Journal
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Journal
In this Part, you learn about Voucher, its components and how to record a transaction entry in Journal Book. You get a glimpse of all types of common and simple nature of transactions, to get a clearer concept of Debits & Credits.
Accounting Voucher
Business transactions are documented in a systematic form explaining the details of transactions, like Cash memo, Sales Bill, Money Receipt etc. These are called the source document or Vouchers, from which the transactions are recorded as Journal, in Journal Book, the primary source of Books of Accounts
As per nature of transactions, Accounting vouchers may be classified like Payment Voucher, Receipt Voucher, Sales Voucher, Purchase Voucher, Debit note Voucher, Credit Note Voucher, Journal Voucher etc. There is no set format of accounting vouchers, but an accounting voucher should contain the following essential information.
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हिंदी में व्याख्या सुनिए:
Essential Info to be recorded in Voucher and in Journal Book
- Voucher Date : Date of transaction (not the date of entry in Journal Book) The voucher will be recorded in Journal as per Voucher Date.
- Voucher Number : The voucher number may be allotted for each type of voucher. This is for internal control, so that voucher may not inserted later on or removed. Any missing voucher may be tracked.
- Account Details:
- Account Name : Name of the account debited / credited.
- Debit Amount : Debit Amount in Debit Column, against the respective account debited.
- Credit Amount : Credit Amount in Credit Column.
- Voucher Narration : Description of the transaction (for the entire voucher or against each account transacted).
Important Info: The following info, though not part of accounting info and not recorded in Journal Book, but are entered in Voucher, for fixing of responsibility and internal control.
- Voucher prepared by :The person who prepares the voucher along with signature,
writing the voucher.
- Voucher Authorised by : Name and signature of the person authorising the voucher (as
correctly prepared).
As per principles of Double Entry, the total of all Debits & Credits must be equal in a Voucher.
Listen in English:
हिंदी में व्याख्या सुनिए:
Golden Rules of Accounting
- Personal Account : Debit the receiver or who owes to business, Credit the giver or to whom business owe.
For example, if you purchase goods from Ram on credit, the two accounts involved are Goods (Purchase) Account and Ram’s Account. Ram’s account is a personal account. Since, Ram is the giver in this transaction, his account will be credited. Similarly, when cash is paid to Ram, Ram’s Account will be debited since he is the receiver of Cash.
- Real Account : Debit what comes into business, Credit what goes out of business. For example, where furniture is purchased for cash, furniture account (Real Account) is debited, while cash account is credited.
- Nominal Account : Debit all expenses or losses, Credit all income or gains.
For example, if business pays salary to its employees, the two accounts involved are salary account and cash account. Salary account is a nominal account. Salary paid is an expense of the business and therefore this account will be debited.
Similarly, if interest is received, interest account will be credited, since interest received is an income item.
Listen in English:हिंदी में व्याख्या सुनिए:
Accounting Equation
Every transaction is recorded in terms of equal debits & credits. So, from the first transaction, the total of liabilities & assets remain equal. In course of regular transactions, which affect increase / decrease of Assets / Liabilities, income / profit, expenses / loss, the equality of liabilities & assets remain consistent as each transaction affect equal debits & credits.
- British system : In British system, the liabilities of the firm include funds owned by proprietor (as proprietor & business are separate entity) and funds contributed by lenders / creditors. So, we can write the accounting equation as Liabilities = Assets.
- American system : In American system, the funds attributed to owner of the business is shown separately as Capital, from the funds contributed by outsiders (creditors). In such system, we may write Capital+ Liabilities = Assets, maintaining the accounting equation.
Listen in English:
हिंदी में व्याख्या सुनिए:
Journal
The word journal has been derived from French word ‘Jour’ (means ‘diary’). It is the book of original entry, in which all business transactions are recorded in chronological order analysed in Debit & Credit Accounts.
Format of Journal Book
A Journal book contains record of each transaction in order of date.
Date
|
Particulars
|
LF
|
Debit
|
Credit
|
03 May 2017
|
Rent Dr
|
1000
| ||
To Cash
|
1000
| |||
Rent paid to Madhav for April 17 by Cash
| ||||
Components of Journal Entry
- Date: In Date column, date of transaction is recorded.
