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1. Traditional Approach:
1. Personal Account:
Dr. The Receiver
Cr. The giver
2. Real Account:
Dr. What comes in
Cr. What goes out
3. Nominal Account:
Dr. All expenses & Losses
Cr. All incomes and gains
2. Modern Approach.
Debit
Increases in Assets
Decrease in liability
Credit
Increase in liability
Decrease in Assets
Examples of journal entry and its analysis is done on the basis of rules of double entry system.
1. Cash brought in by proprietor as capital 30,000 .
(a) What comes in the business will be debited so in this transaction cash has come in business, cash will be debited in journal entry
(b) Who is giver will be credited “Proprietor giver of cash to business but he has business motive and he gives the money to business as capital
Therefore journal entry:-
Cash A/c Dr. 30000
To capital A/c 30000
2. Goods purchased on credit from Madan lal Rs 5000
Explanation:
(a) What comes in business will be debited. Good comes in business, so its financial value will be debited with the name of purchase Account.
(
Journal Entry:
Purchase A/c Dr. 5000
To Madan lal A/c 5000
3. Furniture purchased for cash Rs.10000
Explanation:
a). What comes in business will be debited, in this case furniture comes in the business, so we will open furniture account in the debit side of Journal entry.
b). Cash is also an asset and we paid for purchasing of furniture, 2nd rule’s second part will be applied.
Journal entry:-
Furniture A/C Dr. 10000
To cash A/c 10000
4) Goods sold on credit to Dev raj Rs. 1600
a). Dev Raj is receiver of goods, So his Personal account will be debited.
b). Goods go out, so goods or sale account will be credited.
Journal entry:-
Dev Raj A/c Dr. 1600
Sales A/c 1600
5. Goods purchased for cash Rs. 4500
a) Goods comes in, so goods or purchase account will be debited.
b). Cash goes out, so cash account will be credited.
Journal entry:-
Purchase A/c. Dr. 4500
To cash A/c 4500
6.Goods sold for cash Rs. 2100
a). Cash comes in, so cash will be debited.
b). Goods go out, so goods or sales account will be credited.
Journal entry:-
Cash A/c. Dr. 2100
To sale A/c 2100
7. Rent paid for shop to landlord Rs 3000
a). Rent is an item of expenses so it will be debited.
b). Cash is an item of asset and goes out, so it will be credited.
Journal entry:-
Rent A/c. Dr. 3000
To cash A/c 3000
8.Commission received in cash Rs. 2000.
a). Cash comes in, so cash account will be debited.
b). Commission is an item of income, so commission account will be credited.
Journal entry:
Cash A/c. Dr. 2000
To commission A/c 2000
9.Cash deposited in to bank 5000
a). Bank is receiver of cash, so bank account will be debited.
b). Cash goes out, so cash account will be credited.
Journal entry:
Bank A/c. Dr. 5000
To cash A/c. 5000
10.Cash with drawn from bank for office use Rs. 2000. Cash comes in the business, so cash account will be debited
b). Bank is the giver, so bank account will be credited.
Journal entry:
Cash a/c. Dr. 2000
To bank A/c 2000
11. Cash withdrawn by proprietor from business for personal use Rs. 3000.
a). Proprietor is the receiver of cash but business will give him as drawing which is decrease in his capital, so proprietor drawing account will be debited.
b). Cash goes out, so cash will be credited.
Journal entry: -
Drawing A/c. Dr. 3000
To cash A/c 3000
12. Goods given as charity Rs. 1000
a). Charity is an expense of business, so it will be debited.
b). Goods go out, so goods or purchase account will be credited.
Journal entry:-
Charity A/c. Dr. 1000
To purchase A/c 1000
13. Bad – debts written off Rs. 500
a). Bad – debts is loss of business due to not paying the amount by our debtors, so it will be debited.
b). There is decrease in debtor, we are applying what goes out from business, debtor is also our asset, if he does not pay, and it means this asset has gone from business, so its account will be credited.
Journal entry:-
Bad- debts A/c. Dr. 500
To debtors A/c 500
14. Bad – debts recovered in cash Rs. 300
a). Cash comes in, so cash account will be debited.
b). Bad – debts recovered are is an income so its account will be credited.
Journal Entry:-
Cash A/c. Dr. 300
To bad – debts recovered A/c 300
15. Carriage paid on machinery (expense on purchase of asset) Rs, 1000
a). Carriage on purchase of machinery is part of cost of machinery, so machinery account will be debited.
b). Cash is going out of business as carriage so it will be credited.
Journal entry:-
Machinery A/c Dr. 1000
To cash A/c 1000
16.Depreciation on fixed Rs. 500
a). Depreciation on fixed asset is the loss of business and every less will be debited.
b). There is a decrease in asset and we will apply what goes from business on it. So asset amount will be credited.
