Another example of a journal entry would be if a company decided to issue stock in itself. The company would credit the common stock account and debit the cash account. Another entry that is tied to this account may be made if the company decided to give its shareholders a dividend at the end of a period. If this were the case then the company would credit the cash account and debit the account for dividends.
Journal entries are also made to correct errors that may happen in accounts. One such example is for depreciation. Inventory, furniture, land and equipment may lose some of their original value. This is considered an expense to a company. To account for this the account creates a depreciation expense account and an accumulated depreciation account. The depreciation expense account is debited and the accumulated depreciation account is credited.

Another type of adjustment is when a company thinks that a customer won’t pay the money that they owe. The company can choose to make an allowance for the amount of money that they will lose because customers won’t pay. They do this by debiting their allowance for doubtful accounts and crediting the account for doubtful accounts expense. Another way to account for customers that don’t pay is to write off the expense. This is done by debiting the account for uncollectible account expense and crediting accounts receivable.

Another type of adjustment is made when a company owns stock as part of its assets. The company records the stock at the price that they pay, so an adjustment has to be made when the price of the stock changes. This is done by either debiting the short term investments account for a gain or crediting the short term investments account for a loss. The opposite is done to the account for unrealized loss or gain on investments.

All of these journal entries are required to maintain good accounting records. These journal entries make it easy for an accountant to produce the financial statements for a company to view its financial standing at the end of a period. By accurately accounting for the activities of a company you are able to get a more accurate view of the company’s standing through the use of the financial statements.

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