2 - Basic Accounting Entries

8/3/2019 2 - Basic Accounting Entries

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Basic Accounting Entries

In this lesson we shall try to make simple journal entries for a business andthen post them to the ledger accounts.


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The 3 Golden rules of Accounting:

1. Debit what comes in and Credit what goes out.

2. Debit all expenses and Credit all incomes.

3. Debit the receiver and Credit the giver.


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Exercise 1 -

Assets Transaction Entries

1 Cash paid to buy goods worth $2000.2. Purchased machine worth $10,000 in cash.

Liability Transaction Entries

1. Took loan of $5000 from Kabul bank.

2. Purchased goods worth $6000 on credit from Ali & Co.3. Owner contributed capital $10,000


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Income Transaction Entries

1 Sales of $5000 in cash.2. Sales of $4000 on credit to Rehmat.

Expense Transaction Entries

1. Paid fuel expenses of $400 in cash.2. Repaid loan of $5000 along with interest expense of $500.


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Date Explanation Ref. Debit Credit

Goods a/c Dr.

To Cash a/c(Cash paid to buy goods)

$2000

$2000

Machine a/c Dr.

To Cash a/c(Cash paid to buy machine)

10000

10000

Cash a/c Dr.To Loan a/c

(Took a loan of from Kabul bank)

50005000

Goods a/c Dr.

To Ali & Co. a/c

(purchased goods on credit)

6000

6000

Cash a/c Dr.

To Capital a/c(Capital contributed by the owner)

10000

10000


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Date Explanation Ref .

Debit Credit

Cash a/c Dr.

To Sales a/c(Sales of goods for cash)

$ 5000

$ 5000

Rehmat a/c Dr.

To Sales a/c

(Credit sales to Rehmat)

4000

4000

Fuel expenses a/c Dr.

To Cash a/c(Cash paid for fuel expenses)

400

400

Loan a/c Dr.

Interest expense a/c Dr.

To Cash a/c(repaid loan along with the interest expense)

THIS IS AN EXAMPLE OF COMPOUND

JOURNAL ENTRY

5000

500

5500


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A journal entry in which more than 2 accounts are affected is called a

COMPOUND JOURNAL ENTRY.


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Posting to ledger accounts: Means transfer of entries from the journal tothe appropriate ledger accounts.

Steps to post a transaction from Journal to Ledger account :

1. If an account is getting debited in the journal entry, put the amount on the debit

side of the account while posting. In the particulars column, write To [name ofaccount which is being credited in the journal entry].

2. If an account is getting credited in the journal entry, put the amount on the creditside of the account while posting. In the particulars column, write By [name ofaccount which is being debited in the journal entry].


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Date Particulars Amount $ Date Particulars Amount $

To Loan a/c

To capital a/c

To sales a/c

5000

10000

5000

20000

By goods a/c

By machine a/c

By Fuel exp a/c

By Loan a/c

By Interest expense a/c

By balance c/d

2000

10000

400

5000

500

2100

20000

CashAccount

So we can see that the closing balance of the cash account on is$ 2,100

dr. cr.


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Important points regarding account balances :

1. Asset accounts and expense accounts usually havedebit balances.

2. Liability accounts and income accounts usually havecredit balances.

These two rules along with the 3 rules of debit and credit

make journalizing andposting very easy for the accountant.


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Exercise 2

MAKE JOURNAL ENT

RIES OF

THE FOLLOW

ING ACCOUN

TING EVEN

TSAND THEN POSTTHEM TO THE APPROPRIATE ACCOUNTS:

1. On 04/05/2008, Hamid started business (his factory) with a capital $ 1,00,000.

2. Bought machine for $20,000 on 09/05/2008.

3. He purchased raw-materials worth $ 2,000 on credit of 30 days from Ali & Co.on 11/05/2008.

4. Paid $400 in cash for fuel expenses on 15/05/2008.

5. Salary paid on 01/06/2008 , $ 5,000.

6. Took loan of $30,000 from bank on 07/08/2008.


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04/05/2008 Cash a/c Dr.

Capital a/cCapital contributed to start thebusiness

12

01

$ 1,00000

$ 1,00000

09/05/2008 Machine a/c Dr.

Cash a/c

Machine purchased

20

12

20,000

20,000

11/05/2008 Raw materials a/c Dr.

Ali & Co.Credit purchase of raw-materials

22

23

2,000

2,000

15/05/2008 Fuel expenses a/c Dr.

Cash a/cFuel expenses paid in cash

25

12

400

400

01/06/2008 Salary a/c Dr.

Cash a/cSalary paid

30

12

5000

5000


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07/08/2008 Cash a/c Dr.

Loan a/c

Loan taken from bank

30,000

30,000


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Date Particulars Amount $ Date Particulars Amount $04/05/08

07/08/08

To capital a/c

To Loan a/c

1,00,000

30,000

1,30,000

09/05/08

15/05/08

01/06/08

07/08/08

By machine a/c

By Fuel exp a/c

By Salary a/c

By balance c/d

20,000

400

5,000

1,04,600

1,30,000

CashAccount

So we can see that the closing balance of the cash account on 07/08/08 is$ 1,04,600.

dr. cr.


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Date Particulars Amount $ Date Particulars Amount $04/05/08 To balance c/d 1,00,000

1,00,000

04/05/08 By cash a/c 1,00,000

1,00,000

Dr. capital account Cr.


09/05/08 To cash a/c 20,000

20,000

09/05/08 By balance c/d 20,000

20,000

Dr. machine account Cr.


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Date Particulars Amount $ Date Particulars Amount $11/05/08 To Ali & Co.a/c 2000

2000

11/05/08 By balance c/d 2000

2000

Dr. Raw materials account Cr.


11/05/08 To balance c/d 2,000

2,000

11/05/08 By raw-materials a/c

2,000

2,000

Dr. Ali & Co. account Cr.


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Date Particulars Amount $ Date Particulars Amount $15/05/08 To cash a/c 400

400

15/05/08 By balance c/d 400

400

Dr. Fuel expenses account Cr.


01/06/08 To cash c/d 5,000

5,000

01/06/08 By balance c/d 5,000

5,000

Dr. Salary account Cr.


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07/08/08 To balance c/d 30,000

30,000

07/08/08 By cash a/c 30,000

30,000

Dr. Loan account Cr.

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2 - Basic Accounting Entries