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Journal Entries

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  • Last Updated : 14 Jun, 2022
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1. Capital Account: 

The amount invested in the business whether in the means of cash or kind by the proprietor or owner of the business is called capital. The capital account will be credited, and the cash or assets brought in will be debited. 

Journal Entry: 

 

 

2. Drawings Account: 

Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as Drawings. The Drawings account will be debited, and the cash or goods withdrawn will be debited.

Journal Entry: 

 

3. Expenses Paid:

Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. The Cash Account will be decreased with the amount paid as expenses, so it will be credited and Expenses will be debited.

Journal Entry: 

 

 

4. Income Received: 

Any monetary benefit arising from the business can be termed as income. The Cash Account will be increased with the amount received as income, so it will be debited and Income Account will be credited.

Journal Entry: 

 

 

5. Goods: 

Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as ‘Purchases A/c’ when goods are purchased, and ‘Sales A/c’ when they are sold. 

Goods Account is classified into five different accounts for the purpose of passing journal entries:

A. Purchases Account: When goods are purchased in cash or credit, donated, lost, or withdrawn for personal use, in all these cases, goods are denoted as Purchases A/c.

Journal Entry: 

  1. Goods purchased for cash
  2. Goods Donated
  3. Goods are withdrawn for personal use
  4. Goods lost by fire

 

 

B. Sales Account: When goods are sold, then it is represented as Sales A/c. 

Journal Entry: 

 

 

C. Purchase Return or Return Outwards Account: When purchased goods are returned to the supplier, it is denoted as Purchase Return A/c or Return Outwards A/c.

Journal Entry: 

 

 

D. Sales Return or Return Inwards Account: When goods sold are returned by the customers, it is termed as Sales Return or Return Inwards A/c.

Journal Entry: 

 

 

E. Stock: The left over unsold goods at the end of a financial year is represented through stock. Closing Stock is the valuation of goods leftover at the end of a financial year, and Opening Stock is the valuation of goods an enterprise has at the beginning of a financial year.

Journal Entry: 

 

6. Transactions: 

Transactions related to the purchase and sale of goods can be of two types, Cash or Credit. 

A. Cash Transactions: Cash transactions are those transactions in which payment is made or received in cash at the time of purchase or sale of goods. Cash transactions can be identified by-

  • When the Name of the Party and Cash both are given in the transaction;
  • When only Cash is given in the transaction;
  • When the Name of the Party and Cash both are not given. 

Journal Entry: 

 

 

B. Credit Transactions: Credit transactions are those transactions in which payment is not made or received at the time of purchase or sale of goods. Credit transactions can be identified by:

  • When only the Name of the Party is given in the transaction.

Journal Entry: 

 

 

7. Assets: 

Assets (Machinery, Building, Land, etc.) can also be purchased or sold in cash or on credit. It is not represented through Purchases, but with the name of the Asset.

Journal Entry: (When Assets are Purchased)

 

 

Journal Entry: (When Assets are Sold)

 

 

8. Depreciation:

Depreciation is the decrease in the value of assets due to use or normal wear and tear. 

Journal Entry: 

 

 

9. Discount:

A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount:

A. Discount Allowed

B. Discount Received

A. Discount Allowed: When at the time of sales or receiving cash, any concession is given to the customers, it is called discount allowed. 

Journal Entry: 

 

 

B. Discount Received: When at the time of purchase or paying cash, any concession is received from the seller, it is called discount received.

Journal Entry: 

 

 

According to the business point of view, there are two types of Discount:

A. Trade Discount

B. Cash Discount

A. Trade Discount: The discount provided by the seller to its customers at a fixed percentage on the listed price mostly on bulk purchases is called a trade discount. Trade discount is not shown separately in the journal entry.

Journal Entry: 

 

B. Cash Discount: A Cash discount is offered to those customers who make quick payments or payment is made by them within a fixed period. 

Journal Entry: 

 

 

10. Amount Paid or Received in Full/Final Settlement:

A business may allow or receive a discount at the time of full and final settlement of the accounts of debtors or creditors. 

Journal Entry: 

 

 

11. Compound or Composite Journal Entry:

When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry instead of passing two or more entries. 

Journal Entry:

 

12. Opening Journal Entry:

After closing all the books at the end of a financial year, every business starts its new books at the beginning of each year. Closing balances of all the accounts are carried forward to the new year as opening balances. As it is the first entry in the new financial year, it is called Opening Journal Entry.

