Journal

Books of……………….
Journal
Date Particulars LF Dr (Rs) Cr (Rs)
2019 3 1,00,000
Apr 1 Cash a/c Dr. 5 1,00,000
¼ To Capital a/c
“3 (being commencing business)
Simple & Compound entries
SIMPLE ENTRIES COMPOUND ENTRIES
Only two accounts are effected More than two accounts are affected
Cash a/c Dr 50,000 Cash a/c Dr. 50,000
To capital a/c 50,000 Bank a/c Dr. 5,00,000
To capital a/c 5,50,000
Bank a/c Dr. 5,00,000
To Capital a/c 5,00,000
Discount
• Trade Discount  reduce from the purchase price because of
purchase / sale in bulk quantities.
• not recorded in the books

• CASH DISCOUNT  allowed due to prompt payment (by cash /by

cheque)
When goods sold and received cash When goods are purchased and payment
is made in cash
Cash a/c Dr. Creditor a/c Dr.
Discount allowed a/c Dr. To Cash a/c
To Debtor a/c To Discount Received a/c
Rebate
• It is reduction in value of goods sold.
• Maybe because goods are not upto specifications, not of the required
quality.
• When sold goods and allowed rebate
• Rebate allowed a/c Dr.
To Debtor a/c
When goods are purchased and received rebate
Creditor a/c Dr.
To Rebate received.
BAD DEBTS-
• Goods sold on credit and now not recoverable or partially recovered.
• Reasons- insolvent
• The amount not recovered is Bad Debts. expense  Debited.
• --% of the debts or – paise in a rupee can be recovered.
Fully not recovered Partial recovered
Eq- amit cant pay his debts of Rs.10,000 Eq- Navin can pay only 60% of his debts
of Rs.20,000
Bad debts a/c Dr. 10,000 Cash a/c Dr. 12,000
To Amit a/c 10,000 Bad debts a/c Dr. 8,000
To Navin a/c 20,000
Bad debts recovered
• Old debt which was written off as bad debts is now recovered.
• Use Bad debts recovered a/c  income  credited

• Cash a/c Dr.

To Bad debts recovered a/c

Don’t bring the debtor back in the books.

 Goods given as --
• Exceptions to the rule that Purchases a/c is always debited.
• Meaning here Purchases a/c is credited because goods are not sold
that’s why we reduce our purchases.
CHARITY / DONATION SAMPLES/ ADVERTISEMENT WITHDRAWN FOR PERSONAL
USE
Charity / Donation a/c Dr. Samples a/c / Advertisement a/c Dr Drawings a/c Dr
To Purchases a/c To Purchases a/c To Purchases a/c

Expenses  debited Expenses  debited Expenses  debited

Questions
• Goods worth Rs.2,000 given as charity.
• Only 30 paise in rupee could be recovered from Aman against his debt
of Rs.10,000
• Goods distributed as free samples worth Rs.5,000 in a mall.
• Old debts written off of Rs.5,000 now recovered.
 Loss by Fire / Theft
• It is a loss. No sale is made that’s why purchases a/c is credited.
• Loss by Fire/ theft a/c Dr.
To Purchases a/c
• GOODS ARE INSURED
Full amount of claim is received Part amount of claim is received
Insured and claim is lodged with the insurance co. (transferring the loss to the
co.)
Insurance co. a/c Dr.
To loss by fire/ theft a/c same JE

Amount recovered Part amount recovered

Bank a/c Dr. Bank a/c Dr.
To Insurance co. a/c Loss by fire/theft a/c (P&La/c) Dr.
To Insurance co. a/c
Contd/-
• GOODS ARE NOT INSURED

• Loss by fire/ theft a/c Dr.

To Purchases a/c

P&L a/c Dr.

To Loss by fire/theft a/c
Goods worth Rs.10,000 were destroyed in fire in godown. Fully
insured, but only 80% claim was received from the insurance co.
• Journal
Date Particulars LF Debit(Rs.) Credit (Rs)
Loss by fire a/c Dr. 10,000
To Purchases a/c 10,000
(being goods lost by fire
accounted)
Insurance co. a/c Dr. 10,000
To Loss by fire a/c 10,000
(being insurance claim filed with
the Insurance co.)
Bank a/c Dr. 8,000
Loss by fire a/c(P&L a/c) Dr. 2,000
To Insurance co. a/c 10,000
(being claim received from the
insurance co.)
Purchase & Sale of FA
• FA increases the earning capacity of the business.
• Not for resale purposes.
• Don’t use PURCHASES a/c
• USE THE CONCERNED FIXED ASSETS A/C

• For purchases
Fixed Assets a/c Dr.
To Cash / Bank a/c (for cash purchase)
OR
To Supplier’s a/c (for credit purchase)
Expenditure on installation of FA
• Any expenses incurred to bring the FA in usable condition.
• Like carriage or installation of machinery, freight or wages paid for
installation or material for construction of building etc are Capital
expenses- debited to respective FA a/c.

