Journalizing

Personal Accounts:- Real Accounts:- Nominal Accounts:-

Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

Points to be Noted Before Journalising:

Capital Account.
If the proprietor has Date Particulars L.F Dr. Cr.
introduced cash or goods Amount Amount
or property in business, it
is known as capital. It June 1st Cash Account Dr. 45000
should be debited to 2011 To Capital Account
(Being cash brought in to
45000
Cash/Stock of
Goods/Property Account start business)
and credited to the
Proprietors Capital June 1, 2011 Started business with cash Rs.
Account. It must be 45000
clearly understood that
the entity of the
According to Real Account rules cash is being
proprietor is totally
provided by the owner so cash comes into the
different from the
business so we debited Cash account
business
According to Personal Account rules Capital
account represents Owner so we credited the
giver
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

Date Particulars L.F Dr. Cr.

Amount Amount

Drawings Account
June Drawings Account Dr. 1000
It should be debited to 2nd2011 To Bank Account
Drawings Account and (Being Cash withdrawn from
1000
credited to the Bank bank personal use.)
Account.

June2, 2011 Withdrew from bank for private

use Rs. 1000

According to Personal Account rules cash

withdrew by owner is receiver of cash from
the business so we debited drawings
According to Personal Account rules bank is a
person and here it is giving money so we
credited the giver
Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains
Date Particulars L.F Dr. Cr.
Cash/Credit Transactions. Amount Amount
When goods are sold or
purchased for cash, it is
known as a cash June 3rd Cash Account Dr. 8500
transaction. If the goods 2011 To Sales Account
(Being goods sold for cash.)
8500
are purchased or sold on
credit it will be a credit June 3rd Purchases Account Dr. 7000
transaction. 2011 To Amrit lal Account
(Being goods purchased
7000
If nothing is mentioned
from Amrit lal)
whether it is credit or
cash transaction then it June3, 2011 Sold goods for cash Rs. 8500
should be treated as a June 3, 2011 Goods purchased from Amrit lal
cash transaction. Rs. 7000
If it is sales It should be Case-I: According to Real Account rules cash comes into business
debited to Cash Account by selling goods so we debited cash account
and credited to the Sales According to Real Account rules goods is going out in the form of
Account. sales so we credited the Sales account.
If it is purchases It should Case-II: According to Real Account rules goods is coming into
be debited to Purchases business so we debited the Purchases account
Account and credited to According to Personal Account rules Amrit lal is giving goods so
Cash/Persons Account. we credited the Giver (Amrit lal account)
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

4. Casts and Carry Forwards. When journal entries extend to several

pages of the journal, the totals are cast (done) at the end of each page.
At the end of each page the words Total C/f (C/f stand of carried
forward) are written in the particulars column against the debit and
credit and credit totals. On the next page, in the beginning the words,
Total b/f (B/f stands for brought forward) are written in the
particulars column against the debit and credit totals. At the end of a
specified period or on the last age, the grand total is cast.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

Date Particulars L.F Dr. Cr.

Amount Amount

5. Goods given Away as

June 4th Charity Account Dr. 10000
Charity. If some goods 2011 To purchases Account
from the business are (Being goods donated to
10000
given away as charity to a charitable trust.)
particular person or
institution, it should be
debited to Chartiy June 4, 2011 Donated goods of Rs. 10000 to
account and credited to Amma charitable trust
Purchases Account.
According to Nominal Account rules charity is
a type of expenses/losses of goods from
business so we debited charity account
According to Real Account rules goods are
going out from business so we credited
Purchases account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

6. Compound Journal
Entry. If there are two are Date Particulars L.F Dr. Cr.
more transactions of a Amount Amount
similar nature occurring
on the same day and June 5th Drawings Account Dr. 1000
either Dr. or Cr. Account is 2011 Cash Account Dr.
To Bank Account
5000
common, such
transactions can be (Being cash withdrawn from 6000
conveniently recorded in bank for personal use and
for use in the business.)
the form of one journal
June 5th , 2011 Withdrew from bank for private
entry instead of making a
use 1000
separate entry for each
Withdrew from bank for use in the business
transaction. Such entry is
5000
known as compound
Journal Entry Case-I:According to Personal Account rules cash withdrew by owner is
receiver from the business so we debited drawings
Case-II: According to Real Account rules cash is being comes into
business so we debited the Cash Account
According to Personal Account rules bank is a person and here it is
giving money so we credited the giver
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

6. Opening Entry. The

balances of the previous Date Particulars L.F Dr. Cr.
year are brought forward Amount Amount
in the beginning of the
year by means of an entry 2010 Furniture Account Dr. 4000
in a going concern. Such April 1 Machinery Account Dr. 18000
entry is made on the basis Debtors Account Dr. 12000
o f accounting equation Bills Receivable Account Dr. 9000
i.e. by deducting all Cash Account Dr. 2000
30000
To Capital Account
assets and crediting 5000
To Bills payable
liabilities and capital 10000
To Creditors Account
account. (Being opening entry.)

