Let's meet Michelle, an accountant for a small but growing shoe business, Tread Lightly. She's finished her morning coffee, paid her rent for the month, and is headed out the door to work. She had paid electronically so the money is automatically transferred from her bank account to her landlord's. When she hit the submit button, she was reminded of her mother and how payments used to be made. Her mother would write out a check and then quickly scribble out the check number and amount in the back of her check book. She remembers the orderly grid marked with her mother's cursive notes. Now grown and keeping up with the books for the shoe company as well as her own, Michelle keeps similar records. The difference is that they're all electronic.

At work, Michelle pulls up to her computer at her desk and opens the company's general journal. The journal is one of Michelle's basic but crucial tools. It tracks every financial transaction the company makes from the first day of the company's history to the present. Had Michelle been working her accounting job when her mother was still writing checks, she might be entering in the company's transactions by hand in a physical journal ledger. Today, however, Michelle uses a computerized system that will make posting and retrieving transactions a much less tedious task.

By diligently recording all monetary transactions, Michelle is ensuring the overall financial well-being of her company, just as a primary care doctor keeps a record of a patient's weight, heart rate, and blood pressure each time the patient comes in for a check-up.

The journal follows a debit and credit format, debits indicating money moving out of the company and credits showing money coming into the company. As Michelle fills out an entry to the general journal, she'll be sure to mark the date and the account under which the transaction is categorized. This will allow her to later mak a periodic profit-and-loss statement and a balance sheet, other tools for tracking the company's finances. She can also include a description of the transaction if a posting might need clarification at a later date. The journal entry will also have two columns marking debits and credits.

Michelle will need to fill in a journal entry of an issuance, or sale, of stock. Depending on what's been agreed on between Tread Lightly and a shareholder, Michelle's journal entry will be recorded a certain way.

Issuance of Stock for Cash

Tread Lightly recently sold 12,000 shares of stock for $20.00 per share. The stock has a par value of $0.06. When Michelle receives this information, she'll be able to enter it in the journal based on that debit and credit format.

Michelle is asked to compose a balance sheet to reflect the assets, liabilities, and shareholders' equity for the year 2019. The journal entries she recorded for each type of stock issuance applied to a high-lighted line in the balance.

Thursday, December Tread Lightly: Balance Sheet 31, 2019 Assets Cash $300,000.00 Accounts Receivable (AR) $80,000.00 Property, Product Design and Equipment $42,000.00 Total Assets $422,000.00 Liabilities Accounts Payable (AP) $40,000.00 Debt $40,000.00 Total Liabilities $80,000.00 Shareholders' Equity. Common Stock and Additional Paid-In Capital (APIC) $322,000.00 Retained Earnings $20,000.00 Total Shareholders' Equity $342,000.00 Total Liabilities & Equity $422,000.00