- Particulars: In this column, the transacted Ledger Accounts are entered. In first entry, the first account which has to be debited in the transaction is recorded as ‘Dr’. In the next line, the account to be credited is written by prefixing word ‘To’, before the name of the account. Explanation of the transaction (called narration) is written. After narration, a straight line is drawn to demarcate the next Journal Entry. However, in modern computerised format, the word ‘To’, is not added at the start of credit ledger accounts.
- L.F (Ledger Folio): This column is initially left blank. It is later on filled up by the page number of the ledger where the entry is posted in Ledger Book (in a computerized system, instead of Ledger folio, the voucher Ref. i.e. transaction Ref. is shown).
- Debit: This column records the amount to be debited to the respective account debited.
- Credit: This column records the amount to be credited to the respective account credited.
Listen in English:
हिंदी में व्याख्या सुनिए:
Multi Entry Vouchers
For academic understanding of the principles of Debits & Credits, we will normally explain Journal Entries as Single Debit & Single Credit. This clarifies the principles of equality of Debits & Credits, and the relationship of Accounting equation. However, in practical situation, a transaction, involving several related accounts completely, a Journal entry may be written with multiple debits & credits.
For example, the organisation receives net payment of Rs 900 after deduction of TDS Rs 100 towards payment of Bill of Rs 1000. In such situation, instead of making 2 separate Journal Entries like Bank A/c Dr 900, Debtor A/c Cr 900 and another entry TDS A/c Dr 100, Debtor A/c Cr 100, one will record as one Journal Entry like, Bank A/c Dr 900, TDS A/c Dr 100, Debtor A/c Cr 1000.
The ultimate result of the two separate entries and the one combined entry is same. For learning & academic purpose, separate entries may be more helpful, but for practical purpose, the composite entry explains the whole transaction better in one entry.
Normally, in initial chapters, separate single entries would be used for illustration of transactions
In such case, the totals of debit & credit of each individual Journal entry must be equal. Postings from each Journal entry is made to Ledger. In such Journal Book, it is not essential to total up the pages of Journal Book periodically (though some people may do to ensure arithmetic accuracy of the figures and to eliminate mistakes).
Listen in English:
Listen in English:
Type of Journal Books
Theoretically, all transactions may be recorded in one Journal Book, in chronological order. But for practical purposes, the Journal Book may be subdivided into several Books (called Subsidiary Journal Books).
Journal Book
- Main Journal (or Journal Proper)
- Subsidiary Journal Books
To make you understand the effect of Debits & Credits, we are explaining all sorts of transaction in Journal Book.
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हिंदी में व्याख्या सुनिए:
Subsidiary Journal Books
In practice, several types of Subsidiary Journal Books are used according to the nature of Transaction.
- Cash Book : Transaction involving Cash Ledger Account.
- Bank Book : Transaction involving Bank Ledger Account.
Sometimes, a combined Cash Bank Book is used in which transactions involving Cash & Bank ledger are recorded in one book.
- Sales Book : Transaction of Credit Sales involving Sales Ledger Account.
- Purchase Book : Transaction of Credit Purchase involving Purchase Ledger Account.
Some people maintain records of Sales & Sales Returns in Sales Books, while some organisations maintain separate Books for Sales & Sales Returns. Similarly Purchase & Purchase Returns may be entered together in Purchase Book, or separate books may be maintained.
- Debit Note Book : Debit Note is issued for Debiting Party Account, arising from transactions other than credit Sales.
- Credit Note Book : Credit Note is issued for Crediting Party Account, arising from transactions other than credit purchase.
Some organisations may record Sales & Purchase returns in Debit Note / Credit Note book, or may maintain separate Sales Purchase Return Book as mentioned above.
When the number of transactions is large, such subsidiary Journal Books help the organisation & distribution of work. Transactions of similar nature are written in one Journal. So, work may be better organised and distributed among several persons, providing quicker access of specific information and better internal checks and control.
