The Company has purchased a 1-year software license for the use of the Sales team from Widgets

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
DateAccount Titles and ExplanationDebitCredit
Jul. 25, 2020Software License$5,000
   Accounts Payable$5,000
(To record the purchase of software license on account)
Jul. 24, 2021Accumulated Amortization – Software License$5,000
   Software License$5,000
(To record the expiry of software license)
Aug. 31, 2021Accounts Payable$5,000
   Cash$5,000
(To record the payment for purchase of software license)

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