A business purchases land and buildings for 650, and pays 350 in cash and issues a 5% note payable for the balance of 300, which is secured by a mortgage on the property.
The journal entry to record the initial purchase of the property using a combination of cash and notes payable is as follows:
Fixed Asset Purchases With Note Bookkeeping Entries Explained
The debit entry to property records the acquisition of the land and buildings.
Cash went out of the business to pay the supplier, and a liability (notes payable) is established for the balance outstanding.
The Accounting Equation
The accounting equation, Assets = Liabilities + Owners Equity means that the total assets of the business are always equal to the total liabilities plus the owners equity of the business. This is true at any time and applies to each transaction. For this transaction the accounting equation is shown in the following table.
|Property + Cash||=||Notes payable||+||None|
|650 – 350||=||300||+||0|
In this case on the left hand side of the accounting equation, an asset (property) has been increased by the debit entry of 650, and another asset (cash) has been reduced by the credit entry of 350, this results in a net increase in assets of 300. On the right hand side of the accounting equation, a liability (notes payable) has been increased by an amount of 300.
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