Listen in English:
हिंदी में व्याख्या सुनिए:
Recording of Transactions in Journal Book
We now explain some common types of transactions that arise in business scenario. For academic purpose, to understand the basic accounting principles, we explain as Journal Voucher recorded in Journal Proper, though they may be entered in different subsidiary books.
The journal entry will be
Trade Discount
Trade Discount is a concession allowed by the seller to the buyer at the time of sale.
Trade discount is shown as deduction in the Invoice. The amount which remains after deduction of trade discount is recorded in books of account. So, Trade discount allowed at the time of sale is normally deducted from the amount of sale or purchase. It is not reflected in book of accounts.
Example:
The journal entry will be
Trade Discount not entered in Books
Debtor A/c Dr
|
9,000
| |
To Sales A/c
(One piece of computer sold with 10% trade discount.)
|
9,000
|
Trade Discount entered in Books
However, you may also record Trade Discount in books as follows, showing the effect of trade discount in Books :
Debtor A/c
Trade Discount
To Sales A/c
(One piece of computer sold with 10% trade discount.)
|
Dr.
Dr.
|
9,000
1,000
|
10,000
|
Listen in English:
Cash Discount
Cash Discount is sometimes allowed by the seller at the time of receiving payment within due date
Cash discount is a gain (or reduction of expenses) in the hands of a customer and a loss (increase in expenses) to the seller.
Example: The supplier allows Rs 1000 as cash discount at the time of receiving payment of a due bill of Rs 10,000. So, the buyer pays Rs 9000, in full payment of Bill.
Entry In the books of Buyer, while making payment to supplier of the credit purchase bill
Supplier A/c Dr
|
10,000
| |
To Discount Received A/c
|
1,000
| |
To Cash A/c
(Payment of supplier Bill of Rs 10000, after 10% cash discount.)
|
9,000
|
Entry In the books of Seller, while receiving money from Buyer of the credit sales bill
Cash A/c Dr
|
9,000
| |
Discount Allowed A/c Dr
|
1,000
| |
To Debtor A/c
(Amount received against sales bill after allowing cash discount.)
|
10,000
|
Listen in English:
हिंदी में व्याख्या सुनिए:
Transaction of Goods other than Trade
Goods taken for personal use : When the proprietor of the business withdraws some goods from the business for his personal use, then “Drawing Account” is debited and “purchase Account” is credited, because the proprietor draws the purchased goods.
Drawing A/c
|
Dr.
|
To Purchase A/c
|
Free samples: To increase sales, the organization may distribute goods as ‘sample’ free of cost. In this case, the journal entry may be
Free sample for Advertisement A/c.
|
Dr.
|
To Purchase A/c
|
Loss of goods: Goods destroyed or lost due to theft, fire or any other reason is treated as a trading loss. In this case, “Loss on Theft / Fire Account” will be debited and ‘Purchase Account’ will be credited by cost price of the goods lost.
Loss of Goods A/c.
|
Dr.
|
To Purchase A/c
|
">Listen in English:
Writing Off of Bad Debts
Often in a business, some receivables turns out to be unrecoverable. Such receivables are called Bad Debts and are ultimately written off.
Bad Debts: If a certain amount is not realised (or partially realized) from debtors, then the unrealized amount is treated as Bad Debts. In such case, Bad Debt account will be debited and personal account of the Debtor will be credited. This is called writing off of Bad Debt.
Bad Debts A/c
|
Dr.
|
To Debtors
|
Bad Debts Recovered : When Bad Debt written off earlier is subsequently recovered (the debtor pays it), then this is treated as business profit (like Income). So, ’Cash account’ (or Bank Account) will be debited and ‘Bad Debts Recovered Account’ (this is Income Account) will be credited, Debtors account is not effected, as it was earlier closed while treating it as Bad debts.
Cash A/c
|
Dr.
|
To Bad Debts recovered A/c
|
Listen in English:
Transactions related to Expenses
Direct Expenses on an Asset: For carriage, cartage on buying, installation of Assets, etc, respective assets account is debited (not expenses A/c), called Capitalisation of Revenue Expenses.