Following balances appeared in the books of Patnayak on 31st March, 2010. Pass the
necessary opening entry for 2010-11:
Credit Balances: Capital Rs. 30,000; Bills Payable Rs.5,000; Creditors Rs. 10,000.
Debit Balances: Furniture Rs.4000; Machinery Rs. 18,000; Debtors Rs. 12,000; B/R
Rs.9,000; Cash Rs. 2,000.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains
6. Cash Discount. This
Date Particulars L.F Dr. Cr.
discount is allowed by a
Amount Amount
debtor when the latter
pays the amount of goods
purchased by him either June 6th Cash Account Dr. 1900
immediately or within a 2011 Discount Account Dr. 100
To Maheshs Account
specified period. It is an 2000
(For cash received and
incentive given to a discount allowed.)
debtor for making an
June 6th Suresh Account Dr. 20000
early payment. Thus if the
2011 To Cash Account 19600
seller allows 2% discount To Discount Account
for payment within a 400
(Cash paid and discount
month. On a bill of received)
Rs.20000 the customer
would pay Rs. 19600 if the (i) June 6th 2011 Cash received from Mahesh Rs.1900 and
payment is made in the allowed discount Rs.100
books of accounts and a (ii) Paid to Suresh Rs. 2000 less 2% cash discount
separate account is Case-1: According to Real Account rules cash comes into business by
opened in the bill. This receiving form Mahesh so we debited cash account & According to
discount is recorded in Nominal Account allowed discount means its loss to company so we
books of accounts and a debited Discount Account.
separate account is According to Personal Account rules Mahesh is giver so we credited the
maintained in the ledger. giver (Maheshs Account)
Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

Case-II: According to Personal Account rules Suresh is

being paid by business so we debited Suresh Account
According to Personal Account rules business is giving
money to Suresh so, we credited Cash Account
and
Suresh allowed us to pay only Rs. 19600 instead of
paying 20000 by allowing discount to us that means it is
gain for Business so we credited Discount account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

9. Trade Dicscount. It is a discount on the gross value or list price of goods allowed by
the manufacturer to the wholesaler or a wholesaler to a retailer in order to enable
them to sell the goods further at list price to the consumer and yet earn a profit.

Suppose, a manufacturer produced an article for Rs. 40 may fix Rs. 100 as list price and
allows 35% discount to the wholesaler. The wholesaler will thus get it at Rs. 65 and may
sell to the retailer at 20% trade discount. The retailer would thus get it for Rs. 15 and the
retailer Rs. 20.
The journal entry will be passed with the net value of goods.
E.g., June 6th, 2011 bought goods worth Rs. 6000 from Ram less 20% trade discount

Date Particulars L.F Dr. Cr.

Amount Amount

June 7th Purchases Account Dr. 4800

2011 To Rams Account 4800
(For goods purchased from
Ram.)
Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

Some times the purchaser may get the benefit of both discounts. In such case, firstly
trade discount is calculated on the gross value of goods sold and then cash discount is
calculated on the net value of goods (i.e. gross value of goods trade discount).

June 7th, 2011 Purchased goods worth Rs. 5000 less 20% trade discount and 5% cash
discount

Date Particulars L.F Dr. Cr.

Amount Amount

June 7th Purchases Account Dr. 4000

2011 To Cash Account 3800
To Discount Account
(Being goods worth Rs. 5000 bought for
200
cash less 20% trade discount and 5% cash
discount. Trade discount is not shown in
the books but cash discount is shown in
the books)

According to Real account rules , debit what comes in goods are coming into the business so we
debit Purchases account. Cash is going out in the form of purchases so according to Real
Account rules we credited Cash account. According to nominal account rules discount is gain to a
business so we credited Discount account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

10. Purchase of Shares. When shares or securities are purchased, the entry is made at
market value and not at face value. Brokerage paid on the purchase of such investment
is also added in the amount of investment.
June 8th, 2011 Shares of Rs. 50000 are purchased at Rs 90 and Rs.200 is paid as
brokerage.

The purchase price would be Rs. 45,200 (i.e., Rs. 50000 X 90/100 + Rs. 200).

