-2016
|
Rent payable
|
7000
|
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