Asset A/c
|
Dr.
|
To Cash / Bank
|
General Expenses: All sorts of small common expenses, are posted in a common account viz. ‘General Expenses ‘. So, for such expenses, the entry is,
General Expenses A/c
|
Dr.
|
To Cash /Bank
|
Listen in English:
Money Deposited into Bank
Whenever money is deposited into Bank, the Bank A/c is debited
Cash Deposit into Current Account : When cash is deposited into bank, then money is going to Bank. So, the ‘Bank Account’ is debited (because bank received the money) and ‘Cash Account’ is credited, (because cash is going out).
Bank A/c
|
Dr.
|
To Cash
|
Cash Deposit into Fixed Deposit Account : If cash is deposited in Fixed Deposit Account in a Bank, then ‘Fixed Deposit A/c’ is debited.
Fixed Deposit A/c
|
Dr.
|
To Cash
|
Bank A/c is for regular trading, while Fixed Deposit A/c is not for day to day transactions and is withdrawn on maturity.
Cheque Deposit to Bank: If any cheque is received from customer then ‘Bank A/c’ will be debited, (because, money is going into Bank) and the respective ‘Customer’s A/c will be credited (because Customer is the giver of money).
Bank A/c
|
Dr.
|
To Customer
|
Receipt for Business Income : On receipt of cheque on Income, Bank A/c’ will be debited and Income A/c’ will be Credited
Bank A/c Dr
|
To Income A/c
|
Interest allowed by Bank: Bank provides Interest on deposits in bank. It is a sort of Income. ‘Bank A/c’ is debited (because, Bank A/c gets the money) and ‘Interest A/c’ is credited.
Bank A/c
|
Dr.
|
To Interest A/c
|
Deposited cheque dishonored: On dishonor of cheque deposited, the personal account of the giver will be debited and ‘Bank A/c’ will be credited (because dishonor of cheque is equivalent to taking money out of Bank A/c). You find that this entry is just opposite to the entry when a cheque received is deposited into Bank.
Debtor A/c
|
Dr.
|
To Bank
|
Listen in English:
Money Withdrawn from Bank
Cash Withdrawal for Business : When Cash is withdrawn from Bank, then ‘Cash A/c’ will be debited, and ‘Bank A/c’ will be credited (because Bank gives the money).
Cash A/c
|
Dr.
|
To Bank A/c
|
Cash Withdrawal by Proprietor of Business : If the businessman withdraws money for personal use from bank, then ‘Drawing A/c’ will be debited and ‘Bank A/c’ will be credited.
Drawing A/c
|
Dr.
|
To Bank A/c
|
Payment for Business Expenses : On payment of business expenses, through cheque, “Expenses A/c’ will be debited and ‘Bank A/c’ will be credited.
Expenses A/c
|
Dr.
|
To Bank A/c
|
Payment for Assets purchased : If Assets are purchased paying by cheque, then ‘Asset A/c’ will be debited and ‘Bank A/c’ will be credited.
Asset A/c
|
Dr.
|
To Bank A/c
|
Interest on Bank Loan: When bank charges interest on bank loan, ‘Interest A/c is debited and ‘Bank A/c” is credited (because interest is paid from the Bank A/c). This is like Expense entry.
Interest A/c
|
Dr.
|
To Bank A/c
|
Bank charges charged by Bank: Bank often charges for their services. Bank Customer does not pay the amount to Bank, but Bank itself takes the amount by debiting the Bank Customer Account. ‘Bank Charges A/c’ is debited, and ‘Bank A/c’ is credited, because this is like an Expense Entry.
Bank Charges A/c
|
Dr.
|
To Bank A/c
|
Issued cheque dishonored: When cheque issued earlier, to a creditor is dishonored by Bank, ‘Bank A/c’ will be debited and the personal account will be credited. You find that this entry is opposite to the entry for cheque paid to a creditor.
Bank A/c
|
Dr.
|
To Creditor A/c
|
Received cheque dishonored: When cheque received earlier from a Debtor is dishonored, the personal account of Debtor, will be debited, and ‘Bank A/c’ will be credited. You find that this entry is opposite to the entry for cheque received from a Debtor.
