Journal Entry

Points to be remembered for journal entry:

Identify 2 accounts for the transactions

Classify them into personal ,nominal or
real using traditional approach or group
them into Assets, liabilities ,expenses and
incomes using modern approach
Apply debit and credit rules either using
traditional approach or modern approach
Give debit to one account and give credit to
another account
Real account

For real account: All related to assets..

Assets can be tangible fixed assets like
building,furniture,machinery etc
Assets can be intangible like goodwill,
copyright, patents
Assets can be current assets like
cash,debtors,stock and all types of
receivables
Debit means what comes in and credit
what goes out is the rule for the same
 Examples for real account:

Goods purchased for cash

Goods sold for cash
A machinery is bought for cash
Cash is withdrawn from bank
Cash is deposited into bank
Royalty is purchased by the company for
cash.
All above transactions are related to real
accounts…
 Personal account

For personal account: All related to persons

Persons can be natural person, artificial person,
representative person
Natural person..
Mr.S, MrY and Mrs.B etc
Artifical person…
Parle G,pune university etc
Representative person:
It is with respect to outstanding expenses and prepaid
expenses.
Debit means receiver and and credit means the
giver
Examples:

Goods(real) are purchased from Y.. (personal)on

credit…….
goods..debit
Y..credit
Goods are sold on credit to B..(B=Debit,
goods..credit)
Cash is received from a debtor G…cash
debit,G..credit
Cash is paid to a creditor T….T debit..cash credit
Cash is received as capital from k as a proprietor
Cash..debit
Capital…credit
Nominal Account

For nominal account: All related expenses

and incomes(revenues)
The rule is debit means expenses and credit
means income.
How to identify expenditure and income in the
given transactions..
When it is given as rent paid it is your
expenditure and when it is given that rent
received it is your income
Examples:

Interest on loan paid (cash..credit,

Interest..debit)
Dividend on shares received(cash..debit,
dividend credit)
Repairs paid(repairs..debit..cash credit)
Salary paid(salary..debit..cash credit)
Insurance premium paid in advance(advance
insurance premium..debit, cash …credit)
Rent due but not paid(rent..debit,
outstanding rent..credit)
 Journal entry based on assets, liabilities,capital and
expenses

If assets are going up give debit

If expenses are paid then give debit
Liabilities are increasing give credit
Incomes are increasing give credit

In this modern approach expenses are assets are in one

group and liabilities and incomes are in one group
Assets, expenses are increasing give debit and vice
versa
Liabilities and incomes are increasing give credit and
vice versa
 Continue……

Assets:
Expenses:
Liabilities:
Incomes:
Assets/expenses…one group…
Assets/expenses are increasing debit….
Assets/expenses are going down…credit
DEAL….Debit your expenses Assets and
losses if they are increasing….
Liabilities/incomes…one group
If liabilities and incomes are increasing, you
give credit
LIC:Liabilities,Incomes if they are
increasing credit

Trade discount…never recorded….General

Cash discount…always recorded….transaction
specific
List of transactions..Identify debit and
credit

Expenses paid…Expenditure debit..cash credit

Income received…cash debit…Income credit
Goods purchased for cash…goods..debit cash credit
Goods sold for cash…cash..debit goods credit
Goods purchased on credit…goods debit credit..creditor
Goods sold on credit….debtor..debit..goods..credit
Bank loan is taken…bank..debit…bank loan credit..
Bank loan is paid…bank loan ..debit..bank credit
A machinery is bought….machinery..debit..cash credit
Presentation of journal entry..

