BITS Pilani

presentation
BITS Pilani Dr.Sonia
Pilani Campus Department of Eco & Fin
 Journal

•Journal is a book of Accounts recording day-to-day business transactions in

chronological order.

•It is also known as ‘Book of Original Record’ or ‘Book of Primary Entry’.

•A journal entry has the transaction date, the individual accounts and related
debit and credit amounts, and a brief explanation of the transaction.

•Journalizing is the process of recording transactions in the journal.

•Follow the Double-entry System: every transaction must have equal debits and
credits i.e. Total of debits must equal to the total of credit

•The transaction for which the Journal entry passed is explained in the form of
narration to the entry.

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 Journal

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Types of Accounts

1. Real Account
2. Nominal Account
3. Personal Account

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Real Account

Real Accounts are the ones that are related to the assets of the
organization but not debt. For Example, land, Building, Investment,
Machinery, Equipment, Cash, Bank Balance, etc.

These properties can be both physically existing as well as non

physical in nature.

Thus, Real Accounts can be of two types: Tangible Real Accounts

and Intangible Real accounts (Goodwill).

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Type of Account

Real Account- Golden Rule

Debit What Comes in

Credit What Goes Out

Debiting increases assets and crediting will decrease

the assets
Real Accounts

Debit (Dr.) Credit (Cr.)

Comes in to the Business Goes out from the Business

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Nominal Account

A Nominal account is a General ledger account pertaining to

all income, expenses, losses and gains.

Nominal Accounts are accounts related and associated with

losses, expenses, income, or gains.

Examples include a purchase account, sales account, salary

A/C, commission A/C, etc.

The outcome of a nominal account is either profit or loss,

which is then ultimately transferred to the
capital account.

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Nominal Account Golden Rule:

Debit All Expenses & Losses

Credit All Incomes & Gains

Debiting reduces profits and crediting incomes and gains will

increase the profits
Net result of all nominal accounts is reflected in Profit and Loss

Nominal Accounts

Debit (Dr.) Credit (Cr.)

Expenses & Loss of the Business Income & Gains of the Business

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Real Account vs. Nominal
Account
The main difference between real and nominal
accounts are the type of accounts each hold.

Nominal accounts are recorded in the income

statement while the real accounts are recorded in
the balance sheet. ...

Nominal accounts are known as

temporary accounts while real accounts are
permanent accounts.

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Personal Account

These account types are related to persons. These

persons may be natural or artificial persons

These accounts are related to individuals, firms,

companies, etc.

A few examples of personal accounts include debtors,

creditors, banks, outstanding
/prepaid accounts, accounts of credit
customers, accounts of goods suppliers, capital,
drawings, etc

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Personal Accounts Golden Rule:

Debit the Receiver

Credit the Giver

Personal Accounts
Debit (Dr.) Credit (Cr.)
Receiver Giver

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Golden RULES

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Accounting Equation

The whole Financial Accounting depends on Accounting

Equation which is also known as Balance Sheet
Equation. The basic Accounting Equation is:

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At any point of time assets (resources) will be equal to
equity + liabilities

While recording transactions the term debit (Dr.) uses to denote the left side of
any account and credit (Cr.) to denote an entry on the right side of any account
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Accounting Equation

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Debit and Credit

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Effect of Transaction on Accounting
Equation (Assets=Liabilities+Equity)
Effect of Transactions on Accounting Equation
Sr.No Transactons Assets Liabilities Capital
1 Capital Invested by owners Cash+ 0 Capital +
2 Drawings Cash- 0 Capital-
Fixed Asset Purchased:
3
(a) for Cash Cash- , Asset+ 0 0
(b) for Credit Asset+ Liability+
Goods Purchased
4
(a) for Cash Cash- , Stock+
(b) for Credit Stock+ Liability+
5 Payment to Creditors Cash+ Liability-
Sale of Goods
(a) Cost Rs.50000, sold for cash
Rs. 60000 Stock(-) 50k, Cash(+) 60K Capiral (+) 10K(Profit)