Listen in English:
Debtor A/c
|
Dr.
|
To Bank A/c
|
Listen in English:
Outstanding Expenses
Sometimes, the expenses payable may remain outstanding (unpaid), till the end of period. In the relevant accounting year which the expense relates to, the respective expenses account will be debited, by the amount of outstanding expenses, and Outstanding Liability Account will be credited. The Outstanding Liability Account will appear in the Liability side of Balance Sheet.
Example: Salary of Rs.4,000 for March 16 has not been paid during March 16.
FY 15-16
Salary A/c Dr
|
4,000
| |
To Outstanding Salary A/c
|
4,000
|
Later on, in next financial year 16-17, the amount is paid. The outstanding expenses account is Debited and the Cash/ Bank Account is credited.
FY 16-17
Outstanding Salary A/c Dr
|
4,000
| |
To Cash A/c
|
4,000
|
Listen in English:
Prepaid Expense
Prepaid means money paid in advance, before it is spent (benefits consumed). So, at the time of payment, the benefit is not consumed (so the amount is not treated as expense), but the benefit would accrue in future (so it is an Asset).
Sometimes, expenses relating to next period, may be prepaid in advance. During the Financial Year, when the payment is made, at the time for payment, Pre paid expenses account is debited by amount for subsequent Financial Year paid in advance. Pre paid expenses is shown in the Asset side of Balance Sheet.
In the subsequent Financial year, to which the advance payment relates, the respective account would be debited and prepaid expenses would be credited.
Example: Insurance premium for Jan. to Dec. 2015 paid Rs.12,000 in Jan, 2015, while the Financial Year is April to March. So, 9 months Insurance premium related to April 15 to December 15 (related to FY 15-16) is paid in advance in Jan 15 (i.e during FY 14-15).
So, in books for the period FY14-15, at the time for payment, proportionate amount of advance payment for subsequent Financial Year, would be debited to Pre Paid account, and the amount related to the current Financial Year, would be debited to the relevant expenses account.
FY 14-15
Prepaid Expenses Dr
|
9000
| |
Insurance Premium Dr
|
3000
| |
To Bank
|
12000
|
Next year, the amount carried as Prepaid would be debited to the relevant account, squaring off the Pre Paid account.
FY 15-16
Insurance Premium Dr
|
9000
| |
To Pre paid Expenses
|
9000
|
Listen in English:
Income Accrued
Income Accrued means earned but not received, as it is not yet due. For example, the Bank pays Interest on savings Account Half Yearly ( In June & December). So, the Interest upto end of Financial Year (i.e upto March) is earned (so it is an Income) but not yet received (so the accrued amount is Asset).
In the same way, Bank pays Interest on Fixed Deposit and the time of maturity. So, the Interest on Fixed deposits which are not matured till the end of financial year is earned (so the Interest till March is earned, so it is Income) but yet not received (so the accrued amount is Asset).
Sometimes, Income Receivable may remain accrued (not received) till the end of period.
Accrued Income shows the amount earned, but not yet received in the current period. In the next period, when the amount is received, the Accrued Income account will be credited and the cash account will be debited.
Accrued interest of Rs.700 on Savings account on 31st March, 2015.
On 31st March, 2015, the entry would be :
Accrued Interest A/c Dr
|
700
| |
To Interest A/c
|
700
|
Later on, when the amount is actually received (e.g 5th April 2015), the entry will be as follows:
Bank A/c Dr
|
700
| |
To Accrued Interest A/c
|
700
|
Listen in English:
Advance Received
Sometimes, money may be received in advance, for which the goods or services has yet not been delivered. There is no earning in the year of receipt of money. On receipt of Advance, Cash / Bank A/c will be debited and Advance Received A/c will be credited.
In March 15, Advance received from Customer Rs 4000, for services to be rendered in April 15.
FY 14-15
Bank Dr
|
4000
| |
To Advance received A/c
|
4000
|
So, in FY 14-15, the Advanced received would be shown as Liability in Balance Sheet (not as Income in PL A/c) and carried to next Financial Year.
FY 15-16
Upon service rendered, Advance Received A/c will be debited and the particular income account will be credited.
Advance received A/c Dr
|
4000
| |
To Service Fees Earned
|
4000
|
In FY 15-16, the Service Fee earned would be shown as Income in PL A/c, and the balance of Advanced Received, carried from the previous year in the Balance Sheet, would be squared up.
