1. CAPITAL:- The amount invested in the business whether in the means of cash or kind by the proprietor or owner of the business is called capital. The capital account will be credited and the cash or assets brought in will be debited.
Journal Entry:
Example 1: Sahil started his business with cash, furniture, and a Motorbike ₹10000, ₹20000, & ₹30000, respectively.
Solution:
Example 2: Business started with cash, stock, and land ₹50,000, ₹1,00,000, and ₹8,50,000, respectively.
Solution:
2. DRAWINGS:- Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as Drawings. The Drawings account will be debited, and the cash or goods withdrawn will be debited.Journal Entry:
Example 1: Cash and Goods are withdrawn from the office for personal use ₹500 and ₹1,000, respectively.
Solution:
Example 2: Paid ₹5,000 to a carpenter for work done by him at home.
Solution:
3.EXPENSE:- Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. Rent, Commission paid, Salaries & Wages Paid, Interest paid, etc are some examples of Expenses. Expenses are a part of the Nominal account. The Cash Account will be decreased with the amount paid as expenses, so it will be credited and Expenses will be debited according to the rule of the Nominal account.
Journal Entry:
Example 1: Rent paid in cash ₹5000.
Solution:
Example 2: Interest paid in cash ₹1,000.
Solution:
Example 3: Salaries paid ₹20,000.
Solution:
INCOME:- Any monetary benefit arising from the business can be termed as income. Rent received, Commission received, Dividend earned, Interest received, etc are some examples of income. Income is treated as a Nominal account. Cash Account will be increased with the amount received as income, so it will be Debited and Income Account will be Credited according to the rule of the Nominal account.
Journal Entry:
Example 1: Commission received in cash ₹10,000.
Solution:
Example 2: Dividend received in cash ₹2,000.
Solution:
Example 3: Interest received in cash ₹500.
Solution:
SALE AND PURCHASE OF GOODS:- Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as ‘Purchases A/c’ when goods are purchased and ‘Sales A/c’ when they are sold.
Goods Account is classified into five different accounts for the purpose of passing journal entries:
A. Purchases Account: When goods are purchased in cash or credit, donated, lost, or withdrawn for personal use, in all these cases, Goods are denoted as Purchases A/c.
Journal Entry:
- Goods purchased for cash
- Goods Donated
- Goods are withdrawn for personal use
- Goods lost by fire
Example:
- Goods purchased in cash ₹25,000.
- Goods worth ₹5,000 were given as a donation.
- Goods worth ₹1,000 taken away for personal use by proprietor.
- Goods lost by fire ₹2,500
Solution:
B. Sales Account: When goods are sold, then it is represented as Sales A/c.
Journal Entry:
Example:
- Goods sold to Nupur on credit worth ₹2,000.
- Goods sold to Gaurav for cash ₹5,000.
Solution:
C. Purchase Return or Return Outwards Account: When purchased goods are returned to the supplier, it is denoted as Purchase Return A/c or Return Outwards A/c.
Journal Entry:
Example: Goods purchased worth ₹2,000 from Shubham were returned.
Solution:
D. Sales Return or Return Inwards Account: When goods sold are returned by the customers, it is termed as Sales Return or Return Inwards A/c.
Journal Entry:
Example: Goods sold to Nupur were returned worth ₹1,000.
Solution:
E. Stock: The leftover unsold goods at the end of a financial year are represented through stock. Closing Stock is the valuation of goods leftover at the end of a financial year, and Opening Stock is the valuation of goods an enterprise has at the beginning of a financial year.
Journal Entry:
Transactions related to the purchase and sale of goods can be of two types, Cash or Credit.
A. Cash Transactions: Cash transactions are those transactions in which payment is made or received in cash at the time of purchase or sale of goods. Cash transactions can be identified by:
- When the Name of the Party and Cash both are given in the transaction;
- When only Cash is given in the transaction;
- When the Name of the Party and Cash both are not given.
Journal Entry:
Example:
- Goods purchased from Bijay for Cash ₹5,000; or
- Goods purchased for cash ₹5,000; or
- Goods Purchased for ₹5,000.
Solution: For all these three cases, a common journal entry will be passed:
Example:
- Goods sold to Gaurav for Cash ₹10,000; or
- Goods sold for cash ₹10,000; or
- Goods sold for ₹10,000.
Solution: For all these three cases, a common journal entry will be passed:
B. Credit Transactions: Credit transactions are those transactions in which payment is not made or received at the time of purchase or sale of goods. Credit transactions can be identified by:
- When only the Name of the Party is given in the transaction.
Journal Entry:
Example: Goods purchased from Akanksha ₹7,000.
Solution:
Example: Goods sold to Sabya ₹11,000.
Solution:
Recording of Banking Transactions:
All businesses make many transactions with the bank in their day-to-day activities. Journal Entries related to banking transactions are as follows:
1. When cash is deposited in the bank:
Journal Entry:
Example: Cash is deposited in the bank ₹10,000.
Solution:
2. When cash is withdrawn from the bank:
Journal Entry:
Example: Cash is withdrawn from the bank ₹2,000.
Solution:
3. When cash is withdrawn from the bank for personal use:
Journal Entry:
Example: Proprietor withdrew cash from the bank for his personal use ₹5,000.
Solution:
4. When the cheques, drafts, etc., received from the customers are not sent to the bank for collection on the same date and deposited at the bank on any other day or endorsed to any other party.
A. When any cheque is received and not sent to the bank for collection:
Journal Entry:
Example: 01 April 2022- A cheque of ₹11,000 was received from Bijay.
Solution:
B. When the above cheque was sent to the bank for collection:
Journal Entry:
Example: 05 April 2022- Cheque received from Bijay was sent to Bank.
Solution:
OrC. If the above cheque was endorsed in favour of any other party:
Journal Entry:
Example: 05 April 2022- Cheque received from Bijay was endorsed to Nupur.
Solution:
5. When the cheques, drafts, etc., received from the customers are sent to the bank for collection on the same date:
Journal Entry:
Example: A cheque of ₹5,000 was received from Sayeba and deposited in the bank on the same day.
Solution:
6. When a customer directly deposits any amount in the firm’s bank account:
Journal Entry:
Example: Gaurav, a debtor, deposited ₹20,000 directly into the firm’s bank account.
Solution:
7. When a cheque previously deposited into the bank gets dishonoured:
Journal Entry:
Example: Cheque received from Sayeba ₹5,000, which was earlier deposited into the bank gets dishonoured.
Solution:
1. Payment is received through cheque, and a discount is allowed.
A. When a cheque is received from a customer, and a discount is allowed to him (Cheque is deposited into the bank on the same day):
Journal Entry:
Example: Received a cheque of ₹19,400 from Vishal and deposited it in the bank, and offered him a discount of ₹600.
Solution:
B. If the above cheque gets dishonoured:
Journal Entry:
Example: Vishal’s cheque which was sent to the bank for collection, and got dishonoured.
Solution:
2. When a payment is made through cheque:
Journal Entry:
Example: Paid to Akanksha through cheque ₹8,000.
Solution:
3. When expenses are paid through cheque:
Journal Entry:
Example: Rent paid through cheque ₹800.
Solution:
4. When interest is charged by the bank:
Journal Entry:
Example: Interest charged by bank ₹500.
Solution:
5. When interest is allowed by the bank:
Journal Entry:
Example: Interest allowed by bank ₹1,000.
Solution:
6. When a bank charges any amount for the services rendered:
Journal Entry:
Example: Bank charges ₹50.
Solution:
