Basic Journal Entries | Journal | Examples

Basic Journal Entries

The Basic Journal Entries: –

In this Article, We will explain you the Basic Journal Entries and after this chapter, You will know about all journal entries which are regularly used in all business.

The Basic Journal Entries for the following mention accounts : –

  1. Capital account
  2. Drawing
  3. Purchase of Goods/Inventories
  4. Sale of Goods
  5. Purchase of Assets
  6. Sale of Assets
  7. Expenses
  8. Incomes

1. Capital:

Capital means anything invested by the owner in the business. It may be in cash or in kind.

Check out the meaning of capital with diagram Click Here 

Example: –

01/02/2018  Started Business with cash Rs. 1,00,000/-, Building 15,00,000/-, Furniture 1,75,000/-.

we are solving this example in the following table:

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Cash ->  Assets ->  Real Account -> cash comes In the business -> What comes In -> Debit
Building ->  Assets ->  Real Account -> Building Comes In the business -> What comes In -> Debit
Furniture ->  Assets ->  Real Account -> Furniture Comes In the business -> What comes In -> Debit
Capital->*1  Personal ->  Personal Account -> Owner giving cash and other assets to business-> The Giver -> Credit

*1 Note:-  In this transaction, we can not credit the name of the Owner in the books of business because anything invest by owner in the business is known as capital. So, we have to create an account named capital and credit it. 

Journal entry for capital invested - Basic Journal Entries | Journal | Examples

Journal entry for capital invested

2. Drawing:

Drawing is anything withdrawal by the owner from the business. This is also a Basic Journal Entries.

Check the meaning of Drawing Click Here 

Example:

01/02/2018 Owner Withdrawal cash Rs 10,00/- from business for personal use

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Drawing-> *2  Personal ->  Personal Account -> Receiving cash from Business -> The Receiver -> Debit
Cash ->  Assets ->  Real Account -> Goes out from business -> What goes out -> Credit

*2 Note:-  In this transaction, we can not credit the name of the Owner in the books of business because anything withdrawal by the owner from the business is known as drawing. So, we have to create an account named drawing and debit it. 

Journal entry for Drawing Journal Entries - Basic Journal Entries | Journal | Examples
Journal entry for Drawing – Basic Journal Entries

Another Example

05/02/2018 Life Insurance Premium of the owner’s life Rs. 15,000 Paid by cheque.

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Drawing->*2  Personal ->  Personal Account -> Receiving cash from Business -> The receiver -> Debit
Bank->*3  Personal ->  Personal Account -> Paid Cash to Insurance Company -> The giver -> Credit

*3 Note:-  Bank is an Artificial person. So, that’s why we are applying Personal Rule on it. 

Journal entry for Drawing 2 Journal Entries - Basic Journal Entries | Journal | Examples
Journal entry for Drawing 2 – Basic Journal Entries

All expenses met by business for the owner’s personal use will be treated as same. the only name of account will be charged.

like Following Examples:- 

  1. Income Tax on income of the owner paid by the business.
  2. Owner’s children School or college fee paid by the business.
  3. Household expenses paid by the business.

3. Purchase of Goods/Inventories:

When Business buy only goods is known as a purchase. When buying any other assets than it is not a purchase for business.

Check the meaning of Goods Click Here and Purchase Click Here

Example:

05/02/2018 Purchase of Goods for Rs 50,000/-

Or 

05/02/2018 Purchase of Goods for Rs 50,000/- for Cash

Both transactions are cash transaction will be treated as below:

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Purchase ->*4  Expense->  Nominal Account  -> Spending money on goods -> All Expenses and losses -> Debit
Cash->*5  Asset -> Real Account -> Paid Cash to Supplier -> What goes out -> Credit

*4 Note: when we purchase goods then purchase account will be created not a goods account.

*5 Note: if there is nothing given about payment mode then we have to assume that payment was made by cash only.

Journal entry for Purchase  - Basic Journal Entries | Journal | Examples
Journal entry for Purchase – Basic Journal Entries
If the name of the person or company given in the transaction and if not cleared about payment then we will treat this transaction as credit business transaction.

like:

05/02/2018 Purchase goods from Ram & sons for Rs 50,000/-

Here Purchase will be treated as same as above

but instead of cash, we have to treat Ram & sons account like as below:

Ram & Sons -> Personal -> Personal Rule-> Ram & Sons is Supplied goods -> The giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase 2  - Basic Journal Entries | Journal | Examples
Journal entry for Purchase 2 – Basic Journal Entries

If the name of the person or company given in the transaction and if cleared about payment then we will treat this transaction as cash business transaction.

like:

05/02/2018 Purchase goods from Ram & sons for Rs 50,000/- paid by cheque.