First write the debit part with…..dr

Then write down credit part which starts
with the prefix to..
Write down the narration of the transaction
with the starting word being..
Example :0n 1/1/17 kumar started garment
business with cash rs.5,00,000.
0n2/1/17Kumar taken a loan for business
rs.20,00,000
Format of journal entry:
Date particulars LF debit credit

1/7/2017 Cash a/c…..dr 5,00,000

To kumars capital a/c 5,00,000

(being business
started)
2/7/2017 Bank a/c…dr 20,00,000

To bank loan a/c 20,00,000

(being taken a loan)

 Problem on journal entry

Pass journal entries for the following

transactions:
1/2/17 a business is started with cash
Rs.2,00,000
(debit cash…,credit capital….)
2/2/17 goods are purchased on cash Rs.20,000
and on credit from rama traders
rs.8,000(Purchase. debit,cash credit)(goods
debit..8000,rama traders credit)
3/2/17 cash deposited into bank rs.5,000
4/2/17 cash withdrawn from bank rs.2,000
Continue…

5/2/17 cash sales rs.10,000 and sales on

credit to Mr.Y rs.2,000
6/2/17 A furniture of rs.2000 is bought for
business(
7/2/17 a proprietors withdraws cash for his
personal use rs.5000
8/2/17 A proprietors personal fixed deposit is
getting matured as Rs.2,00,000,the same is
introduced as capital in the business
Continue..

9/2/17..rent paid rs.2,000 and salary paid

rs.2,500
10/2/17..interest on loan due but not paid
rs.1000.

11/2/17..insurance premium paid in advance is

Rs.500
12/2/17..goods are distributed as free samples
rs.1000(free sample A/c…dr, Purchase A/c..cr)
13/2/17..goods are given as charity
rs.300(charityA/c..dr, Purchase A/c.. cr)
Continue….

14/2/17 Amount paid to Rama traders

Rs.7640 in full settlement(Rama traders
debit 8000,cash A/c credit 7640,discount
account credit 360)
15/2/17 bank has debited your account for
bank charges rs100(bank charges a/c debit
and bank will be credit)
16/2/17 bank has credited your account for
bank interest rs.400(bank a/c…debit,bank
interest will get credited)
Continue…

17/2/17 Mr.Y is declared as insolvent and

final payment received by Y is .60 in a
rupee(cash debit 1200,bad debts debit
800,Y credit 2000)
18/2/17..goods are bought for a list price of
Rs.5,200 from pk traders on credit 1%
trade discount is applicable on this price .
(Purchase A/c..debit 5148)
19/2/17payment is made to pk traders
Rs.5000 in full settlement after getting cash
discount.
Continue…

