Journal Revision
Accounting is divided into two parts
Assets Capital
Losses = Liabilities
Expenses Incomes
( Are debited) ( Are credited)
Changes may be two sided.
Changes may be one sided
Two sided
Assets Capital
Losses = Liabilities
Expenses Incomes
( Are debited) ( Are credited)
Two sided changes
Assets Capital
Losses = Liabilities
Expenses Incomes
( Are debited) ( Are credited)
Examples:
-Bank Loan of Rs 2 lac obtained.
-Cash Sales of Rs. 1 lac.
One sided changes
One sided changes
Assets Capital
Losses = Liabilities
Expenses
Incomes
( Are debited)
Examples: ( Are credited)
-Expenses of Rs
.10,000 paid
- Loss of Asset Rs-5,000/-.
Journal Entries
……………Debited…………………..
………………Credited…………………..
Journal Entries
… Assets, Losses, Expenses……(Debited)……………..
………Capital,Liabilities, Incomes…( Credited)……
Nature of Accounts
Nature of Accounts
1. Personal Accounts Natural Person/Institution
2. Real Accounts Assets/Properties
3. Nominal Accounts Expenses/Losses, Incomes/Gains
Assets
( Are purchased for use and not for re-selling)
Assets
Fixed or Non-Current Assets
• Land
• Building
• Plant
• Machinery/Equipment
Intangible Assets
• Goodwill
• Patents
• Copy Rights
• Trademarks
Non- Fixed or Current Assets
• Cash
• Cash equivalents(Cheques/Pay orders/Bills of Exhange,etc)
• Bank Deposits ( Money at Bank)
• Accounts receivables ( Cash to be received)
• Inventory ( Closing Stock)
• Investment (Marketable securities)
• Office supplies
Expenses
Expenitures
A= Fixed Expenditures ( Asset Purchased,
Land,goodwill, patent,etc)
B= Expenses ( Recurring Expenditure)
1. Manufacturing Expenses ( Converting raw material to finished goods -
direct/regular/ recurring)
2. Non-Manufacturing Expenses : Not involved in manufacturing process
but relevant : Administrative / Marketing expenses, interest/rent
payments, etc,- Indirect/Regular/ recurring.
Reference Account
In double entry system, every account
has its Reference Account.
Expense Accounts
Expense Accounts
Expenses Account Reference Account
1. Cash Purchases /Credit Cash or Accounts Payable/Name of Person
2. Wages paid/payable Cash or Wages Payable /Name of person
3. Salaries paid/payable Cash or Salaries Payable /Name of person
4. Interest paid/payable Cash or Interest Payable /Name of person
5. Commission paid/payable Cash or Interest Payable /Name of person
6. Tax paid/payable Cash or Interest Payable /Name of person
Income Accounts
Income Accounts
Income Account Reference Account
1. Sales Cash or Account Receivable /Name of person
2. Interest income Cash or Interest Receivable /Name of person
3. Commission Income Cash or Interest Receivable /Name of person
4. Dividend Income Cash or Interest Receivable /Name of person
Returns
Reference Account
Purchases Returns Cash received or to whom has returned
……………………………………………………………………………………………………………….
Sales Returns Cash paid or from whom returns received
Matching Principle
Incomes are matched with expenses
Matching Principle
• Sales Income is matched against all expenses incurred
from converting raw material into saleable goods ( both
direct or indirect expenses are included).
• Incomes or expenses are matched with accounting period.
• Beyond year expenses/incomes are separated from the
yearly expenses ( termed advances).
What is the difference ?
Expense Account
Expense Payable Account
Expense incurred means
Expense incurred means
Mr.A worked for you whole day. His wages are
Rs-2,000/-
• Have you utilized his services and got your benefits?
• Has expense incurred(happened) or not ?
Payment against the utilized services has become due.
Expense has incurred(happened).
Q: Are you bound to pay him or not?
It is his money with you or not ?
Incurred expense
•Q: If you request the worker to get money
after 10 days, and he has agreed: will you
enter the transaction today or not ?
Incurred Expense
You will maintain two accounts in case of deferred
payment:
Wages a/c
Wages Payable a/c/A’s a/c
……………………………………………………………………..
Two accounts shall be maintained ,If payment has been
made immediately:
Wages a/c
Cash a/c
Income incurred means
Income incurred means
You have rented out shop to Mr.X against Rs-
50,000/p.m.
• Has Mr.X has utilized the shop and got his benefits?
• Has income incurred( became due) or not for you?
Q:Has payment against the utilized shop become due
against Mr.X.?
Q: Are you entitled to get Rs-50,000/- from Mr.X or
not?
Q: Is it your money with X or not ?
Incurred Income
•Ans: If you have earned money and get
payment immediately. ( entry)
•Q: If you agree to get money after two
months from X, will you enter the
transaction today in your books or not ?
Income Incurred and payment
received
Two accounts
Cash a/c
Income a/c
Entries in Your books
You have rented out shop to Mr.X against Rs-
50,000/p.m.
1. Entry when cash received.
2. Entry when cash not received
1.Income earned but not received during the
current year, it will be treated as income
for the current year.
2.Expense incurred but not paid during the
current year, it will be treated expense for
the current year.
Journal Entries of Mr. A’s Business
1. Cash of Rs-5 lac received from Mr.A.
2. Machinery purchased of Rs-1lac.
3. Bank Loan of Rs-2lac received from Habib Bank.
4. 2% interest on loan from Habib Bank is due.
5. Credit purchases of Rs.50,000/- from D.
6. 5% purchases from D have been returned being defective.
7. Credit sales of Rs.200,000/- to X.
8. 5% Sales to X have been returned being defective.
9. Wages Paid Rs-5,000/-
10. Commission Receivable of Rs.2,000/-
11. Bank Loan has been returned.
12. Furniture of Rs-40,000/- has burnt.
13. 5% depreciation on Machinery.
Transactions Journal Entries
Cash of Rs-5 lac received from Mr.A. Cash a/c 500,000/-
Capital a/c 500,000/-
Machinery purchased of Rs-1lac. Machinery a/c 100,000/-
Cash a/c 100,000/-
Bank Loan of Rs-2lac received from Habib Bank. Cash a/c 200,000/-
Habib Bank a/c 200,000/-
Credit purchases of Rs.50,000/- from D. Purchases a/c 500,000/-
D’s a/c 50,000/-
5% purchases from D have been returned being defective. Ds a/c 2,500/-
Purchases Return a/c 2,500/-
Credit sales of Rs.200,000/- to X X’s a/c 200,000/-
Sales a/c 200,000/-
5% Sales to X have been returned being defective. Sales Returns a/c
X’s l a/c
10,000/-
10,000/-
Wages Payable of Rs-5,000/- Wages a/c 5,000/-
Wages Payable a/c 5,000/-
Commission Receivable of Rs.2,000/- Commission Receivable a/c 500,000/-
Commission a/c 500,000/-
Bank Loan has been returned. Habib Bank a/c 200,000/-
Cash a/c 200,000/-
2% interest per anum on Bank Loan is paid. Interest a/c 4,000/-
Cash a/c 4,000/-
Furniture of Rs-40,000/- has burnt. Loss by Fire a/c 40,000/-
Furniture a/c 40,000/-
Charge 5% depreciation on Machinery. Depreciation a/c 5,000/-
Machinery a/c 5,000/-