6 (b) Cost Rs.50000, sold for credit

Rs. 60000 Stock(-) 50k, Debtor(+) 60K Capiral (+) 10K(Profit)
( c) Cost Rs. 50000 sold for cash
Rs. 45000 Stock (-) 50K, Cash (+) 45K Capital (-) 5K(Loss)

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Effect of Transaction on Accounting
Equation (Assets=Liabilities+Equity)
Effect of Transactions on Accounting Equation
Sr.No Transactions Assets Liabilities Capital
7 Cash received from the debtors Cash (+), Debtors (-)
8 Purchase Return Stock (-) Creditors (-)
Expenses (same Treatment for all expenses)

Capital(-) (part of
(a) Salaries Paid Cash (-) Exp)

Capital(-) (part of
(b) Salary Outstanding Creditors (-) Exp)
Cash (-) , Salary
Prepaid (Current
9 ( c) Salary Prepaid Asset)

Capital (-) dep is

10 Depreciation on fixed Assets Fixed Assets (-) part of exp.

Capital (-) bad

11 Bad Debts Debtors(-) debts is a loss

Discount Received: Paid Rs. 95k to the supplier in a Creditors (-) Capital (+) 10k is
12 full settlement against his claim (105k) Cash(-) 95K 105k gain

Discount Allowed: Paid Rs. 95k to the debtor (buyer) Cash (+) 95k, Debtors Capital (-) 10k is
13 in a full settlement against his claim (105k) (-) 105k loss
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Effect of Transaction on Accounting
Equation (Assets=Liabilities+Equity)

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 Effect of Transaction on Accounting
Equation (Assets=Liabilities+Equity)
Assets Liabilities Capital

Transactions Cash Stock Furniture Bank Creditors Capital

1 Started business with cash Rs. 80,00,000 80,00,000 80,00,000

Brought goods for cash Rs. 20,00,000 and on credit Rs.

2 25,00,000 -20,00,000 45,00,000 25,00,000

3 Paid towards Salaries Rs.3,00,000 and Rent Rs. 1,00,000 -4,00,000 -4,00,000

4 Salaries Outstanding Rs. 1,00,000 1,00,000 -1,00,000

5 Sold goods worth Rs. 12,00,000 12,00,000 -12,00,000

Goods purchased was returned to suppliers for Rs.
6 1,00,000 -1,00,000 -1,00,000

7 Purchased Furniture for cash Rs.2,00,000 -2,00,000 2,00,000

8 Cash Deposited into Bank Account Rs. 5,00,000 -5,00,000 5,00,000

Total 61,00,000 32,00,000 2,00,000 5,00,000 25,00,000 75,00,000

1,00,00,000 1,00,00,000

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Example:1

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Example:2

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 MBA ZC415/PDFI ZC415, Financial & Management
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Example :2

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Exercise : Journal Entries
Aryan started Hutch Solutions Ltd Company on September 1, 2022. The transactions for the
month are as under:
Date Transactions
Sept 1 Invested cash in share capital, Rs.100,000/-
Sept 4 Paid two months’ rent in advance for a shop, Rs.14,000/-
Sept 5 Bought equipment for cash, Rs.12000/-
Sept 7 Bought Material on credit, Rs.12,500/-
Sept 10 Received payment for re-modelling a kitchen, Rs.18,600/-
Sept 14 Paid for an advertisement, Rs.10,400/-
Sept 17 Received payment for furnishing an office, Rs.25000/-
Sept 23 Billed customers for work done, Rs.13,100/-
Sept 25 Paid assistant’s salaries, Rs.2,500/-
Sept 28 Paid electricity charges, Rs.2400/-
Sept 29 Received payment from customers billed on September 23, Rs.4,800/-
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Journal Entries

Sept 1 Invested cash in share capital, Rs.100,000/-

Analysis Asset (Cash) increased. Equity (Share Capital) increased
Rule Debit asset to record increase. Credit equity to record increase
Entry Sept 1 Cash A/C Dr………………………………………………1,00,000/-
To Share Capital A/C.…………………………………1,00,000/-
Accounts Cash Account, Share Capital Account

