# Recording the month

> Thirteen things happened to Northwind in September. Here is every one of them turned into an entry, with the reasoning that produced it.

Source: https://lopifi.com/learn/recording-the-month
Part of: Lopifi — US GAAP books on autopilot, reviewed by a CPA (https://lopifi.com)

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**How do you write a journal entry for a transaction?** Thirteen things happened to Northwind in September. Here is every one of them turned into an entry, with the reasoning that produced it.

The [Journal](https://lopifi.com/md/glossary/journal) is the chronological record: what happened, in the order it happened, before anything is summarised. Every entry answers three questions — when, which accounts, and how much on each side — and carries a memo answering the fourth, which is *why*, for whoever reads it in eighteen months.

*[The accounting cycle, at: journal]*

Here is all of September. Read them in order; the reasoning under each is the part worth slowing down for. Four of them are the ones people get wrong, and they are marked.

*[Journal entries: JE-1, JE-2, JE-3, JE-4, JE-5, JE-6, JE-7, JE-8, JE-9, JE-10, JE-11, JE-12, JE-13]*

Two of those entries — JE-7's invoice and JE-12's deposit — are the whole of revenue recognition in miniature. The rule is not *cash arrived*, and it is not *an invoice was issued*: revenue is recognised when (or as) a [performance obligation](https://lopifi.com/md/glossary/performance-obligation) is satisfied, which is when control of the goods or services transfers to the customer. For a shop handing over tools, that is the moment of delivery.

— [ASC 606-10-05-3, -05-4; 606-10-25-23, -25-30](https://asc.fasb.org/606/tableOfContent), Revenue from Contracts with Customers — the core principle, and recognition when control transfers

## The four that catch people

| Entry | The trap | Why it is not what it looks like |
| --- | --- | --- |
| JE-2 | Looks like an expense | Cash left, but nothing was consumed. One asset became another; it becomes expense over 48 months. |
| JE-9 | Looks like a cost | The goods went to inventory when they arrived and to cost of revenue when they were sold. Paying the supplier settles the obligation and touches no expense account. |
| JE-10 | Looks like revenue | The revenue was earned on the 15th. This is a receivable turning into cash. |
| JE-12 | Looks like revenue — cash arrived | Nothing has been delivered. Northwind owes goods, so it is a liability until October. |

> **Every one of those traps has the same shape.** Cash moving is not the event. The event is a thing being earned, consumed, owed or delivered — and the cash is a separate fact that may happen earlier, later, or never. Lesson 8 is entirely about that gap.

**Wrong:** JE-12 · deposit

**Right:** JE-12 · Deposit from customer for tools to be delivered in October. Liability until delivery (ASC 606).

The memo is written for a stranger — the auditor, or you in eighteen months. It says what happened and why the accounts are these accounts.

> **Ask what changed about the business, not what changed about the bank account. The entry follows from the answer.**

**Check yourself.** A customer pays a $3,000 deposit on 26 September for tools to be delivered in October. What is September's entry?

- Debit cash, credit revenue — the customer paid. — Payment is not delivery. Until the goods change hands Northwind owes them, and revenue would be overstated by the full deposit.

- No entry until the goods are delivered. — Cash has arrived in the bank and Northwind has an obligation. Both are facts today, and the books must show them today.

- Debit cash, credit deferred revenue — and recognise the revenue when the goods are delivered. — The deposit creates a liability (a contract liability, in ASC 606's words) that becomes revenue when control of the goods transfers.

- **Lesson:** 5 of 13 — 13 min
- **Terms taught:** [Journal](https://lopifi.com/md/glossary/journal), [Journal entry](https://lopifi.com/md/glossary/journal-entry), [Transaction](https://lopifi.com/md/glossary/transaction), [Posting](https://lopifi.com/md/glossary/posting), [Accounts receivable](https://lopifi.com/md/glossary/accounts-receivable), [Accounts payable](https://lopifi.com/md/glossary/accounts-payable), [Deferred revenue](https://lopifi.com/md/glossary/deferred-revenue), [Performance obligation](https://lopifi.com/md/glossary/performance-obligation)
- **Previous:** [Debits and credits](https://lopifi.com/md/learn/debits-and-credits)
- **Next:** [Posting to the ledger](https://lopifi.com/md/learn/posting-to-the-ledger)
- **The course:** https://lopifi.com/learn