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Topic# 4:

Basic Books of Accounts-- General Journal.

Prepared & Delivered by: Babar Akhtar

Lecture Outline
What is an Account
Classification of Accounts
General Journal
Rule For Debit and Credit
Frequently Debited & Credited Items

What
Is
An
Account?
Every transaction has two aspects
and each aspect has an account. It
is stated that an account is a
summary
of
relevant
transactions
at
one
place
relating to a particular head.
The accounts are classified into
following heads:
Assets
Liabilities
Income
Expenses (further divided into capital and revenue

Classification of
Accounts
Transactions can be divided into
three categories.
I. Transactions relating to individuals
and firms
II. Transactions relating to properties,
goods or cash
III. Transactions relating to expenses or
losses and incomes or gains.

Classification of
Accounts

Classification of
Accounts
Personal Accounts : The accounts which
persons. Personal accounts include the following.

relate

to

I. Natural Persons : Accounts which relate to individuals.


For example, Mohsins A/c, Shakeels A/c etc.
II. Artificial persons : Accounts which relate to a group of
persons or firms or institutions. For example, HMT Ltd.,
Indian Overseas Bank, Life Insurance Corporation of India,
Cosmopolitan club etc.
III.Representative Persons: Accounts which represent a
particular person or group of persons. For example,
outstanding salary account, prepaid insurance account, etc

Classification of
Accounts
Impersonal Accounts: All those accounts which are
not personal accounts. This is further divided into two
types viz. Real and Nominal accounts.
I.

Real Accounts: Accounts relating to properties and


assets which are owned by the business concern. Real
accounts include tangible and intangible accounts. For
example, Land, Building, Goodwill, Purchases, etc.

II. Nominal Accounts: These accounts do not have any


existence, form or shape. They relate to incomes and
expenses and gains and losses of a business concern. For
example, Salary Account, Dividend Account, etc.

General Journal
The general journal is where
double entry bookkeeping entries are
recorded by debiting one or more
accounts and crediting another one
or more accounts with the same total
amount. The total amount debited
and the total amount credited should
always be equal, thereby ensuring
the
accounting
equation
is
maintained.

General Rules For Debit


and Credit:
Debits:
Any account that obtains a benefit is Debit.

Credits:
Any account that provides a benefit is Credit.
OR
Anything to which the business has a responsibility to return
a benefit in future is Credit

ules of Debit and Credit for Assets

crease in Asset is Debit


ecrease in Asset is Credit

Rules of Debit and Credit for


Liabilities:
Increase in Liability is Credit
Decrease in Liability is Debit

Rules of Debit and Credit for


Expenses:
When we pay cash for any expense that
expense account benefits from cash,
therefore, it is debited.
Increase in Expenditure is Debit
Decrease in Expenditure is Credit

ules of Debit and Credit for Income:

crease in Income is Credit


ecrease in Income is Debit

Nature of
Accounts

Personal
Accounts

Definition
The element of accounts,
which represents persons or
organizations whom a
business usually deals with.

Real
Accounts

The element of accounts,


which represents Assets,
Liabilities and owner's Equity.

Nominal
Accounts

The element of accounts,


which represents Income,
Expenses
Profit, Loss etc

Rules For Debit


& Credit
*Debit The Receiver
(Debtor, A/c
Receivable)
*Credit The Giver
(Creditor, A/c
Payable)
*Debit what comes
in the business
*Credit what goes
out of the business
*Debit all losses and
expenses
*Credit all gains and
Incomes

Frequently
Debited Items

Frequently
Credited Items

Expenses/Charges (all
types)

Income (all types)

Costs (all types)

Earning (all types)

Losses (all types)


Charity, Donation, Free
Samples

Profit (all types)

Purchases

Sales

Sales Return

Purchase Return

Discount Allowed

Discount Received

Reserves, Funds