JE for A form of property is received in exchange for money parted with

A form of property is received in exchange for money parted with

Illustrative example:

On June 3, 20x2, AAA Trucking Services Company bought for P890,000.00 cash a Toyota Innova to be used as company service vehicle.

How to record the above transaction

Step 1

Remember the guiding principle. 

DEBIT the Value Received

CREDIT the Value Parted With 

Applicable debit and credit rules 

Rule 1

When the value received is a thing of value, an asset is increased.

Therefore, debit the asset account title of that thing of value with the amount of increase. 

Rule 2

When the value parted with is a thing of value, an asset is decreased.

Therefore, credit the asset account title of that thing of value with the amount of decrease.

Step 2

Analyze the business transaction or economic event

• What is the value received  - Toyota Innova
• What is the value parted with - Money
• Assign the account title for the value received - Service Vehicle
• Assign the account title for the value parted with - Cash
• What is the effect of the value received in the accounting equation - Increase in Asset
• What is the effect of the value parted with in the accounting equation - Decrease in Asset
• Measure the amount equivalent of the value received - P890,000.00
• Measure the amount equivalent of the value parted with - P890,000.00

Step 3

Record the journal entry

• Record the date of the transaction

Date of transaction:   June 3, 20x2

• Record the debit with the amount of the value received

Debit the value received :  Service Vehicle   P890,000.00

• Record the credit with the amount of the value parted with

 Credit the value parted with :   Cash  P890,000.00

• Write the explanation of the transaction or events.

Brief Explanation: 

To record the acquisition of Toyota Innova for company use.

The finished journal entry of the above transaction