20/2/17..stock in the godown is destr0yed by

fire rs.5000 and insurance claim receivable
from the company rs.4,000
21/2/17..goods are sold on credit to mr.c for a
list price of 4000 before a trade discount
of2%
22/2/17received from C in full settlement rs
3900
23/2..Goods are bought from Viky traders on
credit rs.50,000 however returned the goods
of Rs.3,000 as they were not as per the order
24/2 Goods are sold to Superstores on credit
Rs.2000 and Rs.100 returned as they were of
inferior quality
25/2 A machinery is bought of Rs.60,000 by
making payment by way of cheque,
installation charges rs.200 is paid on
machinery in cash in addition to rs.60,000
Assets and expenses in one group
Liabilities and incomes are in one group
Assets and expenses are increasing give
debit
Assets and expenses are decreasing credit
Liabilities and incomes are increasing
give credit
Liabilities and incomes are decreasing give
debit
Business is started with cash rs.50,000
Cash Asset increasing debit
Capital Liability increasing credit
Rent paid rs.3000
Rent expenses increasing debit
Cash asset decreasing credit
Interest due but not paid rs.1000
Interest exp increasing debit
Outstanding interest liability credit
LIC….Liabilities Incomes give credit when
they are increasing
DEAL…Debit all expenses ,assets and losses
when they are incrasing
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
1/2/17 Cash A/c…..dr 2,00,000
To Capital A/c 2,00,000
(Being business is started)
2/2/17 Purchase A/c 28000
To Rama traders 8000
To cash A/c 20000
(Being Purchase of goods for
cash and on credit from
Rama traders)
3/2/17 Bank A/c…Dr 5000
To cash A/c 5000
(Being cash deposited into
bank)
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
4/2/17 Cash A/c…..dr 2000
To Bank A/c 2000
(Being withdrawal of cash)
5/2/17 Cash A/c…dr 10000
Y A/c..dr 2000
To sales A/c 12000
(Being Sale of goods for cash
and on credit to Mr.Y)
6/2/17 Furniture A/c…Dr 2000
To cash A/c 2000
(Being Purchase of furniture
on cash)
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
13/2/1 Charity A/c…dr 300
7
To Purchase A/c 300
(Being goods are given as
charity)
14/2/1 Rama Traders A/c 8000
7
To cash A/c 7640
To discount A/c 360
(Being amount is settled and
discount is received)
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
10/2/1 Interest on loan A/c…dr 1000
7
To Outstanding interest on 1000
loan
(Being interest on loan due
but not paid)
11/2/1 Advance insurance premium 500
7 A/c.dr
To cash Account 500
(Being insurance premium
paid in advace)
12/2/1 Free samples A/c…dr 1000
7
To Purchase A/c 1000
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
13/2/1 Charity A/c…dr 300
7
To Purchase A/c 300
(Being goods are given as
charity)
14/2/1 Rama Traders A/c…dr 8000
7
To cash A/c 7640
To discount A/c 360
(Being amount settled and
discount received)
15/2/1 Bank charges A/c…Dr 100
7
To bank Account 100
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
16/2/1 Bank A/c..dr 400
7
To bank interest 400
(Being interest received on
bank account)
17/2/1 Cash A/c..dr 1200
7
Bad debt A/c..dr 800
To Mr.Y A/c 2000
(Being final settlement of
amount which is due from
Mr.Y)
18/2/1 Purchase A/c…dr 5148
7
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
19/2/1 PK traders A/c…Dr 5148
7
To cash A/c 5000
To discount A/c 148

(Being settlement of
transaction is done and
getting cash discount)
20/2/1 Insurance claim receivable 4000
7 A/c..dr
Loss by fire A/c..dr 1000
To purchase A/c 5000
(Being loss of goods by fire
and insurance claim
receivable )
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
21/2/1 Mr.C A/c…dr 3920
7
To sales A/c 3920
(Being sale of goods on credit
for list price of rs.4000 and
given trade discount of 2%)
22/2/1 Cash A/c…dr 3900
7
Discount A/c…dr 20
To Mr.C A/c 3920
(Being amount received from
Mr. C in full settlement)
23/2/1 Purchase A/c..dr 50000
7
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
23/2/1 Viky traders A/c…dr 3000
7
To Purchase return A/c 3000
(Being return of goods to viky
traders because of the fact
that it is not as per the order)
24/2/1 Super stores A/c…dr 2000
7
To sales a/c 2000
(being goods are sold on
credit to super stores)
24/2/1 Sales Return A/c…dr 100
7
To Super stores A/c 100
Journal entry in the books….? For the month of Feb 2017

Date Particulars L Debit Credit

F
25/2/1 Machinery A/c….Dr 60200
7
To Bank A/c 60000
T0 cash A/c 200
(Being machinery is bought
for rs.60,000 and installation
charges paid rs.200)
 Purchase return and sales return

Purchase return is also known by the name of

return outward because goods are going out.
Sales return is also known by the name of
return inward because goods are coming in...
 List of transactions….

Particulars debit credit

1) Sales-credit customer sales
2)Sales-cash cash sales
3)Purchase-credit Purchase Supplier
4)Purchase-cash Purchase cash
5)Paid for expenses expenditure cash
6)Paid for assets asset cash
7)Income received cash Income
8)Loan taken cash Loan
9)Repayment of loan Loan cash
10)Cash is introduced cash capital
by owner
11)owner is Drawings cash
withdrawing