Not treated as Revenue expenses.

Eg- bricks, cement etc for Rs.1,50,000 and timber of Rs.2,00,000
purchased for construction of building. Paid by cheque.
Building a/c Dr. 3,50,000
To Bank a/c 3,50,000
Depreciation on FA
• Decrease in the value of FA due to usage or efflux of time.
• Given in %age.
• If p.a given, then time factor is taken into consideration.
• No depreciation on LAND.
• It is non-cash expense don’t use cashexpensedebited
• Dep. = Cost X depreciation rate / 100 X months used / 12

• Depreciation a/c Dr.

To Fixed Assets a/c
Sale of FA
• **Cash / Bank a/c Dr. (for cash sale)
** Purchaser’s a/c Dr. (for credit sale)
Loss on sale of FA a/c* Dr. (Book value – Sale price)
To Fixed Assets a/c (Book value)
To Gain on sale of FA a/c * (sale price – Book value)

* Either of two a/c will appear.

** either of two a/c will appear.
Sundry Expenses
• Petty expenses ie small expenses (amount) for which no need to open
an a/c
• Sundry Expenses / Miscellaneous expenses a/c Dr.
To Cash a/c
Adjustments
• Outstanding Expenses – due but not paid yet Current Liabilities
• Eg- Wages not paid yet

• Wages a/c Dr.

To Outstanding wages a/c
Prepaid Expenses
• Paid in advanve. Not yet due. Benefit will come in next year.
• Treated as Current Assets
• Eg- Insurance premium paid in advance for next year

• Prepaid Insurance a/c Dr.

To Insurance a/c
Accrued Income
• Income is due but not yet received  treated as Current assets
• Eg- interest due but not received till 31/3

• Accrued Interest a/c Dr.

To Interest a/c
Income received in advance
• Not yet due to be received (earned) but still received treated as
Current Liabilities
• Eg – rent for the building paid for 13 months one month rent is in
advance

• Rent Received a/c Dr.

To Rent received in advance a/c
Interest on capital
• It is allowed on the funds invested by proprietor.
• It is calculated for the period for which the capital is used in the business,
normally it is one FY.
• It is an expense for the business and an income for the proprietor.
• JE Interest on Capital a/c Dr.
To Capital a/c
It is allowed on the opening capital ie with which the business was started.
If introduced additional capital during the year – interest is calculated from the
date of introduction till the end of the FY
If withdrawn during the year- no interest on the amount withdrawn. this is
withdrawal of capital not of cash or goods.
Eg-
• A has 1,00,000 as capital on 1/4/2019 interest on cap @ 6% p.a
Interest = 1,00,000 X 6 / 100 = 6,000

• He introduced capital on 1/10/2019 – Rs.50,000

Interest = 1,00,000 X 6 / 100 = 6,000
Interest on additional cap = 50,000 X 6 /100 X 6/12 = 1,500
7,500
Contd/-
• A has 1,00,000 as capital on 1/4/2019 interest on cap @ 6% p.a
He withdrew 40,000 on 1/10/2019.

Interest = 60,000 X 6 / 100 = 3,600

Interest on balance = 40,000 X 6/100 X 6/12 = 1,200
4,800
OR
Interest = 1,00,000 X 6 / 100 = 6,000
Interest on withdrawal = 40,000 X 6/100 X 6/12 =(1,200)
4,800
Formula for calculating Opening Capital
• Closing Capital on 31/3
(+) Drawings of capital
(+)Drawings for personal use

(-) Profit made during the year

(-) additional capital introduced

= Opening Capital on 1/4

Interest on Drawings
• Drawings is amount withdrawn by the proprietor for personal use
against profits.

 NOT CAPITAL WITHDRAWAL

• JE Capital a/c Dr.

To Interest on drawings a/c

Drawings X rate / 100 X months / 12

Opening Entry
• Last year’s balance bought forward in current year’s books.

• Assets a/c Dr.

To Liabilities a/c
To Capital a/c (assets – liabilities) bal.fig, if not given