09/09/2014

1
JOURNAL ENTRIES
Raj commences a business with a capital of Rs. 10,00,000 trading
under the name Sai General Stores.
STEP1Accounts involved
Cash Raj
STEP2Accounts category
Real Personal
STEP3Debit/Credit Rule
Debit Credit
CashA/cDr. 10,00,000
ToRajs Capital A/c 10,00,000
(Beingcapital employedbyRaj for business)
DrNaveenJSirohiCFP
09/09/2014
2
Paid into ICICI Bank Rs. 5,00,000
STEP1Accounts involved
Cash Bank
STEP2Accounts category
Real Personal
STEP3Debit/Credit Rule
Credit Debit
ICICI BankA/cDr. 5,00,000
ToCashA/c 5,00,000
(Beingamount depositedintobank)
DrNaveenJSirohiCFP
Bought Goods for Rs. 50,000
STEP1Accounts involved
Cash Purchases
STEP2Accounts category
Real Nominal
STEP3Debit/Credit Rule
Credit Debit
PurchaseA/cDr. 50,000
ToCashA/c 50,000
(Beinggoods purchased)
TIP - Since name of party or the words credit are missing, the transaction can be presumed to be on
cash.
DrNaveenJSirohiCFP
09/09/2014
3
Bought Goods from XYZ Rs. 75,000
STEP1Accounts involved
XYZ Purchases
STEP2Accounts category
Personal Nominal
STEP3Debit/Credit Rule
Credit Debit
PurchaseA/cDr. 75,000
ToXYZA/c 75,000
(Beinggoods purchasedfromXYZ)
TIP - Since name of party is given and the words paid or for cash are missing, the transaction can be
presumed to be on credit.
DrNaveenJSirohiCFP
Bought Furniture fromABC Rs. 100,000
STEP1Accounts involved
Furniture ABC
STEP2Accounts category
Real Personal
STEP3Debit/Credit Rule
Debit Credit
FurnitureA/cDr. 100,000
ToABCA/c 100,000
(BeingfurniturepurchasedfromABC)
TIP Purchase and Sales Accounts are used only in case of Goods. For other asset, respective asset
account is debited / credited.
DrNaveenJSirohiCFP
09/09/2014
4
Goods sold to ABC for Rs. 100,000
STEP1Accounts involved
Sales ABC
STEP2Accounts category
Nominal Personal
STEP3Debit/Credit Rule
Credit Debit
ABCA/cDr. 100,000
ToSalesA/c 100,000
(Beinggoods soldtoABC)
DrNaveenJSirohiCFP
Paid Rs. 100,000 for goods received from Maruti Ltd.
STEP1Accounts involved
Purchase Cash
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Debit Credit
PurchasesA/cDr. 100,000
ToCashA/c 100,000
(Beingpayment madetoMaruti Ltdfor goods purchased)
DrNaveenJSirohiCFP
09/09/2014
5
Received Rs. 50,000 as rent for the portion of building let out.
STEP1Accounts involved
Rent Cash
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Credit Debit
CashA/cDr. 100,000
ToRent A/c 100,000
(Beingrent recieved)
DrNaveenJSirohiCFP
Paid monthly salary to Mr Ram, General Manager, Rs. 25,000.
STEP1Accounts involved
Salary Cash
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Debit Credit
SalaryA/cDr. 25,000
ToCashA/c 25,000
(BeingsalarypaidtoMr Ram)
TIP The account of a party who receives any benefit from the business is debited only when the party
has to return the corresponding value at a later date & vice-versa. In this case, the rule is not applicable
and hence personal account of Ram is not debited.
DrNaveenJSirohiCFP
09/09/2014
6
Received commission from Ravi Rs. 10,000.
STEP1Accounts involved
Commission Cash
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Credit Debit
CashA/cDr. 10,000
ToCommissionA/c 10,000
(BeingcommissionreceivedfromRavi)
DrNaveenJSirohiCFP
Bought Shares in DCM Ltd Rs. 40,000.
STEP1Accounts involved
Investment Cash
STEP2Accounts category
Real Real
STEP3Debit/Credit Rule
Debit Credit
Investment A/cDr. 25,000
ToCashA/c 25,000
(BeingsharespurchasedinDCMLtd)
TIP Purchase of shares is an investment.