Listen in English:
Opening Balances
The Assets and Liabilities appearing in the Balance Sheet at the end of the previous year, has to be brought forward by passing Opening Journal entry on the first day of the current year.
The total of all assets Debited is equal to total of all liabilities Credited, the total of Debits and Credits of such journal entry will be equal. This type of journal entry is said as ‘Opening Entry.’
The Balance sheet at the end of 31.3.15 (FY 14-15) :
Liabilities
|
Assets
| ||
Capital
|
40,000
|
Cash
|
5,000
|
Creditor
|
10,000
|
Stock
|
10,000
|
Debtors
|
15,000
| ||
Machinery
|
20,000
| ||
Total
|
50,000
|
Total
|
50,000
|
The Opening entry on 1.4.2015 (FY 15-16)
Cash Dr
Stock Dr
Debtors Dr
Machinery Dr
|
5,000
10,000
15,000
20,000
| |
To Creditor A/c
To Capital A/c
|
10,000
40,000
|
Listen in English:
Sales
For Sales of Trade goods, Sales (and other charges, if any) accounts are credited, the net amount receivable is debited to Buyer (Debtor). In case of Cash Sale, Cash / Bank Account is Debited instead of Debtor Account.
Cash A/c Dr
Asit A/c Dr
To Sales A/c
(sold goods on cash Rs 15000
and on credit to Asit Rs 8000)
|
15,000
8,000
|
23,000
|
Sales Return : For sold goods returned by buyer, the entry would be reverse of Sale entry.
Sales Return A/c Dr
To Asit A/c
(Sold goods of Rs 1000 returned
by Asit)
|
1,000
|
1,000
|
For convenience and maintenance of clearer accounts, Sales Return account has been debited for returned goods. In year end, the amount of Sales Return would be transferred to Sales and the net Sales (Sales – Sales Return) would be carried to P L Account. However, for Sales Return, Sales Account may alternatively be debited directly, without using any Sales Return Account.
Listen in English:
Purchase
For Purchase of Trade Goods, Purchase account is Debited, the net amount Payable is credited to Supplier (Creditor). In case of Cash Purchase, Cash / Bank Account is credited, instead of Creditor Account.
Purchase A/c Dr
To Cash A/c
To Pankaj
(Purchase on cash 12000 &
On credit from Pankaj Rs 5000)
|
17,000
|
12,000
5,000
|
Purchase Return : For Purchase Return (Purchased goods returned to supplier), the entry would be reverse of Purchase entry.
Pankaj A/c Dr
To Purchase Return A/c
(Purchased goods Rs 2000 returned to Pankaj)
|
2,000
|
2,000
|
For convenience and maintenance of clearer accounts, Purchase Return account has been credited for returned goods. In year end, the amount of Purchase Return would be transferred to Purchase and the net Purchase (Purchase – Purchase Return) would be carried to P L Account. However, for Purchase Return, Purchase Account may alternatively be credited directly, without using any Purchase Return Account.
Listen in English:
Money received from Debtors
Money is received from Debtors against Dues Receivable. At the time of receipt of money from Debtor, Cash / Bank Account is debited by the amount received, and Debtors Account from whom the money is received, is credited.
Money received from Debtor
State Bank of India current a/c Dr
Asit A/c
(Cheque received from Asit)
|
2,000
| 2,000 |
Cheque received from Debtors Dishonoured
If the cheque is Returned unpaid (Dishonured), the entry would be reverse of the earlier entry of receipt of money
Asit A/c Dr
State Bank of India current a/c
(Cheque received from Asit dishonoured)
|
2,000
|
2,000
|
Listen in English:
Money paid to Creditors
Money is paid to Creditors against Dues Payable. The Creditor account, whom the money is being paid, is Debited, and Cash / Bank Account is credited by the amount paid.
