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FINANCIAL ACCOUNTING - I (Sem. - I)

Dr. POPAT KRISHNA SHINDE

M.Com., NET, PhD
Assistant Professor,
Faculty of Commerce, S. P. College,
Tilak Road, Pune.
E-mail: [email protected]
 Financial Accounting (Sem - I)

UNIT
1
BASIC
ACCOUNTING
PROCEDURES :
JOURNAL
ENTRIES

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 Financial Accounting (Sem - I)

Dr. Popat K. Shinde 3 [email protected]

 Financial Accounting (Sem - I)

INTRODUCTION:

• A Journal Entry is a Fundamental Accounting record used to track financial

transactions within a Company or Organization.

• It serves as the first step in the accounting cycle, providing a chronological

record of business activities and their corresponding financial effects.

• Journal Entries help maintain accurate financial records, facilitate the

preparation of Financial Statements, and support decision-making processes.

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 Financial Accounting (Sem - I)

ACCOUNT:

• An account is the systematic presentation of all the transactions related to a

particular head. An account shows the summarized records of transactions

related to a concerned person or thing.

• E.g. when the entity deals with various suppliers and customers, each of the

suppliers and customers will be a separate account.

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 Financial Accounting (Sem - I)

ACCOUNT:

• An account may be related to things which can be tangible as well as

intangible. E.g.– Land, Building, Furniture, etc. are things.

• An account is expressed in a statement form. It has two sides. The left-hand

side of an account is called a Debit side whereas right-hand side is called as

Credit side. The debit is denoted as ‘Dr’ and credit is denoted as ‘Cr’.

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

REAL ACCOUNT

• These account types are related to assets or properties.

• They are further classified as Tangible Real Account and Intangible Real

Accounts.

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

REAL ACCOUNT

Tangible Real Accounts:

These include assets that have a physical existence and can be touched.

E.g. – Building A/c, cash A/c, stationery A/c, inventory A/c, etc.

Intangible Real Accounts:

These assets do not have any physical existence and cannot be touched. However, these can be measured in

terms of money and have value.

E.g. – Goodwill, Patent, Copyright, Trademark, etc.

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

PERSONAL ACCOUNT

• These accounts types are related to persons.

• These persons may be natural persons like Raj’s account, Rajesh’s account, Ramesh’s

account, Suresh’s account, etc.

• These persons can also be Artificial Persons like Partnership Firms, Companies, Bodies

Corporate, An Association of Persons, etc.

• Ex. – Rajesh & Suresh Trading Co., Charitable Trusts, XYZ Bank Ltd, ABC Co. Ltd, etc.

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

PERSONAL ACCOUNT

• There can be personal representative accounts as well.

• E.g. – In the case of Salary, when it is payable to employees, it is known how

much amount is payable to each of the employee. But collectively it is called

as ‘Salary Payable A/c’

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

NOMINAL ACCOUNT

• These accounts types are related to income or gains and expenses or losses.

• E.g. – Rent A/c, commission received A/c, salary A/c, wages A/c, conveyance A/c, etc.

• E.g. – Salary paid to employees of the entity. Salary A/c will be Debited when the

expenses are incurred. Whereas, when an entity receives any Interest, Discount etc. these

are Credited whenever these are received by the entity.

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 Financial Accounting (Sem - I)

TYPES OF ACCOUNT

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 Financial Accounting (Sem - I)

GOLDEN RULES OF ACCOUNT

REAL • Debit What Comes In

ACCOUNT • Credit What Goes Out

PERSONAL • Debit The Receiver

ACCOUNT • Credit The Giver

NOMINAL • Debit All Expenses And Losses

ACCOUNT • Credit All Income And Gains

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 Financial Accounting (Sem - I)

STEPS FOR JOURNAL ENTRIES:

STEP 1:

Ascertain the accounts related to a particular transaction.

STEP 2:

Find the nature of the related account

STEP 3:

Ascertain the rule of Debit and Credit, applicable to the related account.

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 Financial Accounting (Sem - I)

STEPS FOR JOURNAL ENTRIES:

Step 4:

Record the Date of the transaction in the ‘Date Column’

Step 5:

Write the name of the account to be debited in the particulars column along with the
abbreviation ‘Dr’ and the amount to be Debited in the Debit amount column

Step 6:

Write the name of the account to be credited in the next line starting with ‘To’ and the
amount to be Credited in the Credit amount column.

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 Financial Accounting (Sem - I)

STEPS FOR JOURNAL ENTRIES:

STEP 7:

Write a brief explanation of the transaction as narration.

STEP 8:

Draw a line across the entire particulars column to separate

one Journal Entry from the other.

