2. Acc and Journals

8/14/2019 2. Acc and Journals

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Classification ofAccounts

On the basis of business transactionrelating to persons, properties andassets, income and expenses theaccounts are classified as:

Real A/c

Nominal A/c Personal A/c Valuation A/c


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Personal A/c- These are accounts ofindividuals, firms, companies, bankers,

associations with whom businessman deals

Real A/c- These are the accounts ofproperties, assets or possessions of the

businessman

Nominal A/c- These are accounts ofexpenses or losses & gains or incomes

Valuation A/c- These are accounts whichare concerned with valuation of assets viz.provision for depreciation, provision fordoubtful debts etc.


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Classification of Accounts

Personal A/c

Types of personal A/c

NaturalPersonal

A/c

ArtificialPersonal A/c

Groups/RepresentativePersonal

A/c


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Rule of PersonalAccount

DEBIT THE RECEIVER

CREDIT THE GIVER

For ex: if cash is paid to Ram,

Ram a/c DrTo, Cash a/c


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Real A/c

Types of Real A/c

TangibleRealA/c

Intangible RealA/c


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Rule of Real Account

DEBIT WHAT COMES IN

CREDIT WHAT GOES OUT

For ex: If building is purchased for cash,

Building a/c .. DrCash a/c


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Nominal A/c

Types of Nominal A/c

Expensesand

LossesA/c

Incomes andGains A/c


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Rule of NominalAccount

DEBIT ALL EXPENSES AND LOSSES

CREDIT ALL INCOME AND GAINS

For ex: Rent paid by cash,

Rent a/c.Dr

To, cash a/c


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Golden rules ofAccounting

Real A/c : Dr what comes in & Cr whatgoes out

Personal A/c : Dr the receiver & Cr thegiver

Nominal A/c : Dr all expenses & losses& Cr allIncomes & Gains

Valuation A/c : Dr the A/c when it is


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Both real a/c as well as Nominal a/c areimpersonal a/cs. However when someprefix or suffix is added to a Nominal a/cit becomes a Personal a/c.

Nominal

Account

Personal account

Rent account Rent prepaid a/c, Outstanding rent a/c,

Interest account Prepaid interest a/c, Outstanding interest a/c,Interest received in advance a/c

Salary account Prepaid salaries a/c, Outstanding salaries a/c

Insurance account Prepaid Insurance a/c, Outstanding Insurance a/c

Commissionaccount

Prepaid Commission a/c, Outstanding Commissiona/c


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Accounting Equation :

Assets = Liabilities + Owners Equity

The rules of Dr & Cr :

viii)Dr increase in assets, Cr decrease inassets

ix) Dr decrease in liabilities, Cr increasein liabilities

x) Dr decrease in Owners equity, Crincrease in Owners equity


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Journalising Transaction:

A journal is a book of primary entry.First all the transactions are recorded in

the journal & subsequently they areposted in ledger.

Date Particulars L

.F.

Debit

(Rs)

Credit

(Rs)


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Steps in converting Transactions into

Journal Entries

Identify the transactions from the source

documents such as receipt, voucher.

Determine the nature of a transaction i.e.its effect on business

Determine the two aspects of thetransaction. Find out the two accountsinvolved


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Steps in converting Transactions intoJournal Entries

Determine the type of each account.

Determine how the accounts areaffected. See who is the receiver or giveror whether there is an expense or loss &income or gain

Apply the rule of journalising. Decidewhich account is debited and whichaccount is credited.


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Compound Journalentries

Some transactions may be recorded by means of asingle journal entries instead of passing several journalentries. Such entry (single) regarding recording a

number of transactions is termed as a CompoundJournal entry.

Such entry may be recorded in any of the followingways:One particular a/c may be debited while several others

may be credited.

One particular a/c may be credited while several othersmay be debited.

Several a/cs may be debited and several other a/cs maybe credited.