Journal Entry:

 

13. Bad Debts:

When the goods are sold to customers on credit, there can be a situation where a few of them fail to pay the amount due to them because of insolvency or any other reason, the amount that remains unrecovered is called Bad Debts.

Journal Entry:

 

14. Banking Transactions:

All businesses make many transactions with the bank in their day-to-day activity. Journal Entries related to banking transactions are as follows:

1. When cash is deposited in the bank:

Journal Entry: 

 

2. When cash is withdrawn from the bank:

Journal Entry: 

 

3. When cash is withdrawn from the bank for personal use:

Journal Entry: 

 

4. When the cheque, drafts, etc. received from the customers are not sent to the bank for collection on the same date and deposited at the bank on any other day or endorsed to any other party.

A. When any cheque is received and not sent to the bank for collection:

Journal Entry: 

 

B. When the above cheque was sent to the bank for collection: 

Journal Entry: 

 

Or

C. If the above cheque was endorsed in favour of any other party:

Journal Entry: 

 

5. When the cheque, drafts, etc., received from the customers are sent to the bank for collection on the same date:

Journal Entry: 

 

6. When a customer directly deposits any amount in the firm’s bank account:

Journal Entry: 

 

7. When a cheque previously deposited into the bank gets dishonoured:

Journal Entry: 

 

8. Payment is received through cheque and a discount is allowed.

A. When a cheque is received from a customer and a discount is allowed to him (Cheque is deposited into the bank on the same day):

Journal Entry: 

 

B. If the above cheque gets dishonoured:

 Journal Entry: 

 

9. When payment is made through cheque:

 Journal Entry: 

 

10. When expenses are paid through cheque:

 Journal Entry: 

 

11. When interest is charged by the bank:

 Journal Entry: 

 

12. When interest is allowed by the bank:

 Journal Entry: 

 

13. When a bank charges any amount for the services rendered:

 Journal Entry: 

 

15. Bad Debts Recovered:

When the amount that is earlier written as bad debts is now recovered, it is called bad debts recovered.

Journal Entry:

 

16. Loss of Insured Goods/Assets: 

Sometimes insured goods are lost by fire, theft, or any other reason. There can be three cases related to the loss of insured goods or assets.

A. Claim does not get accepted by the Insurance Company: 

Journal Entry: 

 

B. Insurance Company partly accepted the claim: 

Journal Entry: 

 

C. Insurance Company fully accepted the claim: 

Journal Entry: 

 

For receiving the claim money:

Journal Entry: 

 

17. Loan Taken: 

A business can take an amount of money as a loan from a bank or any outsider. In return, the business has to pay interest. 

A. Loan is taken from a bank or person:

Journal Entry: 

 

B. Interest charged by the bank or person and then paid: 

There can be a situation where the interest is charged first and then paid. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

 

ii. Journal Entry: (On payment of interest)

 

Or

C. Interest paid to bank/person on the loan: 

In this case, only a single entry is passed because interest is directly paid.

Journal Entry: 

 

18. Loan Given:

Businesses can also provide loans to any person or entity.

A. Loan is given to a person:

Journal Entry: 

 

B. Interest charged and then received on loan given:

There can be a situation where the interest is charged first and then received. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

 

ii. Journal Entry: (On receiving of interest)

 

Or

C. Interest received on loan given:

In this case, only a single entry is passed because interest is directly received.

Journal Entry: 

 

19. Outstanding Expenses: 

Outstanding expenses are those expenses that are related to the same accounting period in which accounts are being made but are not yet paid.

Journal Entry: 

 

20. Prepaid or Unexpired or Advance Expenses:

Such expenses which are concerned with the next financial year, but have been paid in the current year are called prepaid expenses.

Journal Entry: 

 

21. Income Due or Accrued Income:

An income that has been earned, but not yet received in the current financial year is called Accrued Income.

Journal Entry: 

 

22. Income Received in Advance or Unearned Income:

An income that has not been earned yet, but has been received in advance is called Unearned Income.

Journal Entry: 

 

Next year, unearned commission will be adjusted as:

Journal Entry: 

 

23. Income Tax:

Income Tax is paid by the business on the profit earned during the year. Income Tax is a personal liability of the proprietor. The journal entry will be:

A. Payment of Income Tax:

Journal Entry: 

 

B. Refund of Income Tax:

Journal Entry: 

 

24. Life Insurance Premium:

Sometimes, Life Insurance Premium is paid by the business on the behalf of the proprietor.

Journal Entry: 

 

25. Employee’s Life Insurance Premium:

Businesses purchase life insurance for their employees too. 

Journal Entry: 

 


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