Journal Entry: From Basic to Advanced

Introduction

• Five Parts: Divided into five sections
  • Basics of Journal
  • Rules
  • Format
  • Special Adjustments
  • Discounts and Rebates
• Homework: Notes from the video available on WhatsApp channel

General Entry

• General is called the Book of Original Entry
• Transactions are recorded in chronological order
• Main Documents: Bill, Cash Memo, Invoice
• Subsidiary Books: Separate general books
• After posting, the transaction is recorded in the ledger (Principal Book of Account)

Golden Rules of Accountancy

1. Personal Account: Debit the receiver, credit the giver
2. Real Account: Debit what comes in, credit what goes out
3. Nominal Account: Debit the expense and credit the income

Format of General Entry

• Date: Transactions are written according to the date
• Importance of Proper Format
• Narration: Description of the transaction in simple words
• Ledger Folio: Page number of the transaction
• Debit and credit entries

Steps of General Entry

1. Detecting Accounts: Which accounts are involved in the transaction
2. Identifying Nature: Personal, Real, Nominal, or Modern Classification
3. Applying Rules of Debit and Credit

Example

• Motorcycle Purchase debit: Motorcycle (Real Asset), credit: Cash (Real Asset)
• Nature of Account and Rules
• Purchase of Goods in Cash debit: Purchase (Nominal Account), credit: Cash
• Sales against Cash to Rameshwaram debit: Cash, credit: Sales
• Salary Payment in Cash debit: Salary, credit: Cash
• Electricity Payment debit: Electricity, credit: Cash

Compound General Entry

• More than one account is debited or credited debit: Cash, Discount, credit: Sales
• Used to shorten the transaction

Discount

• Trade Discount: Given on bulk ordering, included in invoice price
• Cash Discount: Given for early payment

Rebate

• Additional discount given for poor quality or late delivery
• Mentioned in the invoice

Special Cases

• Bad Debts: Receivable that cannot be collected debit: Bad Debts, credit: Receivable
• Charity Supplies: Count at purchase value
• Machine Installation: Installation expenses included in machine cost
• Outstanding Expenses and Income: Payable/receivable expenses and income

Conclusion

• Understanding and practicing the Golden Rules and format makes journal entries easier.