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ACCOUNTING

MECHANISMS &
FINANCIAL STATEMENTS

Prepare the
Financial
Statements

Business
transactions are
created

Analyze &
Record the
Transaction
Post the
information
from the Journal
to the Ledger

Prepare a
Post-Closing
Trial Balance
Post closing
Entries from the
Journal to the
Ledger

Journalize
Closing
Entries

Prepare a Trail
Balance

Prepare an
Adjusted
Trial
Balance

Post
Adjustments
from the
Journal to the
Ledger

Journalize
Adjusting
Entries

MEANING AND DEFINITION OF JOURNAL

The word Journal has been derived from the French word Jour meaning
daily records.

The Journal records all daily transactions of a business in the order in which
they occur.

According to Robert Anthony, The Journal is a chronological record of


accounting transactions showing the names of the accounts that are to be
debited or credited, the amounts of debits and credits, and any useful
supplementary information about the transactions.

Performa of Journal
Date Particulars L.F.

Dr. (Rs) Cr. (Rs)

RULES OF DEBIT AND CREDIT


Debits

represents increases in value of


assets and expenses and decreases in
income, liabilities and equity.
Credits represent increases in liabilities,
equity and income and decreases in assets
and expenses.

CLASSIFICATION OF ACCOUNTS

Personal account

Real account

Nominal account

PERSONAL ACCOUNTS

Natural personal account: E.g. Vijays account, Sanjays account.

Artificial personal account: E.g. limited company, co-operative society.

Representative personal account: E.g. when the rent is due to landlord,


outstanding rent account is opened in the books. Thus, the outstanding rent
account represents the account of landlord to whom the rent is payable.

Golden Rule:

Debit the Receiver


Credit the Giver

REAL ACCOUNTS

Tangible real account: it can be touched felt and measured. E.g. cash
account, building account, furniture account.

Intangible real account: E.g. patent account, goodwill account.

Golden Rule:

Debit What Comes In,


Credit What Goes Out.

NOMINAL ACCOUNTS

These accounts are opened in the books of accounts to simply explain the
nature of the transactions.

These accounts are also known as Revenue and expense accounts or


temporary accounts.

E.g. salary paid, rent paid.

Nominal accounts mainly include accounts of expenses, losses, income and


gains.

Golden Rule:

Debit all Expenses or Losses


Credit all Income or Gains

Rent paid

Rent A/c Nominal account

Dr

Cash A/c Real A/c

Cr

Salaries paid
Salaries A/c
Cash A/c

Nominal A/c

Dr

Real A/c

Cr

Interest Received
Cash A/c

Real A/c

Dr

Interest A/c Nominal A/c Cr

Furniture purchased

Furniture A/c Real A/c

Dr

Cash A/c Real A/c

Cr

Outstanding for salaries


Salaries A/c

Nominal A/c

Dr

Outstanding Salaries A/c Personal A/c Cr


Paid to Suresh
Suresh personal A/c
Cash A/c Real A/c

Dr
Cr

Examples of Journal entries


1.

Mr. A commences business with a capital of Rs 1,00,000.

2.

Goods purchased from Mr. Y for cash Rs 5,000.

3.

Goods purchased worth Rs 20,000 on credit from Mr. A.

4.

Goods returned to Mr. X.

5.

Goods sold to Mr. X for cash Rs 7,000.

1.

Cash A/c

Dr

1,00,000

To Capital A/c

1,00,000

(Being commencement of business)


2.

Purchases A/c

Dr 5,000

To Cash A/c

5,000

(Being goods purchased for cash)


3.

Purchases A/c

Dr

20,000

To As A/c

20,000

(Being purchased goods on credit)


4.

Mr. Xs A/c

Dr

100

To Purchase return A/c

100

(Being goods returned to Mr. X)


5.

Cash A/c

Dr

To Sales A/c
(Being goods sold for cash)

7,000
7,000

Examples of Journal entries


1.

Goods sold to Mr. Y for Rs 4,000

2.

Goods returned by Mr. Z

3.

Machinery sold for Rs 12,000

4.

Salaries paid for Rs 3,200

5.

Amount received from Mr. Z Rs 990 and discount allowed Rs 10

1.

Mr. Ys A/c

Dr

4,000

To Sales A/c

4,000

(Being goods sod to Mr. Y on Credit)


2.

Sales return A/c

Dr

100

To Mr. Zs A/c

100

(Being goods returned by Mr. Z)


3.

Cash A/c

Dr

12,000

To Machinery A/c

12,000

(Being machinery sold)


4.

Salaries A/c

Dr

3,200

To Cash A/c

3,200

(Being salaries paid)


5.

Cash A/c

Discount A/c Dr
To Mr. Zs A/c

Dr

990
10
1,000

(Being amount received from Mr. Z and discount allowed)

Examples of Journal entries


1.

Amount paid to Mr. K for Rs 1,980 and discount allowed Rs 20.

2.

Depreciation on furniture Rs 2,000

3.

Interest on capital Rs 1,000

4.

Amount withdrawn by the proprietor for personal or domestic or private use


Rs 3,000.

5.

Distribution of goods as free sample Rs 100.

1.

Mr. Ks A/c

Dr

2,000

To Cash A/c

1,980

To Discount A/c

20

(Being amount paid to Mr. K and discount received)


2.

Depreciation A/c

Dr

2,000

To Furniture A/c

2,000

(Being depreciation charged on furniture)


3.

Interest on capital A/c

Dr

To Capital A/c

1,000
1,000

(Being interest on capital)


4.

Drawing A/c

Dr

To Cash A/c

3,000
3,000

(Being amount withdrawn by the proprietor)


5.

Free samples or Advertising A/c

Dr

To purchases A/c
(Being distribution of goods as free samples)

100
100

Shalini Arora set up Ace Marketing Ltd to provide consultancy. During a short period,
the company completed the following transactions:

a)

Shalini invested cash in Aces share capital Rs 20,000

b)

Billed customers for services provided Rs 5,600

c)

Paid assistants salary Rs 600

d)

Bought computer on credit Rs 4,400

e)

Received cash from customers billed earlier Rs 1,350

f)

Took a bank loan Rs 5,000

g)

Paid for computer in d) Rs 2,000

h)

Received fee for professional services Rs 8,250

i)

Paid dividends Rs 1,100


Prepare Journal entries to record the above transactions.

Sum 1.xlsx

Journalize the following transactions. Also state the nature of each account involved in the Journal entry.

1.

1st December 2013, Mr. F started business with cash Rs 50,000.

2.

Dec 3, he paid into the Bank Rs 10,000

3.

Dec. 5, he purchased goods for cash Rs 20,000.

4.

Dec. 8, he sold goods for cash Rs 7,000.

5.

Dec. 10, he purchased furniture and paid by cheque Rs 4,000.

6.

Dec. 12, he sold goods to Arvind Rs 4,000.

7.

Dec. 14, he purchased goods from Amrit Rs 10,000.

8.

Dec. 15, he returned goods to Amrit Rs 5,000.

9.

Dec. 16, he received from Arvind Rs 3,960 in full settlement.

10.

Dec. 18, he withdrew goods for personal use Rs 1,000.

11.

Dec. 20, he withdrew cash from business for personal use Rs 2,000.

12.

Dec. 24, he paid telephone charges Rs 1,000

13.

Dec. 26, cash paid to Amrit in full settlement Rs 4,900.

14.

Dec. 31, paid for stationery Rs 200, rent Rs 500 and salaries to staff Rs 2,000

15.

Dec. 31, goods distributed by way of free samples Rs 1,000.