Journal Entries for Business

 

ABST: Accountancy and Business Statistics

Financial Accounting

Business

Terms:

1.       Cash

2.       Capital: Anything invested in business at the time of beginning.

3.       Goods:

a.       Purchase: Purchase of goods only

b.      Sales: Selling of goods only

c.       Purchase Return: return goods to supplier due to scrap or damage

d.      Sales return: Goods get back from customer.

e.      Stock: Unsold stock (Available stock in the shop or godown) (1^st April and 31^st March)

1 April to 31 March : Financial Year/Accounting year.

4.       Drawings: Cash or goods withdrawl from business for personal use or domestic use.

5.       Incomes:

a.       Direct income: Sales or Fees Received

b.      Indirect income: Other than sales. (Rent, commission, brokerage)

6.       Expenses:

a.       Direct Expenses: Related to manufacturing or purchase of goods.

b.      indirect expenses: all other than direct

7.       Assets:

a.       Current Assets: (Changeable within 1 year): Cash, Bank Balance, Debtors (Customer), Stock.

b.      Fixed Assets: Building, furniture, machinery, goodwill.

c.       Investment: Mutual fund, shares, FD, Plot, Land, LIC,

8.       Liabilities: Payables:

a.       Current Liabilities: (Payable within 1 year): Creditors (Suppliers), Bank overdraft , outstanding expenses

b.      Long term liabilities: Bank loan, Mortgage loan.

c.       Capital

Types of Accounts:

1.       Personal Accounts: Any person name, Company name, Organisation, Institution, Firm

2.       Real Accounts: Visible things: Cash, stock, building, furniture, machinery, land,

3.       Nominal accounts: Invisible a/c: Profit, loss, income, expenses: Rent, interest, commission, brokerage,

 

 

Rules of Accounts:

Financial accounting is completely based on double account system. (Dr. Side and Cr. Side)

1.       Personal accounts: Dr. the receiver and  Cr. the giver

2.       Real accounts: Dr. what comes in and Cr what goes out.

3.       Nominal accounts: Dr. all the expenses & losses and Cr. All incomes and gains.

 

Transactions

Jan.                                                                                                        Rs.

1   Commenced business with cash                                                            80,000

2   Deposited cash with bank                                                                     40,000

3   Purchased goods by paying cash                                                           5,000

4   Purchased goods from Tarun on credit                                                 10,000

5   Sold goods to Joy and received cash                                                11,000                          

6   Paid salaries by cash                                                                             5,000

7   Paid Tarun for the purchases made on 4th Jan.       

8   Bought furniture by cash                                                                                                  4,000                   

9   Paid electricity charges by cash                                                                                         1,000                   

10 Bank paid insurance premium                                                     300

Ledger Name	Type	Rules	Dr. or Cr.
Capital a/c (Owner)	Personal a/c	Giver	Cr.
Cash a/c	Real a/c	In	Dr.
Bank a/c	Personal	Receiver	Dr.
Cash a/c	Real	Out	Cr.
Purchase	Real/Nominal	In/Expenses	Dr.
Cash	Real	Out	Cr.
Purchase	Real/Nominal	In/Expenses	Dr.
Tarun (Creditor/Supplier)	Personal	Giver	Cr.
Cash	Real	In	Dr
Sales	Real/Nominal	Out/Income	Cr
Salary	Nominal	Expenses	Dr
Cash	Real	Out	Cr
Tarun	Personal	Receiver	Dr
Cash	Real	Out	Cr
Bank	Personal	Giver	Cr
Insurance Premium	NOminal	Expenses	Dr
Electricity charges	Nominal	Expenses	Dr
Cash	Real	Out	Cr

 

 

Format of Journal Entries

Date	Particulars	LF	Dr. Amount	Cr. Amount

 

Types of Entries

1.       Simple Entries

2.       Goods Related Entries

3.       Compound Entries

4.       Bad Debts Entries

5.       Insurance Entries

6.       Discount Entries

7.       Bank Related Entries

 

II. Goods Related Entries:

Goods out from the business:

1.       Drawings of Goods.

 

Ledger Name	Type	Rules	Dr. or Cr.
Drawings	personal	Receiver	Dr
Purchases	real/nominal	out	Cr

 

2.       Charity of goods/Donation

Ledger Name	Type	Rules	Dr. or Cr.
Donation/Charity	Nominal	Expenses	Dr
Purchases	Real	Out	Cr

 

3.       Goods destroyed by fire.

Ledger Name	Type	Rules	Dr. or Cr.
Loss by fire	Nominal	Loss	Dr
purchase	real	out	Cr

 

4.       Goods theft by an employee.

Ledger Name	Type	Rules	Dr. or Cr.
Loss by theft	Nominal	Loss	Dr
Purchase	Real	Out	Cr

 

5.       Goods distributed as free samples.

Ledger Name	Type	Rules	Dr. or Cr.
Free Sample/Advertisement	Nominal	Expenses	Dr
Purchase	Real	Out	Cr

 

III. Compound Entries

Entries which have two or more two Dr or CR.