DrNaveenJSirohiCFP
09/09/2014
7
Paid Insurance Premium of Rs. 20,000 by cheque.
STEP1Accounts involved
Bank Ins. Premium
STEP2Accounts category
Personal Nominal
STEP3Debit/Credit Rule
Credit Debit
InsurancePremiumA/cDr. 20,000
To BankA/c 20,000
(Beinginsurancepremiumpaid)
DrNaveenJSirohiCFP
Paid Rajs (owner) Life Insurance Premium Rs. 20,000.
STEP1Accounts involved
Drawings Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Debit Credit
DrawingsA/cDr. 20,000
To CashA/c 20,000
(Beinginsurancepremiumpaidof Raj)
TIP Insurance Premium of Owner is a personal expense. Hence, drawings accounts will be used.
DrNaveenJSirohiCFP
09/09/2014
8
Paid Rs 50,000 to ABC on account.
STEP1Accounts involved
ABC Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Debit Credit
ABCA/cDr. 50,000
To CashA/c 50,000
(Beingamount paidtoABConaccount)
TIP On account means that the business already owes ABC some money and the payment is now
being made for that outstanding amount.
DrNaveenJSirohiCFP
Withdrawn from Bank Rs. 55,000.
STEP1Accounts involved
Bank Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Credit Debit
CashA/cDr. 55,000
To BankA/c 55,000
(Beingamount withdrawnfrombank)
DrNaveenJSirohiCFP
09/09/2014
9
A debtor Kiran with whom Rs. 1000 were due is declared insolvent.
STEP1Accounts involved
Kiran BadDebt
STEP2Accounts category
Personal Nominal
STEP3Debit/Credit Rule
Credit Debit
BadDebtsA/cDr. 1,000
To KiranA/c 1,000
(Beingamount duefromKiranwrittenoff)
DrNaveenJSirohiCFP
Received Rs. 500 from Kiran, whose account was written off as bad
earlier.
STEP1Accounts involved
Cash BadDebt Recovered
STEP2Accounts category
Real Nominal
STEP3Debit/Credit Rule
Debit Credit
CashA/cDr. 500
To BadDebtsRecoveredA/c 500
(Beingamount recd. fromKiranwhoseaccount wasearlier writtenoff)
TIP The recovery amount can not be credited to debtors account now as there is no balance in
debtors account after the same has been treated as bad debt.
DrNaveenJSirohiCFP
09/09/2014
10
A fire in factory destroyed stock of Rs. 25,000.
STEP1Accounts involved
Purchases LossbyFire
STEP2Accounts category
Real Nominal
STEP3Debit/Credit Rule
Credit Debit
LossbyFireA/cDr. 25,000
To PurchasesA/c 25,000
(Beingstockdestroyedbyfire)
TIP Loss by fire will reduce the goods available for sale. Hence, purchase account will be credited with
cost price.
DrNaveenJSirohiCFP
The Insurance Company accepted a claim of Rs. 22,000 for fire.
STEP1Accounts involved
P&LA/c Ins. Company
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Credit Debit
InsuranceCompanyA/cDr. 22,000
To Profit andLossA/c 22,000
(Beingclaimof insuranceacceptedbytheinsurancecompany)
TIP Since the insurance company has accepted the claim, it becomes a debtor of the business.
DrNaveenJSirohiCFP
09/09/2014
11
Wages Rs. 450 paid for erection of plant.
STEP1Accounts involved
Cash Plant
STEP2Accounts category
Real Real
STEP3Debit/Credit Rule
Credit Debit
Plant A/cDr. 450
To CashA/c 450
(Beingwages paidfor erectionof plant)
TIP Wages paid for erection of the plant is part of cost of the plant.
DrNaveenJSirohiCFP
Goods worth Rs. 5,000 were given as charity.
STEP1Accounts involved
Charity Purchases
STEP2Accounts category
Nominal Real
STEP3Debit/Credit Rule
Debit Credit
CharityA/cDr. 5,000
To PurchasesA/c 5,000
(Beinggoods givenascharity)
TIP Charity is a business expense and hence a nominal account.
DrNaveenJSirohiCFP
09/09/2014
12
Received Rs. 1,975 from Ravi in full settlement of his account of RS.
2,000.