Here Purchase will be treated as same as above

but instead of Ram & sons, we have to treat Bank account because payment was made by cheque (Click here to know the meaning of cheque – wiki) like as below:

Bank a/c -> Personal -> Personal Rule-> Made Payment from bank -> the giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase 3 - Basic Journal Entries | Journal | Examples
Journal entry for Purchase 3 – Basic Journal Entries

4. Sale of Goods:

Check the meaning of Sale Click Here

Example:

05/02/2018 Sold Goods for Rs 20,000/-

Or

05/02/2018 Sold Goods for Rs 20,000/- for cash.

Both transactions are cash transaction will be treated as below:

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Cash->  Asset -> Real Account -> Received Cash from Customer-> What comes in -> Debit
Sale-> *6  Income ->  Nominal Account -> Earned money from the selling of goods -> All incomes and gains -> Credit

*6 Note: when we Sold goods then Sales account will be created not a goods account.

Journal entry for Sale - Basic Journal Entries | Journal | Examples
Journal entry for Sale – Basic Journal Entries

If the name of the person or company given in the transaction and if not cleared about payment then we will treat this transaction as credit business transaction.

like:

05/02/2018 Sold Goods for Rs 20,000/- to Sham & Sons Ltd.

Here Sale will be treated as same as above

but instead of cash, we have to treat Sham & Sons Ltd. account like as below:

Sham & Sons Ltd. -> Personal -> Personal Rule-> Sham & sons ltd is buying goods ->The receiver -> Debit

The Journal Entry will be as the following

Journal entry for Sale 2 - Basic Journal Entries | Journal | Examples
Journal entry for Sale 2 – Basic Journal Entries

If the name of the person or company given in the transaction and if cleared about payment then we will treat this transaction as cash business transaction.

like:

05/02/2018 Sold Goods for Rs 20,000/- to Sham & Sons Ltd and paid by cheque.

Here Sale will be treated as same as above

but instead of cash, we have to treat Sham & Sons Ltd. account like as below:

Bank A/c. -> Personal -> Personal Rule-> Payment received in Bank account -> The receiver -> Debit

The Journal Entry will be as the following

Journal entry for Sale 3  - Basic Journal Entries | Journal | Examples
Journal entry for Sale 3 -Basic Journal Entries

5.Purchase of Assets

Check the meaning of Assets Click Here 

Example:

05/02/2018 Computer Purchased for Rs 55,000/-

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Computer ->  Asset -> Real Account -> Purchased Computer -> What comes in -> Debit
Cash->  Asset -> Real Account -> Paid Cash to Supplier -> What goes out -> Credit
Journal entry for Purchase of Asset  - Basic Journal Entries | Journal | Examples
Journal entry for Purchase of Asset – Basic Journal Entries

If the name of the person or company given in the transaction and if not cleared about payment then we will treat this transaction as credit business transaction.

like:

05/02/2018 Computer Purchased for Rs 55,000/- from A&b Computers Pvt. Ltd.

Here Purchase of an asset will be treated as same as above

but instead of cash, we have to treat A&b Computers Pvt. Ltd.  account like as below:

A&b Computers Pvt. Ltd. -> Personal -> Personal Rule->A&b Computers Pvt. Ltd. Supplied computer -> The giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase of Asset 2 - Basic Journal Entries | Journal | Examples
Journal entry for Purchase of Asset 2 – Basic Journal Entries

If the name of the person or company given in the transaction and if cleared about payment then we will treat this transaction as cash business transaction.

like:

05/02/2018 Computer Purchased for Rs 55,000/- from A&b Computers Pvt. Ltd. paid by cheque.

Here Purchase will be treated as same as above

but instead of A&b Computers Pvt. Ltd, we have to treat Bank account because payment was made by cheque(Click here to know the meaning of check from wiki) like as below:

Bank a/c -> Personal -> Personal Rule-> Made Payment form Bank -> The giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase of Asset 3 - Basic Journal Entries | Journal | Examples
Journal entry for Purchase of Asset 3 – Basic Journal Entries

Expenses met on the purchase of an asset or  convert it into working condition, All these expenses will be added to the cost of the assets 

For Example

Second-hand machine purchase for Rs. 50,000/- and paid transportation Rs 2,500/-, Installation charges 5,000/- and repair 2,500/-,

Now, the whole entry will remain the same but the only value of an asset will be changed.

