When a cheque is involved, the accounts affected in the journal entry will depend on whether the cheque is being sent or received and the nature of the transaction (such as payment for goods, services, or expenses).
Sending a Cheque:
If you are sending a cheque as a payment:
Debit: Accounts Payable or the specific expense account (such as Rent Expense, Utilities Expense, etc.) based on the nature of the payment.
Credit: Bank account to decrease the cash/bank balance. This reflects the reduction of cash available in your bank due to the issuance of the cheque.
Receiving a Cheque:
If you are receiving a cheque as a payment:
Debit: Bank account to increase the cash/bank balance, as the cheque will eventually be deposited into the bank.
Credit: Accounts Receivable if the payment is from a customer, or Sales/Revenue account if it is immediate payment for goods or services provided. If it’s for another purpose, you would credit the appropriate account (such as Interest Income, if it’s an interest payment).
In both cases, recording the journal entry accurately ensures the financial statements reflect the economic impact of receiving or issuing a cheque. Make sure to also track the cheque numbers and associated details for reconciliation purposes.
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