Journal entry:-
Depreciation A/c. Dr. 500
To fixed asset A/c 500
17. Carriage paid on the behalf of buyer Rs 1000
a). This is not our expenses, but this increase our current asset and its name is debtor, so we will apply what comes in rule on it
b). Cash goes out, so cash account will be credited.
Journal entry:-
Debtor A/c. Dr. 1000
To cash A/c 1000
18. Goods given as free samples Rs. 1500
a). Goods are given for advertising, advertising is an expense of business, and so advertising account will be debited.
b). Goods go out at the cost price so goods or purchase account will be credited.
Journal entry:-
Advertising A/c Dr. 1500
To Purchase A/c 1500
19. Interest allowed on capital Rs. 600
a). Interest is an expenses of business so it will be debited.
b). There is an increase in the amount of capital is liability account , so increase in the amount of capital will also be shown in the credit side of journal entry.
Journal entry:-
Interest on capital A/c Dr. 600
To capital A/c 600
20. Interest charged on drawing Rs 500
a). Decrease in capital or increase in drawing will be debited.
b). Interest on drawing is an income of business.
Journal entry:-
Drawings A/c Dr. 500
Interest on drawing A/c 500
21. Bank charges or interest charged by bank Rs. 200.
a.) Bank charges are the expeditious of business , so it will be debited.
b). There is decrease in bank balance so bank account will be credited.
Journal entry:-
Bank changes A/c Dr. 200
To bank A/c 200
22.Goods lost by fire Rs. 800
a). Goods lost by fire are the loss of business, so loss by fire will be debited.
b). There is decrease in goods or stock at cost, so purchase account will be credited.
Journal entry:
Loss by fire A/c Dr 800
To purchase A/c 800
23. Goods insured and a claim is admitted by insurance company in full or in part.
a). Insurance company will be our debtor. Transaction has increases in debtors because we have to get money from insurance company so this account will be debited.
b). Decrease in loss by fire, so it will be credited.
Journal entry:-
Insurance Claim A/c ---------
To loss by fire A/c ----------
24.Loan taken Rs. 100, 000.
a). Cash comes in, so cash account will be debited.
b). Lender is giver so his loan account will be credited.
Journal entry:-
Cash a/c Dr. 100000
To lender’s loan A/c 100000
25. Interest paid on loan Rs. 1000.
a). Interest is an expense of business. So it will be debited .
b). Cash goes out, so it will be credited.
Journal entry:-
Interest on loan A/c Dr. 1000
To cash A/c 1000
26.Interest on loan due but not paid in cash Rs 500
a). Interest is an expense of business, so it will be debited.
b). Increase in Creditors liability will be credited in journal entry.
Journal entry:-
Interest on loan A/c Dr. 500
To loan or creditors A/c 500
27.Investment purchased Rs. 50000.
a). Asset in the form of investment comes in, so investment account will be debited.
b). Cash goes out, so its account will be credited.
Journal entry:-
Investment A/c Dr. 50, 000
To cash A/c 50, 000
28. Cash stolen from office Rs 6000
a). Cash stolen from office is loss of business, so this account will be debited.
b). Cash goes out, so its account will be credited.
Journal entry:-
Loss by theft A/c Dr. 6000
To cash A/c 6000
29. Cash paid to a creditors in full and final settlement (when cash discount is received). Amount due to Madan Lal Rs. 5000 paid him Rs 4950 in full settlement.
a) Decrease in creditors Debit
b) Decrease in cash Credit
c). Discount received is income of business Credit
Journal entry:-
Madan Lal A/c Dr. 5000
To cash A/c 4950
To Discount A/c 50
30.Cash received from a debtor in full and final settlement (when to cash discount in allowed). Amount receivable from Dev. Raj Rs 1600, received from him Rs 1570
a). Increase in cash Debit
b). Discount allowed is the loss of business Debit
c). Decrease in debtors Credit
Journal entry:-
Cash A/c Dr. 1570
Discount A/c Dr. 30
To Dev Raj A/c 1600
31.Outstanding salary Rs 5000
Journal entry:-
Salary A/c Dr. 5000
To O/s Salary A/c. 5000
32.Prepaid salary Rs. 2000
Journal Entry:-
Prepaid salary A/c Dr. 2000
To salary A/c 2000
33.Unearned Commission. Rs. 200
Journal entry:-
Commission A/c. Dr. 200
To unearned commission A/c 200
34. Accrued income: - Income which has been earned but not yet received Accrued commission Rs. 500
Journal Entry:-
Accrued commission A/c Dr. 500
To commission A/c 500
Representative personal Accounts
[Outstanding (O/s) Prepaid/ unearned /Accrued
All Accounts represent business]
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