Total Value of Assets = Purchase Value of Assets + All expenses

Journal entry for Purchase of Asset 4 - Basic Journal Entries | Journal | Examples
Journal entry for Purchase of Asset 4 – Basic Journal Entries

The amount will be debited to Machine account is Rs 60,000/- ( 50000+2500+5000+2500).

6. Sale of Assets 

In the sale of an asset we have to calculate Profit/Loses on the sale of an asset shown below:

Profit or Loss on Sale of asset = Sale Price of an Asset – Book value of an Asset

Book Value of as Asset =  Cost/Purchase Price of Assets – Depreciation charged until the date of sale of an asset

Example:

05/02/2018 Old Machine cost price 1,00,000/- sold for rs 50,000/-. depreciation charged till date Rs 60,000/-

BV = CP-Dep.

1,00,000-60,000 = 40,000/-

P/L = SP – BV

50,000 – 40,000 = 10,000/-

Here. in this entry we will treat 3 accounts:

  • Asset A/c,
  • Profit on Sale of Asset A/c
  • Cash A/c

Credit and Cash transaction are treated as same as Journal Entries for the purchase of assets.

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Cash->  Asset -> Real Account -> Cash Received form buyer-> What comes in -> Debit
Machine ->  Asset -> Real Account -> Sold old machine -> What goes out -> Credit
Profit on sale of Asset->  Gain -> Nominal Account -> Business earn the gain on sale of Asset-> All income and gains -> Credit

Journal entry for Sale of asset rule explained  - Basic Journal Entries | Journal | Examples

7. Expenses

Check the meaning of Expenses Click Here

Example:

10/02/2018    Salary Paid to employees for Rs. 10,000/-

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Salary->  Expense -> Nominal Account -> Spending money to pay salary-> All expenses and losses -> Debit
Cash->*5  Asset -> Real Account -> Paid cash to Employees -> What goes out -> Credit
Journal entry for Expenses  - Basic Journal Entries | Journal | Examples
Journal entry for Expenses – Basic Journal Entries

 

The only name of Expense account will be changed But the treatment of Journal Entries will remain same as above. 

Name of Expenses like:

  1. Wages
  2. Rent
  3. Commission paid on Turnover
  4. Freight
  5. Transportation
  6. Trade Expenses
  7. Sundry charges
  8. Municipal Tax
  9. Legal Charges
  10. Audit Fee
  11. Commission to Agent
  12. Insurance Premium paid for Insurance of Building/Factory/Machinery/Vehicle
  13. Repair and maintenance of the Building, electricity, plant, machine, computer etc.
  14. Staff Welfare
  15. Travelling Expenses
  16. Printing and Stationary
  17. Mobile and Telephone
  18. Postage and Stamps
  19. Loading and Unloading
  20. Labour Charges
  21. Electricity charges
  22. Consumable items
  23. Fuel and Power
  24. Marketing Expenses
  25. Advertisement
  26. Donation and Charity
  27. Medical Expenses for Employees
  28. Bonuses
  29. Etc.

8. Incomes

Check the meaning of Income Click Here

Example:

10/02/2018 Rent received from sublet property for Rs. 10,000/-

Name of Account Type of Account Rule will be Applied Effect of a transaction on accounts Condition of Rule applied According to Rule It will be Dr./Cr.
Cash->  Asset -> Real Account -> Received Cash from Tenent -> What comes in -> Debit
Rent Received ->  Income ->  Nominal Account -> Earned money from Building -> All income and gains -> Credit

 

Journal entry for Income - Basic Journal Entries | Journal | Examples
Journal entry for Income – Basic Journal Entries

 

The only name of the Income account will be changed But the treatment of Journal Entries will remain same as above. 

Name of Income like:

  1. Sale of Goods
  2. Services Rendered
  3. Commission Received
  4. Subsidy by Govt.
  5. Tax Rebate
  6. Rabate on Electricity Bill
  7. Interest on Investment

 

Thanks for reading the topic of Basic Journal Entries, please comment your feedback whatever you want.
Or
If you have any question please ask us by commenting.
Please Share and spread it.