STEP1Accounts involved
Cash Ravi Discount
STEP2Accounts category
Real Personal Nominal
STEP3Debit/Credit Rule
Debit Credit Debit
Cash A/cDr. 1,975
Discount AllowedA/cDr 25
To Ravi A/c 2,000
(Beingamount receivedfromRavi asfull andfinal settlement)
TIP Discount allowed for prompt recovery of creditors is an expense and hence a nominal account.
DrNaveenJSirohiCFP
Received a first and final dividend of 60 paise in a rupee from the
official receiver of ABC who owed us Rs. 2,000.
STEP1Accounts involved
Cash ABC BadDebts
STEP2Accounts category
Real Personal Nominal
STEP3Debit/Credit Rule
Debit Credit Debit
Cash A/cDr. 1,200
BadDebtsA/cDr 800
To ABCA/c 2,000
(Beingamount receivedfromABCasfull andfinal settlement @60%)
TIP ABC being insolvent, unpaid amount of 40 percent is a loss to the business and hence nominal
account.
DrNaveenJSirohiCFP
09/09/2014
13
Goods Returned to Shyam amounting Rs. 2000.
STEP1Accounts involved
PurchaseReturn Shyam
STEP2Accounts category
Real Personal
STEP3Debit/Credit Rule
Credit Debit
Shyam A/cDr. 2,000
To PurchaseReturnA/c 2,000
(Beinggoods returnedtoShyam)
TIP Goods purchased earlier but returned are always credited to a new account called Purchase
Return Account and not to Purchase Account.
DrNaveenJSirohiCFP
Goods costing Rs. 2,000 were issued as samples.
STEP1Accounts involved
Purchase Advertisement
STEP2Accounts category
Real Nominal
STEP3Debit/Credit Rule
Credit Debit
Advertisement A/cDr. 2,000
To PurchaseA/c 2,000
(Beinggoods issuedassamples)
TIP Goods issued as sample is a marketing/advertisement activity and hence a business expense.
DrNaveenJSirohiCFP
09/09/2014
14
Goods costing Rs. 50,000 sold to XYZ at invoice price 20% above cost
less 10% trade Discount.
STEP1Accounts involved
XYZ Sales
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Debit Credit
XYZA/cDr. 54,000
To SalesA/c 54,000
(Beinggoods soldtoXYZwithtradediscount)
TIP Trade discount is never recorded in books of account.
DrNaveenJSirohiCFP
Received cash from Rohan on behalf of Sunil Rs. 5,000.
STEP1Accounts involved
Sunil Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Credit Debit
CashA/cDr. 5,000
To Sunil A/c 5,000
(BeingcashreceivedfromSunil)
TIP The debtor is Sunil and not Rohan. So Sunil A/c is credited.
DrNaveenJSirohiCFP
09/09/2014
15
Paid cash to Raj on behalf of Anil Rs. 5,000.
STEP1Accounts involved
Anil Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Debit Credit
Anil A/cDr. 5,000
To CashA/c 5,000
(BeingcashpaidtoAnil throughRaj)
TIP The creditor is Anil and not Raj. So Anil A/c is debited.
DrNaveenJSirohiCFP
Income tax liability of Raj (owner) Rs. 1,000 paid in cash.
STEP1Accounts involved
Drawings Cash
STEP2Accounts category
Personal Real
STEP3Debit/Credit Rule
Debit Credit
DrawingsA/cDr. 1,000
To CashA/c 1,000
(BeingRajstaxliability paidincash)
TIP Personal tax liability of owner will be taken as drawings.
DrNaveenJSirohiCFP
09/09/2014
16
CLASS TEST
1. Received cash Rs. 6,000 of a bad debt written off last year for Mr Atul.
2. A fire, occurred in the factory and stock worth Rs. 30,000 was destroyed. The
insurance company accepted the claim for Rs. 25,000.
3. Exchanged old machinery for a new one. The old machinery was valued at Rs.
70,000. The price of new machinery is Rs. 2,00,000. The balance is paid in cash.
4. Received a first and final dividend of 60 paise in a rupee from the official receiver of
Mr Shankar who owed Rs. 2,000.
5. Purchased plant from Mukesh for Rs. 50,000 and paid Rs. 1,000 as cartage and Rs.
5,000 as installation expenses.
DrNaveenJSirohiCFP