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Sept 4 Paid two months rent in advance Rs.14,000/-
Analysis Asset (Prepaid rent) increased. Asset (Cash) decreased.
Rule Debit asset to record increase. Credit asset to record decrease
Entry Sept 4 Prepaid Rent A/C Dr…………………………………14,000/-
To Cash A/C ……………………………………. 14,000/-
Accounts Prepaid Rent A/C, Cash A/C

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Sept 5 Bought Equipment in cash for Rs.12,000/-
Analysis Asset ( Equipment) increased. Asset (Cash) decreased
Rule Debit Asset to record increase. Credit asset to record decrease
Entry Sept 5 Equipment A/C Dr…………………………………12,000/-
To Cash A/C.…………………………………………..12,000/-
Accounts Equipment A/C, Cash A/C

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Sept 7 Bought material on Credit Rs.12,500/-

Analysis Expense (Purchases) increased. Liability (trade payables) increased

Rule Debit expense to record increase. Credit liability to record increase

Entry Sept 7 Purchases A/C Dr…………………………………12,500/-

To Trade Payables ………………12,500/-

Accounts Purchases A/c, Trade Payable A/C

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Sept 10 Received payment for remodelling kitchen Rs.18,600/-
Analysis Asset (Cash) increased. Revenue (Sales) Increased.
Rule Debit asset to record increase. Credit Sales to record increase.
Entry Sept 10 Cash A/C Dr…………………………18,600/-
To Sales (Revenue from Services) A/C 18,600/-

Accounts Cash a/c and Sale a/c

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Sept 14 Paid for Advertisement Rs.10,400/-
Analysis Expenses (Advertisement) increased. Asset (Cash) decreased.
Rule Debit Expense to record increase. Credit asset to record decrease.
Entry Sept 14 Advertisement A/C Dr…………………………10,400/-
To Cash A/C ………………………………………10,400/-

Accounts Advertisement A/C, Cash A/C

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Sept 17 Received payment for furnishing office – Rs.25,000/-
Analysis Asset (Cash) increased. Revenue (Sales) increased.
Rule Debit asset to record increase. Credit revenue to record increase.
Entry Sept 17 Cash A/C Dr……………………………………………25,000/-
To Sales A/C ………………………………………………25,000/-
Accounts Cash A/C, Sales A/C

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Sept 23 Billed customers for work done Rs.13,100/-

Analysis Asset (Trade receivables) increased. Revenue (sales) increased

Rule Debit asset to record increase. Credit Sales to record increase.

Entry Sept 23 Trade Receivable A/C Dr…………………………………13,100/-

To Sales A/C………………………………………………………13,100/-

Accounts Trade Receivable A/C, Sales A/C

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Sept 25 Paid Assistant’s wages Rs.2500/-
Analysis Expense (Wages) increased. Asset (Cash) decreased
Rule Debit expense to record increase. Credit asset to record decrease.
Entry Sept 25 Salaries A/c Dr…………………………………3,500/-
To, Cash A/C ….……………………………..3,500/-
Accounts Wages A/C, Cash A/c

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Sept 28 Paid Electricity charges Rs.2,400/-

Analysis Expenses (Electricity charges) Increased, Asset (cash) decreased

Rule Debit expense to record increase. Credit asset to record decrease.
Entry Sept 28 Electricity charges A/C Dr……………………………2,400/-
To, cash…………………………………………………….. …2400/-
Accounts Electricity charges A/C, Cash A/C

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Sept 29 Received payment from customers billed on September 23, Rs.4,800/-
Analysis Asset (Trade receivables) decreased. Assets (Cash) increased.
Rule Debit Asset (Cash) to record increase. Credit assets (trade receivable) to
record decrease.
Entry Sept 29 Cash A/C Dr…………………………………4,800/-
To Trade Receivables A/C ……………4,800/-
Accounts Trade receivables A/C, Cash A/C

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Sept 30 Paid a dividend, Rs.2,500/-

Analysis Dividends (Dividends) increased. Asset (Cash) decreased

Rule Debit dividends to record increase. Credit asset to record decrease.
Entry Sept 30 Dividend A/C Dr………………………………….2,500/-
To, Cash A/C Cr……………..…………………………2,500/-
Accounts Dividends A/C, Cash A/C

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