Question: The Company has purchased a 1-year software license for the use of the Sales team from Widgets, Inc. The total cost of the license is $5,000, and it is valid from July 25, 2020 through July 24, 2021. The invoice is dated August 1, 2021, and due within 30 days. Please write the entry or entries you would use to record this transaction. Include debit(s), credit(s), and a memo for each entry.
Solution:
| Journal Entries | |||
| Date | Account Titles and Explanation | Debit | Credit |
| Jul. 25, 2020 | Software License | $5,000 | |
| Accounts Payable | $5,000 | ||
| (To record the purchase of software license on account) | |||
| Jul. 24, 2021 | Accumulated Amortization – Software License | $5,000 | |
| Software License | $5,000 | ||
| (To record the expiry of software license) | |||
| Aug. 31, 2021 | Accounts Payable | $5,000 | |
| Cash | $5,000 | ||
| (To record the payment for purchase of software license) |