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Compound Journal entries

Illustration: Pass a compound journal entry in thefollowing cases:

Payment made to Ram Rs. 1000. He allowed a cashdiscount of Rs

50Cash received from Suresh Rs. 800 and allowed him

a cash discount of Rs. 50.A running business was purchased by Mohan with

following assets and liabilities:

Cash Rs. 2000, Land Rs 4000, Furniture Rs 1000,Stock Rs 2000, Creditors Rs 1000, Bank overdraftRs 2000


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Opening Entry

In case of running business, the assets andliabilities appearing in the previous years balancesheet are brought forward to the current year with

the help of a journal entry known as openingentry.

All assets accounts are debited and all liabilities

accounts are credited.The excess of assets over liabilities is the

proprietors capital and is credited to his capitalaccount.


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,basis of the following information taken from thebusiness of Mr. Sunil

Cash in hand 2000 Sundry debtors

6000

Stock of goods 4000 Plant5000

Land and building 10000 Sundry creditors10000

JOURNAL

Sol.

Date Particulars L.F Rs. Rs.2008Jan. 1

Cash A/cDr.

Sundry Debtors A/cDr.Stock A/c

Dr.Plant A/c

Dr.Land and Building A/cDr.

To, sundry creditors

200060004000500010000

27000

1000017000

27000


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LEDGER

A ledger is the principal book of accounts.

It is a group of accounts; it contains anaccount for each asset, liability, revenue &

expense A/cIt contains all accounts of the business

enterprise whether Real, Nominal orPersonal.

Dr. AccountCr.

Particulars JF Amt. Particular JF Amt.


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Posting process :

The term Posting means transferring the debit and credititems from the Journal to their respective accounts in theLedger.

While transferring the transaction from journal to ledger,the transactions are classified. For each person, head ofexpenditure, income, asset etc. separate accounts areopened in the ledger.

On debit side : Write the name of the credited a/c in thejournal after the word To.

On the credit side : Write the name of the debited a/c in thejournal after the word By.


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Posting process :

All the transactions relating to a particular a/c should berecorded in the a/c already opened. No new a/c of the samename should be opened in the ledger

The concerned a/c which has been debited (credited) in thejournal should also be debited (credited) in the Ledger.However, a reference should be made of the other a/c whichhas been credited (debited) in the Journal.

At the end of the accounting period, the a/cs are balanced

If the debit side is heavier the difference will appear on thecredit side as, By balance c/d in the particulars column. If thecredit side is heavier, the difference will appear on the debitside as , To balance c/d

Jo rnalise the follo ing transactions and post


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Journalise the following transactions and postthem into the Ledger:Ram started business with a capital of Rs 10000He purchased furniture for cash Rs 4000

He purchased goods from Mohan on credit Rs 2000He paid cash to Mohan Rs 1000

Sol: Journal

Date Particulars LF Debit

(Rs)

Credit

(Rs)Cash A/cDr.

To, Capital A/c

1000010000

Furniture A/cDr.

To, Cash A/c

40004000

Purchases A/c

Dr.To, Mohan

2000

2000

Mohan A/cDr.

To, Cash A/c

10001000


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Purpose of balancingledger a/cs:

The technique of finding out the net balance of an account afterconsidering the totals of both debit and credit appearing in theaccount is known as Balancing the account.

Personal a/cs are balanced to know whether a person is adebtor or a creditor. A debit balance indicates that the person isour debtor & a credit balance indicates that the person is ourcreditor .

A debit balance of a real a/c means an asset & a credit balancemeans liability

Debit balance of a nominal a/c means expense & a creditbalance represents income


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Relationship between Journal and aLedger

The transactions are first recorded in the Journal andthen they are posted in the Ledger. Thus, the Journalis the book of original or primary entry, while Ledgeris the book of second or principal entry.

Journal records transaction in a chronological order,whereas the Ledger records transaction in ananalytical order.

Journal is more reliable as compared to the Ledgersince it is the in which the entry is passed first of all.

The process of recording transactions is termed asJournalising, while the process of recording

transaction in a Ledger is known as Posting.

Documents

2. Acc and Journals