A company records its transactions in its accounting journal by using journal entries. A journal entry decreases or increases various account balances. Any business or company utilizes a balance sheet and journal entries to produce its financial statements. Companies make these statements at the end of a specific period. Let us examine this further: if you purchased a property for your small business, you must enter a journal entry that will alter the accounts affected by the purchase.
A business utilizes diary sections in its bookkeeping diary to record exchanges, such as a home buyer. A diary section increases or diminishes different record adjustments. A business utilizes these entries to produce its budget summaries toward the end of every period. If your independent company bought a home, record a diary entry to modify the accounts influenced by the buy.
Bookkeeping is a common practice in business and accounting. Accurate bookkeeping will help you provide all of the necessary and relevant information to track all of your accounts. Bookkeeping is a recognized and well-defined process in business and accounting. Every transaction, whatever nature (purchase or sale), has to be recorded. The method of bookkeeping helps ensure accurate and timely records.
Recording a Purchase of Property
If your business purchased a property through a mortgage, the journal entry would affect the property, cash accounts, and mortgage payable. If you happen to have paid by cash for the property, the journal entry will affect the cash account and the property account. When you make your journal entry, you will credit or debit the appropriate account for the documented amount. Credits and debits can decrease or increase an account.
Property Account
If you need to determine the total cost of the property, you need to add the property’s acquisition cost to the closing costs, which can include commissions.
Enter “Property” in your accounting journal on the first line of a journal entry in the account column. Enter the total price in the debit column. Debit escalates the property account in your accounting records since it is an asset account.
Let us take an example of this situation. Assume that you have paid $300,000 for a property and paid $20,000 in closing costs. You must add $300,000 to $20,000 to get $320,000. How will you enter the journal entries in your accounts? Write down “Property” in the column that says account. Write down the amount “$320,000” in the column that says debit.
Mortgage Payable Account
If your business purchased the property through a mortgage, write down the journal entry of “Mortgage payable” on the second line in the column that says account. Enter the mortgage amount in the column that says credit.
Let us take an example of this situation. Assume that you have used a mortgage of $240,000 towards the $320,000 of your property cost. Write down “Mortgage payable” in the column that says account. Write down “$240,000” in the column that says credit.
Cash Account
Deduct the mortgage amount from the total cost of the property to find out the cash you used for the procurement. If you pay all in cash, the amount of money used will equal the property’s total cost. Write down the journal entry “Cash” in the column of an account. Write down the amount of cash spent in the column that says credit.
Let us take an example of this situation. Assume that you spent $240,000 on a mortgage to acquire the property of $320,000. Deduct $240,000 from $320,000 to get $80,000. Write down “Cash” in the column of an account. Write down “$80,000” in the column that says credit. If your private company utilized a home loan for a home buyer, a diary section influences the property, contract payable, and money accounts. A diary section influences the property and money accounts if you paid all the money for a home.
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