Journal examples 3

Bad Debts:

When the goods are sold to customers on credit, there can be a situation where a few of them fail to pay the amount due to them because of insolvency or any other reason, and then the amount that remains unrecovered is called Bad Debts.

Journal Entry:

Example: 

1. Amount due from Gaurav ₹5,000 is irrecoverable as he became insolvent.
2. Gaurav, from whom the amount due was ₹5,000, became insolvent, and only 60 paise in a rupee is recovered from his estate.

Solution:

Bad Debts recovered:-

When the amount that is earlier written as bad debts, is now recovered, it is called bad debts recovered.

Journal Entry:

Example: A sum of ₹2,000 earlier written as bad debts is now recovered.

Solution:

 3. Sometimes insured goods are lost by fire, theft, or any other reason. There can be three cases related to the loss of insured goods or assets.

A. Claim does not get accepted by the Insurance Company: 

Journal Entry: 

Example: 

1. Goods lost by fire ₹50,000. Insurance co. does not accept the claim.
2. Assets lost by fire ₹20,000. Insurance co. does not accept the claim.

Solution: 

 

B. Insurance Company partly accepted the claim: 

Journal Entry: 

 

Example: 

1. Goods lost by fire ₹50,000. Insurance co. accepted the claim worth ₹30,000.
2. Assets lost by fire ₹20,000. Insurance co. accepted the claim worth ₹15,000.

Solution: 

 

C. Insurance Company fully accepted the claim: 

Journal Entry: 

Example: 

1. Goods lost by fire ₹50,000. Insurance co. fully accepted the claim.
2. Assets lost by fire ₹20,000. Insurance co. fully accepted the claim.

Solution: 

 

For receiving the claim money:

Journal Entry: 

Example: Amount of claim money ₹50,000 received.

Solution: 

A business can take an amount of money as a loan from a bank or outsider. In return, the business has to pay interest. 

A. Loan is taken from a bank or person:

Journal Entry: 

Example: ₹10,000 was taken as a loan from the bank.

Solution: 

 

B. Interest charged by the bank or person and then paid: 

There can be a situation where the interest is charged first and then paid. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

 

Example: Bank charged interest of ₹500 on loan taken.

Solution: 

ii. Journal Entry: (On payment of interest)

 

Example: Interest due ₹500 on loan taken is paid.

Solution:

Or

C. Interest paid to bank/person on the loan: 

In this case, only a single entry is passed because interest is directly paid.

Journal Entry: 

 

Example: Interest of ₹500 has been paid to the bank on the loan taken.

Solution: 

Businesses can also provide loans to any person or entity.

A. Loan is given to a person:

Journal Entry: 

  Example: A loan of ₹5,000 has been provided to Dharmesh.

Solution: 

 

B. Interest charged and then received on loan given:

There can be a situation where the interest is charged first and then received. There will be two Journal Entries in this case.

i. Journal Entry: (On charging of interest)

 

Example: Interest of ₹250 is charged to Dharmesh on a loan provided to him.

Solution: 

 

ii. Journal Entry: (On receiving of interest)

 

Example: Interest due ₹250 is received on loan provided to Dharmesh.

Solution:

 

Or

C. Interest received on loan given:

In this case, only a single entry is passed because interest is directly received.

Journal Entry: 

 

Example: Interest of ₹250 is charged to Dharmesh on a loan provided to him.

Solution: 

Outstanding expenses are those expenses that are related to the same accounting period in which accounts are being made but are not yet paid.

Journal Entry: 

 

Example 1: Salaries due to employees ₹11,000.

Solution:

 

Example 2: Rent due to landlord ₹20,000.

Solution:

Such expenses which are concerned with the next financial year but have been paid in the current year are called prepaid expenses. Prepaid expense journal entry is recorded by debiting the particular expense and crediting cash. Prepaid Expenses are also known as Unexpired or Advance Expenses.

Prepaid Expenses Journal Entry

Example 1: Out of the rent paid this year, $5,000 is related to next year.

Solution:

Example 2: Interest paid in advance $500.

Solution:

An income that has been earned but not yet received in the current financial year is called Accrued Income. It is recorded with an adjusting entry to recognise the income earned during the accounting period. Accrued Income Journal Entry is recorded by debiting the Accrued Income A/c and crediting that particular income.

Accrued Income Journal Entry

Example 1: Commission earned but not yet received 1,000.

Solution:

Example 2: Dividend 2,000 has not been received yet.

Solution: 

Sometimes, businesses receive money relating to the coming month or year which has not been earned yet. Such an income that has not been earned yet but has been received in advance is called Unearned Income. Unearned Income is considered to be a liability by the business. 

Ex- If the Commission for the month of July is received in the month of June, that commission will be termed as Unearned Commission.

Journal Entry: 

Example: Commission received in advance ₹2,000.

Solution:

Next year, unearned commission will be adjusted as:

Journal Entry: 

Income Tax is paid by the business on the profit earned during the year. Income Tax is a personal liability of the proprietor. The journal entry will be:

A. Payment of Income Tax:

Journal Entry: 

Example: 

Income Tax paid ₹1,500.

Refund of Income Tax received ₹500.

Solution