Financial Accounting: Accounting Cycle Simternship | Account Definitions and Journal Entries

In each Round of this simulation, you will need to complete month-end adjustments in the Journal Entry Hub.

You can view the videos below if you'd like a brief refresher on journal entries and a review of how to make correct journal entries. These can also be found in the simulation when selecting "Help" in the upper right corner and then selecting "Help Guides."

You'll complete all the needed journal entries based on information provided in your Inbox. You can also view these in each Round by going to the Resources Tab in the bottom right corner. 

1. Begin Journal Entry: Select New Entry to begin a journal entry. The journal entry types are listed in the drop-down box titled "Select Type." Note: All of the journal entries must be completed.
2. Select Time Period: Select the time period for the entry.
3. Complete Journal Entries: Complete each journal entry by selecting the appropriate accounts and amounts to Debit and Credit. Note: Debits and Credits must be equal
4. Validate the Entry: After selecting the accounts and ensuring the Debits and Credits are equal, you will Validate the entry. You will have 3 attempts, after which the correct entry will be made available. You will be scored on your 3rd attempt, unless one of the previous attempts is correct.
5. Save Entry: If validation is successful, you will be able to select Save Entry and the entry will move to your Journal Entry list for future reference.

FAQ

Do I have to keep going back to my Inbox to review receipts to enter for the Journals?

You can actually view them in the Resources tab in the simulation. This is located in the bottom right-hand corner of the simulation, and you can sort through the different receipts, invoices, contracts, etc. 

Why can't I put in the entry? 

You'll want to make sure you put in both the Time Period and what the Journal Entry is for. Once you do so, you'll be able to put in each of the entries. If you are having trouble determining what the Journal Entry is for, you can go back to your inbox or view it in the Resources tab. 

What if I get the entry wrong?

If you incorrectly put in the Journal Entry, the simulation will let you know that the entry is incorrect. The simulation will grade you on your third attempt of the entry. After the third attempt, you will be given the correct entry to move on the simulation.

Definitions of Accounts for Journal Entries:

• Assets

  1.1 Current Assets

  1.1.1 Cash - Coins, currency, money orders, checks, and funds on deposit with financial institutions.

  1.1.2 Accounts Receivable - A current asset representing money due for services performed or merchandise sold on credit.

  1.1.3 Inventory - Goods held for resale.

  1.1.4 Prepaid Insurance - Payments made in advance for items normally charged to expense. We will use the asset method and will therefore recognize prepaids as assets and expire them monthly according to the matching principle. Insurance policies are often purchased in six-month increments, and a six-month policy provides future benefit—for six months—and is therefore an asset.

  1.1.5 Prepaid Rent - Payments made in advance for items normally charged to expense. We will use the asset method and will therefore recognize prepaids as assets and expire them monthly according to the matching principle. Often when signing a new lease — especially for a new business — property managers will want three to six months of rent up front.

  1.1.6 Office Supplies - Assets purchased and held for use in the business, not for resale. We will use the asset method and will therefore recognize supplies as an asset and expense them as they are used.

  1.1.7 Business License - Our business will use the asset method and will therefore recognize annual licenses as assets and expire them monthly according to the matching principle.

  1.2 Non-Current Assets

  1.2.1 Property, Plant, & Equipment - Tangible, long-lived assets acquired for use in business operations, which includes land, buildings, machinery, equipment, and furniture. The long-term physical assets will need to be depreciated monthly in accordance with the matching principle (land doesn't depreciate, but we won't buy land).

  1.2.2 Accumulated Depreciation - A contra asset account that keeps track of all depreciation accumulated to that point.

• Liabilities

  2.1 Current Liabilities

  2.1.1 Accounts Payable - We will use this account expressly for the purchase of inventory with an IOU. Note this account can be used by other companies for reasons other than buying inventory on account, but, in our business, we will restrict its use to the purchasing of inventory on account.

  2.1.2 Bank Loan Payable - This liability represents a promise to pay a debt obligation with a bank. Some companies will also use Notes Payable for this purpose. There is nothing wrong with that practice. In our business, we will use a Bank Loan Payable account because the distinction is useful for us.

  2.1.3 Notes Payable - A Liability account for longer-term liabilities. Though businesses might use this account in different ways—and do so in accordance with GAAP— we will use this account to purchase equipment on account. Remember: Accounts payable will be used expressly for inventory purchases.

  2.1.4 Unearned Revenue - Cash amounts received before they have been earned. Some companies might instead refer to this liability as Deferred Revenue, which is totally fine. The account is used to recognize our obligation to provide goods or services for which we have already received consideration from the customer.

• Owner's Equity

  3.1 Owner's Equity

  3.1.1 Common Stock - Recognizing the source of cash as the receipt of funds from investors. At some companies, the account, "Capital Stock", might be used instead of this one. You might even see the term 'Paid-in Capital.' You will see all of these terms on the balance sheets of different publicly-traded companies. There is nothing wrong with that practice of having different account titles to represent the same underlying equity account. For our small little business, we'll use the term 'Common Stock.'

  3.1.2 Retained Earnings - This refers to the income or earnings that was not paid out in dividends. Quite simply, the earnings were retained by the business for future use and not paid back to investors.

• Revenue

  4.1 Sales Revenue - Revenue recognized for the sale of inventory.

  4.2 Rental Revenue - Revenue recognized for providing rental services.

  4.3 Gain on Sale of Equipment - If we ever sell equipment for more than what we paid, we recognize the profit with this account. It isn't regular revenue, since we aren't in the business of selling equipment.

• Expenses

  5.1 Cost of Goods Sold (COGS) - The costs incurred to purchase or manufacture the merchandise sold during a period.

  5.2 Operating Expenses

  5.2.1 Advertising Expense - Expenses associated with advertising the business, including advertising materials, promotional giveaways, and marketing services.

  5.2.2 Payroll Expense - Expenses associated with paying employees.

  5.2.3 Repairs and Maintenance Expense - Expenses associated with keeping equipment and other assets in working order.

  5.2.4 Utilities Expense - Expenses associated with electricity, water, and gas.

  5.2.5 Business License Expense - We will use the asset method, so this account will be used monthly to expire our annual business license.

  5.2.6 Depreciation Expense - The process of cost allocation that assigns the original cost of plant and equipment to the periods benefited. This expense recognizes the “using up” of an asset. In our business our equipment will not be sold but rented. It is not our assumption that it will NOT last forever, but only two years. The matching principle requires us to recognize the “using up” of that two-year useful life each month.

  5.2.7 Insurance Expense - We will use the asset method, so this account will be used monthly to expire our prepaid insurance policy.

  5.2.8 Office Supplies Expense - We will use the asset method, so this account will be used to recognize the office supplies we used each month.

  5.2.9 Rent Expense - We will use the asset method, so this account will be used monthly to expire our prepaid lease.

  5.3 Financial Expenses

  5.3.1 Interest Expense - The payment (cost) for the use of money. Often when banks or vendors loan us money or allow us to pay over time, we will agree to pay off our obligation with interest. This account is used to recognize that additional expense.

  5.3.2 Income Tax Expense - The expense associated with paying or recognizing the need to pay taxes to the government.