It is debited to Investment Account and credited to Cash Account

Date Particulars L.F Dr. Cr.

Amount Amount

June 7th Investment Account Dr. 45200

2011 To Cash Account 45200
(For shares purchased)
According to Real Account Investment is an asset. So asset is coming into business. So we
are DEBITING investment account as what comes in.
According to Real Account rules cash is going out in the form of investment so we
credited cash account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

11. Sale of Shares. If shares or securities are sold, the entry should be passed at market
value less brokerage, if any, paid on such shares.

June 8th, 2011 Sold Rs. 50000 shares at Rs.95 at 2% brokerage

It is debited to cash account and credited to investment

Date Particulars L.F Dr. Cr.

Amount Amount

June 7th Cash Account Dr. 46500

2011 To Investment Account 46500
(For shares purchased)

According to Real Account rules cash comes into business by selling

shares so we debited cash account.
According to Real Account rules, CREDIT what goes out. On sale of
investment, it goes out . So we credited Investment Account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

12. Expenses Incidental to the Purchase of Fixed Assets. If some expenses are incurred
on the purchases of a fixed asset, these should be added to the cost of the asset to the
buyer. Such expenses should be debited the asset account and not to any expense
account.
June 9th , 2011 Repairs made to Building Rs. 20000
June 9th 2011 paid Rs 500 in cash as wages on installation of machine

Date Particulars L.F Dr. Cr. Case I: Repairs to building is an

expense. According to Nominal
Amount Amount Account rules we debited Repairs
account.
Cash is going out in the form of
June 9th Repairs Account Dr. 20000 repairs so, according to Real
2011 To Cash Account Account rules we credited Cash
20000 Account.
(Being repairs made to
Case II: Wages paid on machinery
Building)
is also an increase in value of
June 9th Machinery Account Dr. 500 asset and as per real account
2011 To Cash Account rules we debited machinery
500 account.
(Wages paid on installation
As stated above cash is going out
of machine) in the form of wages so we
credited cash account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

13. Insurance of Life Policy. Premium paid on the proprietors life insurance policy is
debited to the Drawings Account and not to insurance premium account. It is a personal
expense and not relating to the operation of the business.

June 10th, 2011 Paid Life Insurance Rs. 10000

Date Particulars L.F Dr. Cr.

Amount Amount

June 9th Drawings Account Dr. 10000

2011 To Cash Account 10000
(Being Life Insurance
premium paid)

Proprietors life insurance premium is his personal expenditure. Drawings

account represents owner, so as per Personal account rules we debited
Drawings account.
According to Real account rules, we credited Cash account due to cash is
going out.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

14. Carriage Paid on Buyers Account . When goods are sold sand carriage/freight etc.
is paid on buyers behalf, it should be debited to buyers personal account and not to
carriage/freight account.

June 11th, 2011 Paid Rs. 100 as carriage to Ram on sale of goods.

Date Particulars L.F Dr. Cr.

Amount Amount

June 11th Ram Account Dr. 100

2011 To Cash Account 100
(Being carriage paid)

Paying carriage on account of buyer is a payment for buyer and not an

expense to business so, as per Personal account rules we debited Ram
account being receiver of benefit.
According to Real account rules, we credited Cash account due to cash is
going out.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

15. Goods distributed as Free Samples. If goods are distributed as free samples to
promote the sale of business. It should be debited to Advertisement Account and
credited to Purchases account
June 12th, 2011 Goods worth Rs. 20000 distributes as free samples
Date Particulars L.F Dr. Cr.
Amount Amount

June 11th Advertisement Account Dr. 20000

2011 To Purchases Account 20000
(Goods distributes as free
samples)

Distributing samples means business is promoting its product. So, it comes under
advertisement and it is an expense. As per Nominal account rules we debited
Advertisement account.
Goods distributed as sample, goods lost, goods taken for personal use and distributed for
charity are always recorded at cost. So it is better to credit Trading a/c or purchases
account instead of Sales account. Entry is made at cost.

This is so because these transactions are not made with any intention to earn profit.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

16. Bad Debts. When an amount is irrecoverable from a customer because of his
insolvency or otherwise, it is a loss for the business. It should be debited to Bad Debts
Account and credited to Customers Account.
June 13th, 2011 Mr. Ram has taken loan worth Rs.15000 and is declared as insolvent

Date Particulars L.F Dr. Cr.

