Case Study: Journal Entries (2.7)

Legacy Realty Company Profile

A sole proprietorship located in Washington, D.C., with a small staff of five people.

Legacy Realty Business Purpose

To own, lease, and manage its own rental properties (houses and condominiums).

Purpose of Journal Entries in a Business

To track accounting events, record specific account changes, and tell the financial story of the business.

Legacy Realty (Type of Company)

Sole proprietorship

Legacy Realty (Business purpose)

Own, lease, and manage rental properties

Legacy Realty (Business locations)

Washington, D.C. Staff of 5 people

Journal Entry (J1): Cash Contribution by Owner ($200,000)

Debit Cash ($200,000 | Ref: 101) and Credit Owner's Capital ($200,000 | Ref: 600).

Purpose of Cash Contribution by Owner

Initial funding provided by the owner to purchase properties and fund operations

Journal Entry (J2): Purchase of Property ($75,000 total)

Debit Building ($50,000 | Ref: 300), Debit Land ($25,000 | Ref: 350), and Credit Cash ($75,000 | Ref: 101).

Purpose of Purchase of Property

Investing in rental units to generate income. The total purchase price is split between building and land.

Journal Entry (J3): Incur Repairs Expense ($5,000)

Debit Repairs Expense ($5,000 | Ref: 905) and Credit Cash ($5,000 | Ref: 101).

Purpose of Incur Repairs Expense

Performing necessary property repairs in cash prior to leasing to a tenant. 

Journal Entry (J4): Purchase of Office Supplies on Account ($500)

Debit Office Expense ($500 | Ref: 910) and Credit Accounts Payable ($500 | Ref: 301).

Purpose of Purchase of Office Supplies

Acquiring essential office supplies for business operations on account

Journal Entry (J5): Collecting Rent ($1,500)

Debit Cash ($1,500 | Ref: 101) and Credit Revenue ($1,500 | Ref: 700).

Purpose of Collecting Rent

Collecting the first month's rent from a leased property, representing the primary source of revenue