The important Journal Entries | Journal

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

The important Journal Entries are shown the Following:

Journal Entry for: –

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

1. Capital:

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

Check 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:

Journal entry for capital Rule Applicable  - The important Journal Entries | Journal

*1 Note:-  Anything invest by owner is called capital. So, we do not credit the name of the Owner, here we will credit capital account: – 

Journal entry for capital  - The important Journal Entries | Journal

2. Drawing:

Check the meaning of Drawing Click Here 

Example:

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

Journal entry for Drawingl Rule Applicable 1 1 - The important Journal Entries | Journal

*2 Note:-  Anything withdrawal by owner is called Drawing. So, we do not Debit the name of the Owner, here we will Debit Drawing account: – 


Journal entry for Drawingl  - The important Journal Entries | Journal

Another Example

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

Journal entry for Drawingl Rule Applicable 2 - The important Journal Entries | Journal

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

Journal entry for Drawingl 2 1 - The important Journal Entries | Journal

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:

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:

Journal entry for Purchase rule explained  - The important Journal Entries | Journal

*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  - The important Journal Entries | Journal

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-> Supplied goods -> Ram & Sons was Giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase 2  - The important Journal Entries | Journal

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 check from wiki) like as below:

Bank a/c -> Personal -> Personal Rule-> Made Payment -> Bank was Giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase 3 - The important Journal Entries | Journal

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:

Journal entry for Sale rule explained  - The important Journal Entries | Journal

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

Journal entry for Sale - The important Journal Entries | Journal

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-> Buying goods -> Ram & Sons was Receiver -> Debit

The Journal Entry will be as the following

Journal entry for Sale 2 - The important Journal Entries | Journal

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-> Buying goods -> Bank was Receiver -> Debit

The Journal Entry will be as the following

Journal entry for Sale 3  - The important Journal Entries | Journal

5.Purchase of Assets

Check the meaning of Assets Click Here 

Example:

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

Journal entry for Purchase of asset rule explained  - The important Journal Entries | Journal
Journal entry for Purchase of asset rule explained

Journal entry for Purchase of Asset  - The important Journal Entries | Journal

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-> Supplied computer -> A&b Computers Pvt. Ltd.  was Giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase of Asset 2 - The important Journal Entries | Journal

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 -> Bank was Giver -> Credit.

The Journal Entry will be as the following

Journal entry for Purchase of Asset 3 - The important Journal Entries | Journal

Expenses met on the purchase of an asset or Expenses met on an asset to 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 same but the only value of an asset will be changed.

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

The amount will be debited to Machine account is Rs 60,000/- ( 50000+2500+5000+2500).Journal entry for Purchase of Asset 4 - The important Journal Entries | Journal

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.

Journal Entry for Sale of Asset rule explained - The important Journal Entries | Journal
Journal Entry for Sale of Asset rule explained

Journal entry for Sale of asset rule explained  - The important Journal Entries | Journal

7. Expenses

Check the meaning of Expenses Click Here

Example:

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

Journal entry for Expenses Rules explaination 1 - The important Journal Entries | Journal
Journal entry for Expenses Rules explanation

Journal entry for Expenses  - The important Journal Entries | Journal

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 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. Income

Check the meaning of Income Click Here

Example:

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

Journal entry for IncomeRules explaination - The important Journal Entries | Journal

Journal entry for Income Rules explanation

Journal entry for Income - The important Journal Entries | Journal

The only Name of 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

 

If you have any question about this topic please ask it in the comment section below.

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