Amount Amount

June 13th Bad debts Account Dr. 15000

2011 To Mr. Rams Account 15000
(Mr. Ram is being declared
as insolvent )

Bad debts are loss to business. So we debited Bad Debts account as per Nominal Accounts
rules.
Though, a person is an insolvent we must consider her/him as giver because he would have
paid the money if he isnt become insolvent by any reason. So, we credited Rams Account.
Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains

17. Interest Due on Loans. When a loan is taken from a person and interest is yet to be
paid, it should be debited to interest account and credited to loan account.
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains
18. Loss of Stock . If some stock is lost by fire, it should be debited to loss of stock by
fire and credited to purchase account. If any part of such loss is recoverable from
insurance company, it should be debited to Insurance Claim Account and credited to
Loss of Stock by Fire account.
June 14th 2011, goods destroyed by fire costing Rs. 300.
June 14th 2011, goods destroyed by fire costing Rs. 300. but insurance company settled
claim for Rs.280
Case I: According to Nominal
Date Particulars L.F Dr. Cr. Account rules we debited Loss of
Amount Amount stock account as it is Loss.
Goods distributed as sample,
goods lost, goods taken for
June 14th Loss of Stock Account Dr. personal use and distributed for
300 charity are always recorded at
2011 To Purchases Account 300 cost.
(loss of stock in fire accident)
June 14th Insurance Co. Account Dr. 280
2011 Loss of Stock Account Dr. 20
To Purchases Account 300
 Personal Accounts:- Real Accounts:- Nominal Accounts:-
Debit the receiver Debit what comes in Debit all Expenses
Credit the giver Credit what goes out Credit all gains
19. Commission. When a business firm receives any amount from any person in respect
of any services rendered to help them for increasing the sale or helping in purchase of
goods or relating to other matters, then this receipt will be treated as commission
received.
It should be debited to Cash Account and Credited to Commission received Account
June 15th 2011, Commission received 200.

Date Particulars L.F Dr. Cr.

Amount Amount

June 14th Cash Account Dr. 200

2011 To Commission received 200
Account
(commission received)

Money is coming into business in the form of commission so we debited Cash account as
per Real Account rules.
Commission received is gain or income to any business so we credited Commission
received account as per Nominal Account rules.
Journalise the following transactions (Or) Record the following
transactions in a Journal
1. 15th June: Ibrahim a sole proprietor Commenced business with a
capital of Rs. 2,00,000.
2. 17th June: Bought Furniture for cash Rs. 20,000.
3. 17th June: Paid Rent to the shop owner Mr. Murugan Rs. 5,000.
4. 18th June: Paid cash into bank Rs. 1,50,000
5. 18th June: Bought Goods for cash Rs. 10,000 from M/s Shamir Jain &
Co.,
6. 18th June: Bought Goods on credit from M/s Ramdas & Bros. for Rs.
10,000.
7. 19th June: Sold goods for cash Rs. 12,000 to Mr. Naryan Tiwari
8. 20th June: Bought Machinery from M/s Boolani Machinery and paid by
cheque Rs. 25,000.
9. 21st June: Sold goods on credit to Mr. Natekar for Rs. 8,000
10. 21st June: Paid weekly wages to workers Rs. 5,000
11. 24th June: Paid M/s Ramdas and Brothers by cheque Rs. 5,000
12. 24th June: Received from Mr. Natekar Rs. 2,000
13. 24th June: Received commission from M/s Orion Traders for giving a
trade lead Rs. 500.
Write Journal Entries for the transactions.
1.Commenced business with a capital of Rs. 1,00,000
2.Purchased goods from Veeru for Rs. 20,000
3.Purchased Goods for Cash Rs. 15,000
4.Purchased Goods from Abhiram for cash Rs. 9,000
5.Bought Goods from Shyam on credit Rs. 12,000
6.Sold goods worth Rs. 15,000 to Tarun
7.Sold goods for cash Rs. 20,000
8.Sold goods to Utsav for cash Rs. 6,000
9.Sold goods to Pranav on credit Rs. 17,000
10.Returned goods to Veeru Rs.3,000
11.Goods returned from Tarun Rs. 1,000
12.Goods taken by the proprietor for personal use Rs. 1,000
13.Bought Land for Rs. 50,000
14.Purchased machinery for cash Rs. 45,000
15.Bought computer from Intel Computers for Rs. 25,000
16.Cash sales Rs. 15,000
17.Cash purchases Rs. 22,000
18.Bought furniture for proprietor's residence and paid cash Rs. 10,000
19. Received from Syam Rs.1900, discount allowed Rs.100.
20. Paid Rs. 2900 to Ravi and discount received Rs.100.