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 Financial Accounting (Sem - I)

NATURE AND TYPE OF A/C – PERSONAL, REAL & NOMINAL:

ITEM NATURE OF A/C TYPE OF A/C NATURE OF BALANCE

1. TRADE MARK Assets Real Account Debit

2. LIVESTOCK A/C Assets Real Account Debit

3. BILLS PAYABLE Liabilities Personal Account Credit

4. GOODWILL A/C Assets Real Account Debit

5. MACHINERY Assets Real Account Debit

6. RENT Expenses Nominal Account Debit

7. CASH Assets Real Account Debit

8. CREDITOR Liabilities Personal Account Credit

9. PATENT RIGHT Assets Real Account Debit

10. SALARIES Expenses Nominal Account Debit

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 Financial Accounting (Sem - I)

NATURE AND TYPE OF A/C – PERSONAL, REAL & NOMINAL:

ITEM NATURE OF A/C TYPE OF A/C NATURE OF BALANCE

11. WAGES Expense Nominal Account Debit

12. PREPAID SALARY Assets Personal Account Debit

13. STATIONARY Expenses Nominal Account Debit

14. LOANS GIVEN Assets Personal Account Debit

15. DRAWINGS Assets Personal Account Debit

16. BANK ACCOUNT Assets Personal Account Debit

17. INTEREST PAID Expenses Nominal Account Debit

18. INTREST RECEIVED Incomes Nominal Account Credit

19. GAVASKAR(DEBTOR) Assets Personal Account Debit

20. SALE RETURN Expense Nominal Account Debit

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 Financial Accounting (Sem - I)

NATURE AND TYPE OF A/C – PERSONAL, REAL & NOMINAL:

ITEM NATURE OF A/C TYPE OF A/C NATURE OF BALANCE

21. ACCURED INTREST Assets Personal Account Debit

22. BAD DEBTS Losses Nominal Account Debit

23. ADVERTISING Expenses Nominal Account Debit

24. RECIPT OF LOAN Liabilities Personal Account Credit

25. INVESTMENT Assets Real Account Debit

26. STOCK Assets Real Account Debit

27. NET PROFITS Profits / Gains Nominal Account Credit

28. LOANS TAKEN Liabilities Personal Account Credit

29. BUILDING Assets Real Account Debit

30. DEPRECIATION Expenses Nominal Account Debit

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 Financial Accounting (Sem - I)

Journal Entries:
1. Journal Entry for Business Started (in cash)

Example – Max started a business with 10,000 in cash.

Particulars Dr. Amt Cr. Amt

Cash A/c …………. Dr. 10,000
To Capital A/C 10,000
(Capital introduced by Max in cash for 10,000)

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 Financial Accounting (Sem - I)

Journal Entries:
2. Journal Entry for Sales (Credit)
Example – Sold goods worth 4,000 to ABC & Co. on credit.

Particulars Dr. Amt Cr. Amt

ABC & Co. A/c …………. Dr. 4,000
To Sales A/C 4,000
(4,000 worth of goods sold to ABC & Co. on credit)

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 Financial Accounting (Sem - I)

Journal Entries:
3. Journal Entry for Purchases (Credit)
Example – Purchased goods worth 3,000 from HM Ltd. on credit

Particulars Dr. Amt Cr. Amt

Purchases A/c …………. Dr. 3,000
To HM Ltd. A/C 3,000
(Goods worth of Rs. 3,000/- purchased from HM Ltd. on Credit.)

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 Financial Accounting (Sem - I)

Journal Entries:
4. Journal Entry for Drawings (Cash)
Ex. – Manoj Withdrew 1,000 in Cash for personal use from his business

Particulars Dr. Amt Cr. Amt

Drawings A/c …………. Dr. 1,000
To Cash A/C 1,000
(Rs. 1,000/- withdraw for Personal use by Manoj)

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 Financial Accounting (Sem - I)

Journal Entries:

5. Journal Entry for Drawings (Goods)

Ex. – Manoj use Goods costing Rs. 2,000 for domestic use from his business
Particulars Dr. Amt Cr. Amt
Drawings A/c …………. Dr. 2,000
To Goods A/C 2,000
(Goods costing Rs. 2,000/- used for personal use from business)

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 Financial Accounting (Sem - I)

Journal Entries:

6. Journal Entry for Assets Purchased:

Example – Purchased Plant & Machinery worth 40,000/- in Cash

Particulars Dr. Amt Cr. Amt
Plant & M/c A/c …………. Dr. 40,000
To Cash A/C 40,000
(Plant & Machinery purchased in Cash)

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 Financial Accounting (Sem - I)

Journal Entries:

7. Journal Entry for Bad Debts

Ex. – ABC & Co. became insolvent & the business is unable to recover 5,000.

Particulars Dr. Amt Cr. Amt

Bad Debts A/c …………. Dr. 5,000
To ABC & Co. A/C 5,000
(Bad Debts of ABC & Co. Rs. 5,000/- recorded)

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 Financial Accounting (Sem - I)

Journal Entries:

8 . Journal Entry for Free Samples/Charity

Example – Goods worth Rs. 3,500/- distributed as free samples.