Condition: Both entries have same nature.

Both entries have same date.

Ex.

Goods purchased from Tarun Rs 10,000 and from Yogesh Rs. 15,000

Purchase             R/N                        In                            Dr.          10,000

Tarun                    P                             Giver                     Cr            10,000

 

Purchase             R/N                        In/Exp.                 Dr           15,000  

Yogesh                 p                             Giver                     Cr            15,000

Compound Entry:

Purchase             R/N                        In/Exp                   Dr           25,000

Tarun                    P                             Giver                     Cr            10,000

Yogesh                 P                             Giver                     Cr            15,000

Ex.

Cash paid to tarun rs 8000 and paid to yogesh rs 12000

Ledger Name	Type	Rules	Dr. or Cr.
Cash	Real	out	Cr  20000
Tarun	P	receiver	Dr  8000
Yogesh	P	receiver	Dr  12000

 

Received commission rs 4000 and received rent rs 2000

Ledger Name	Type	Rules	Dr. or Cr.
Commission	Nominal	Income	Cr 4000
Rent	Nominal	Income	Cr 2000
Cash	Real	In	Dr 6000

 

Received brokerage rs 5000 and paid interest rs 3000

IV. Bad Debts Entries

Insolvent/Bankrupt

Types of bad debts:        Full Bad Debts                   Partial Bad Debts

Full Bad Debts

Mr. A became insolvent and not able to pay anything. 10,000

Bad Debts           nominal                Loss                                       Dr           10,000

A                             Personal              Close/Giver                        Cr            10,000

 

Partial Bad debts

Mr A became insolvent and he has to pay only 60% of his debts. Rs 10,000

Ledger Name	Type	Rules	Dr. or Cr.
Cash	real	In	Dr  6000
Bad Debts	nominal	Loss	Dr.   4000
A	personal	Close/Giver	Cr   10000

 

 

Insurance Entries

Goods worth rs 10,000 destroyed by fire and insurance co. accept claim of rs 8000.

Loss by fire         Nominal               Loss                       Dr           10,000

Purchase             Real                       Out                        Cr            10,000

 

Insurance Co.    Personal              Debtors                                Dr           8,000

P&L a/c                 Nominal               Loss                       Dr           2,000

Loss by fire         Nominal               Close                     Cr            10,000

Compound Entry

Insurance Co.    Personal              Debtors                                Dr           8000

Loss By Fire/P&L               Nominal               Loss       Dr           2000

Purchase             Real                       Out                        Cr            10000

 

Goods theft by employee Rs 15000 and Insurance co. accept claim 90% of total Loss.

Insurance Co.                    P             Debtors                                Dr.          13500

Loss by theft                      N             Loss                       Dr           1500

Purchase                             R             Out                        Cr            15000

Insurance Co. paid the claim amount.

Insurance Co.                    p             Giver                     Cr            13500

Cash                                      R             In                            Dr           13500

 

Discount Entries

Types of discount:           Trade Discount                                                                  Cash Discount

                                                Trade discount always deducted first                     CD deducted second

                                                Trade dis doesn't entered                                           Cash dis always entered

                                                TD applies on cash or credit transaction.               CD applies on only cash transaction

Goods sold to Hari Rs. 20,000 with trade discount 20% and cash discount 10%

Total Sales                           20,000

Less: TD 20%                      4,000

Actual Sales                        16,000

Hari                        P             RECEIVER                             DR          16000

Sales                      N/R        INCOME/OUT                    CR           16000

Goods sold Rs 20,000 with Trade Discount 20% and Cash discount 10%

Total Sales                           20,000

Less TD 20%                        4,000

Actual Sales                        16,000

Less CD 10%                       1,600

Cash Received                   14,400

 

Cash                      R             IN                           DR          14,400

Discount              N             LOSS                      DR          1,600

Sales                      N             INCOME               CR           16,000

Goods purchased from Vikas rs 50,000 with Trade discount 20% and Cash discount 10%. Half payment made by cash.

