Passing Journal entries by understanding three golden accounting principles part-1

Here we are going to learn how to pass journal entries by understanding three golden principles.

Let us begin with introduction of business. Business is treated as separate entity so, while passing the journal entry you should treat it as artificial person. some simple techniques are sufficient to pass entry. Here you have to assume you as business that’s it.

Entry 1:-

Cash Bought into business of Rs.100000/- by raj

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Cash A/c      Dr          To Raj capital  A/c	100000	100000

(Being Capital introduced into business)

Rule for passing entry

On business side:- It is receiving cash and liable to pay back to the person who invested.

Debit

Cash is treated as asset. The real account rule is applicable:-Debit what comes into business, here cash is coming into business.So, it is debited.

Credit

Raj is person. The personal account rule is applicable:-Credit the giver account ,here raj is giving cash he is a giver.So, it is credited. 

Entry 2:-

Goods purchased of worth Rs. 10000/- by paying cash

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Purchase A/c      Dr          To Cash  A/c	10000	10000

(Being goods purchased on cash)

Rule for passing entry

On business side:- It is receiving goods and paying cash.

Debit

Goods are treated as asset. The real account rule is applicable:-Debit what comes into business, here goods are coming into business. So, it is debited.

Credit

Cash is treated as asset. The real account rule is applicable:-Credit what goes out of business, here cash is going out of business. So , it is credited.

Entry 3:-

Goods sold on cash of worth Rs.30000/-

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Cash A/c      Dr          To Sales  A/c	30000	30000

                 

(Being goods sold on cash)

Rule for passing entry

On business side:- It is receiving cash and goods are going out of business.

Debit

Cash is treated as asset. The real account rule is applicable:-Debit what comes into business, here Cash is coming into business. So, it is debited.

Credit

Goods are treated as asset. The real account rule is applicable:- Credit what goes out of business, here goods are going out of business. So, it is credited.

Entry 4:-

Rent paid of Rs.5000/-

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Rent A/c      Dr          To Cash  A/c	5000	5000

              

(Being rent paid by cash)

Rule for passing entry

On business side:- It is incurring rent expense and paying cash.

Debit

As rent paid is treated as Expense. The Nominal account rule is applicable:-Debit all expense or loss, here rent paid is expense. So, it is debited.

Credit

Cash is treated as asset. The real account rule is applicable:-Credit what goes out of business, here cash is going out of business. So , it is credited.

Entry 5:-

Commission received of Rs.3000/-

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Cash A/c      Dr          To Commission income  A/c	3000	3000

                

(Being Commission received)

Rule for passing entry

On business side:- It is receiving cash from commission income .

Debit

Cash is treated as asset. The real account rule is applicable:-Debit what comes into business, here Cash is coming into business. So, it is debited.

Credit

Commission Income are treated as income. The Nominal account rule is applicable:- Credit all income or gains, here commission income is received by business. So , it is credited.

Entry 6:-

Salary payable Rs.15000/-

SL.NO	PARTICULAR	DEBIT	CREDIT
1	Salary A/c      Dr          To Salary payable  A/c	15000	15000

                  

(Being salary for the previous month is payable)

Rule for passing entry

On business side:- It is receiving cash and goods are going out of business.

Debit

Salary paid is treated as Expense. The Nominal account rule is applicable:-Debit all expense or loss, here salary paid is expense. So, it is debited.

Credit

Salary payable is representative person. The personal account rule is applicable:- Credit the giver account, here salary payable is treated as representative person because it represents salary of many persons. So, it is credited.

In above we covered six entries. 

The remaining entries will be covered in part- 2

link to the 2nd part of this topic