Particulars Dr. Amt Cr. Amt
Advertisement A/c …………. Dr. 3,500
To Goods A/C 3,500
(Goods of Rs. 3,500/- distributed as free Samples for
Advertisement)

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 Financial Accounting (Sem - I)

Journal Entries:

9. Journal Entry for Discount Allowed

Ex.– Received Rs. 1,900 from XYZ in full settlement of their dues of Rs. 2,000/-.

Particulars Dr. Amt Cr. Amt

Cash A/c …………. Dr. 1,900
Discount Allowed A/c ……….. Dr. 100
To XYZ A/c 2,000
(Received Rs. 1,900/- from XYZ and discount allowed of Rs. 100/- in full
settlement of the account.)

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 Financial Accounting (Sem - I)

Journal Entries:
10. Journal Entry for Discount Received
Example – Paid 2,900 to HM Ltd. to settle their dues of 3,000/-
Particulars Dr. Amt Cr. Amt
HM Ltd. A/c ……………. Dr. 3,000
To Discount Received A/c 100
To Cash A/c 2,900
(Rs. 2,900/- paid in Cash to HM Ltd. and received Rs. 100/- as a Discount)

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 Financial Accounting (Sem - I)

Journal Entries:
11. Journal Entry for Outstanding Expenses

Example – Paid Outstanding Electricity Expense of 3,000/-

Particulars Dr. Amt Cr. Amt

Outstanding Electricity Expense A/c … Dr. 3,000

To Cash A/c 3,000

(Outstanding Electricity Expenses pain in Cash)

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 Financial Accounting (Sem - I)

Journal Entries:
12. Journal Entry for Prepaid Expenses

Example – Paid Rs. 2,000/- for Rent in Advance for next month.

Particulars Dr. Amt Cr. Amt

Prepaid Rent A/c ………. Dr. 2,000

To Cash A/c 2,000

(Rent paid in Advance in Cash for next month)

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 Financial Accounting (Sem - I)

Journal Entries:
13. Journal Entry for Income Received in Advance

Example – Rent Received Rs. 3,000/- in Advance of next month.

Particulars Dr. Amt Cr. Amt

Cash A/c ………. Dr. 3,000

To Rent Received in Advance A/c 3,000

(Rent received in Advance in Cash of next month)

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 Financial Accounting (Sem - I)

Journal Entries:
14.Journal Entry for Accrued Income

Ex – Received Interest of Rs. 2,500/- that belongs to the Previous Year.

Particulars Dr. Amt Cr. Amt

Cash A/c ………. Dr. 2,500

To Accrued Interest A/c 2,500

(Interest received of the Previous Year)

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 Financial Accounting (Sem - I)

Journal Entries:
15. Journal Entry for Amortization Expense

Example – Patents worth Rs. 1,500/- to be amortized.

Particulars Dr. Amt Cr. Amt

Amortization Expense A/C ……. Dr. 1,500
To Patents A/c / Accumulated
1,500
Amortization A/c
(Patents worth 1,500 amortized)

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 Financial Accounting (Sem - I)

Journal Entries:
16. Journal Entry for Depreciation on Assets

Ex. – Charge 15% p.a. depreciation on Plant & Machinery (B.V. Rs. 15,000/-).

Particulars Dr. Amt Cr. Amt

Depreciation on P & M A/c ……. Dr. 2,250

To Plant & Machinery A/c 2,250

(Depreciation provided on P & M @15%p.a.)

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 Financial Accounting (Sem - I)

Journal Entries:
17. Journal Entry for Interest on Capital

Example – Provide Interest @5% on Partner’s Capital Rs. 10,000/-

Particulars Dr. Amt Cr. Amt

Interest on Capital A/C ……. Dr. 500
To Partner’s Capital /
500
Owner’s Capital A/c
(Interest on Partner’s Capital provided)

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 Financial Accounting (Sem - I)

Journal Entries:
18. Journal Entry for Interest on Drawings

Example – Charge Interest @ 10% on Partner’s Drawings for Rs. 3,000/-.

Particulars Dr. Amt Cr. Amt

Drawings A/C ……. Dr. 300

To Interest on Drawings A/c 300

(Interest on Partner’s Drawings)

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 Financial Accounting (Sem - I)

Journal Entries:
19. Journal Entry for Sales Returned

Example – Goods worth Rs. 200/- sold on credit are returned by XYZ Ltd.

Particulars Dr. Amt Cr. Amt

Return Inward A/C ……. Dr. 200

To XYZ A/c 200

(Goods returned by XYZ Ltd.)

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 Financial Accounting (Sem - I)

Journal Entries:
20. Journal Entry for Purchase Return

Ex – Goods worth Rs. 100/- Purchased on credit from HM Ltd. returned by us.

Particulars Dr. Amt Cr. Amt

HM Ltd. A/C ……. Dr. 100

To Return Outward A/c 100

(Goods returned to HM Ltd.)

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 Financial Accounting (Sem - I)

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