Pankaj Dr
To State Bank of India current a/c
Paid by cheque for Bill # 23
|
2,500
|
2,500
|
Cheque paid to Creditor Dishonoured
If the cheque paid is Dishonoured, the entry would be reverse of the earlier entry of payment of money
State Bank of India current a/c Dr
To Pankaj
(Ceque issued to Pankaj returned unpaid by Bank)
|
2,500
|
2,500
|
Listen in English:
Contra Entry
Often Cash is withdrawn from Bank and Cash is deposited to Bank (or money is transferred from one Bank account to another). Such transactions are often called as Contra Entries.
These are just transfer of money within the organisation (hence the name Contra Entry). There is no real inflow or outflow of money.
The account receiving the money (where the money is going into, or the inflow account) is debited and the account giving the money (where the money is coming from, or the outflow account) is Credited.
Cash Deposited to Bank : The Bank Account where the money is being deposited into, is Debited, and the Cash Account (where from the money is taken), is credited.
State Bank of India current A/c Dr
To Cash A/c
(Cash Rs 5000 deposited to Bank)
|
5,000
|
5,000
|
Cash Withdrawn from Bank : The Cash Account (where the money is deposited into) is Debited, and Bank Account where the money is taken from, is Credited.
Cash A/c Dr
To State Bank of India current A/c
(Cash Rs 2000 withdrawn from Bank )
|
2,000
|
2,000
|
Money transferred from one bank account to another : The bank account into which money is transferred to (receiving bank), is debited, and the bank account (paying bank), from which money is transferred, is credited.
Bank of India o/d A/c Dr
To State Bank of India current A/c
(money transferred from SBI to Bank of India)
|
2,000
|
2,000
|
Listen in English:
Income & Expenses
Income Received: When money is received on account of some income, the Cash / Bank Account is debited and Income earned account is credited
State Bank of India current A/c Dr
To Interest
(Interest Credited by Bank)
|
5,000
|
5,000
|
Expenses Paid : When money is paid on account of some Expense, the Expense account is debited and the Cash / Bank Account is credited.
Bank Charges A/c Dr
To State Bank of India current A/c
(Bank Charges Debited by Bank)
|
1,000
|
1,000
|
Listen in English:
Books Closing Entries
At the end of financial year, Balances of nominal accounts are transferred to Profit and Loss account, through Books Closing Entries, to close Balances of Revenue Accounts.
Books Closing Entries to close Credit Balances of Revenue Accounts
All Income accounts are debited and Profit & Loss Account is credited
Date
|
Heads of Account
|
Dr.
|
Cr.
|
31.3.15
|
Sales
|
50,000
| |
Commission
|
1,500
| ||
Stock
|
3,500
| ||
P & L A/c
|
55,000
|
Books Closing Entries to close Debit Balances of Revenue Accounts
Profit & Loss Account is debited, and all expenses accounts are credited.
Date
|
Heads of Account
|
Dr.
|
Cr.
|
31.3.15
|
P & L A/c
|
48,000
| |
Purchases
|
30,000
| ||
Wages
|
4,000
| ||
Discount
|
1,000
| ||
Salaries
|
7,000
| ||
Office Expenses
|
4,000
| ||
Depreciation
|
1,000
| ||
Carriage Outward
|
600
| ||
Carriage Inward
|
400
|
Further, Appropriation entries may be made to transfer the Balances in P L Ledger Account to Capital and Reserve Accounts.
By these 2 closing entries, the balance of all revenue account would become Nil. Only balances in P L Ledger Account, if any, and balances in Real & Personal accounts (Balance Sheet Accounts) would remain.
The final closing balances, after adjustment entries, would be incorporated in the next Financial Year, through Opening Journal Entries, as the very first entries.
Listen in English:
Appropriation Entries
After Book closing entries, some appropriation entries to transfer balances between Profit & Loss Account to Capital / Reserve / Provision Account are entered.
In Proprietorship Firm, the Net Profit / loss is transferred to Owner’s Capital Account.
In other type of organisations, some balances may be transferred between Profit & Loss Account and various Provisions and Reserves Accounts.
Journal Proper
Date
|
Particulars
|
Dr
|
Cr
|
31.03.2015
|
Profit & Loss A/c
To General Reserve A/c
|
1,00,000
|
1,00,000
|
Listen in English:
Videos
Click on the following link to play YouTube videos of the topics discussed in this chapter.
Journal
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