 

Bank Related Entries

Types of entries:              1. Receipts by Cheque                   2. Payment by Cheque                  3. Contra Entry

Receipts by cheque or online payment/DD:

Goods sold and received cheque

Bank      P             Receiver              Dr

Sales      N             Income                 Cr

 

Cheque received from debtors

Bank                      p             Receiver              Dr

Debtor(Name)  p             Giver                     Cr

 

Any income received by cheque.

Income                 N             Income                 Cr

Bank                      P             Receiver              Dr

 

 

Payment by cheque

Goods purchased and paid by cheque

Purchase             R/N        In/Expenses       Dr

Bank                      P             Giver                     Cr

 

Payment to creditor by cheque

Creditor               P             Receiver              Dr

Bank                      P             Giver                     Cr

 

Any expenses paid by cheque

Expenses             N             Exp                         Dr

Bank                      P             Giver                     Cr

 

Contra entry: Entry which has only two ledgers i.e. Cash a/c and Bank a/c.

Cash deposited into Bank.

Bank      P             Receiver              Dr

Cash      R             Out                        Cr

 

Cash withdrew from bank for office use.

Cash      R             In                            Dr

Bank      P             giver                      Cr

 

Format of Journal Entries

Date	Particulars	LF	Dr. Amount	Cr. Amount
2020
April 1	Cash a/c                               Dr. To Capital a/c (Being started business for cash)		10,00,000	10,00,000
April 1	Purchase a/c  Dr. To Cash A/c (Being purchased goods for cash)		1,00,000	1,00,000

 

1.4.2020Business started with cash Rs 10,00,000

1.4.2020               Goods purchased Rs 1,00,000

2.4.2020               Goods sold to Mr. Alex for Rs 50,000 with Trade discount 10%.

2.4.2020               House rent paid Rs 5,000

3.4.2020               Invest additional cash in business Rs 1,00,000

4.4.2020               Income Tax Paid Rs 60,000

5.4.2020               Goods purchased from Mr. Prakash of list price Rs 40,000 with trade discount 10%.

Purchase a/c Dr                36,000

To Prakash                          36,000

6.4.2020               Goods returned to Mr. prakash of list price Rs 4000

Prakash    Dr.                      (4000-10%)         3600

To purchase return                                                         3600

8.4.2020               Paid to Mr. Prakash in full settlement after deducting discount 5%.

Prakash Dr.(36,000-3600=32400)               32400   

To cash (32400-5%)                                                         30780

To Discount                                                                        1620

9.4.2020               Goods worth rs 5000 and cash rs 2000 given as charity.

10.4.2020             Goods sold to Mr. Kamal Cost price 40,000 with profit 20% on sales and trade discount 10%.

11.4.2020             Life insurance premium paid by cheque Rs 10,000

12.4.2020             Cash deposited into bank Rs 15,000

15.4.2020             Goods sold to Mr. Rakesh for Rs 1,00,000 with trade discount 10% and cash discount 5%. 25% payment received in cash and 25% payment received by cheque.

Total                      100000

-TD 10%                10000

Net sales             90000

Rakesh                 p             Receiver              Dr           45000

Cash                      r              in                            Dr           21375    (90000x25% - 5%)

Bank                      p             Receiver              Dr           21375    (90000x25% - 5%)

Discount              n             loss                        Dr           2250

Sales                      n             Out                        Cr                            90000

16.4.2020             Mr. Kamal becames insolvent and he can pay 25% of his debts.

18.4.2020             Goods worth Rs 20,000 destroyed by fire and insurance co. accepts claim of Rs 16000

Loss by fire                         Dr           4000

Insurance co                      Dr           16000

Purchase                             Cr                            20000

19.4.2020             Purchase furniture for Rs 5000 and machinery rs 6000

20.4.2020             Bought 1000 shares @ 50/- per share and paid brokerage 2%

21.4.2020             Cash withdrew from bank for purchase AC for home Rs 35,000.

22.4.2020             Received an order of goods Rs 20,000 from Mr. Ramesh.

23.4.2020             Firm appointed a typist with salary of Rs. 5,000 pm.

24.4.2020             Received commission by cheque Rs 7,000 and Interest Rs. 6,000 in cash.

25.4.2020             Goods sold to Mr. Ram costing rs 50,000 with profit 20%, Trade discount 20%, Cash Discount 10% and Tax 12%. Half money received by cheque.

Total cost             50000

+Profit                  10000

Total sales           60000

-TD 20%                (12000)

Net sales             48000

Tax                         (48000 x 12% = 5760)

 

 

Ram                       Receiver              Dr.          24000

Bank                      Receiver              Dr.          21600+5760=27360          (24000-10%)

Discount              Loss                       Dr.          2400

Tax                         Income                 Cr                            5760

Sales                      Income                 Cr                            48000