ЁЯУТ

Introduction to General Journal Entries

Jul 30, 2024

Introduction to General Entry

Objective of the Chapter

  • Will not include GST but will focus on journal entries.
  • Will understand the classification of accounts.
  • Will learn various transactions' journal entries.
  • Practice sessions and illustrations will also be included.

Basics of Journal Entry

  • To start any business, cash, assets, and initial capital of the businessman are required.
  • Goods purchase and selling movement needs to be shown in entries.
  • To record the transaction, journal entries must be made in logical order.

Importance of Journal Entry

  • Journal is the heart of accounting.
  • Initially, all financial transactions are recorded in the journal, from which ledgers, trial balance, and financial statements are prepared.
  • Definition: The journal is called the basic book of accounting and the book of prime entry.

Format of Journal Entry

  • Date: Entry of the transaction date.
  • Particular: Description of the transaction.
  • Ledger Folio (LF): Index number of the journal entry's posting in the ledger.
  • Debit Amount: Transaction amount on the debit side.
  • Credit Amount: Transaction amount on the credit side.

Journal Process

  • Identification of Transaction: Identifying a financial activity.
  • Measurement: Measuring the financial value of the transaction.
  • Recording: Recording them in the form of a journal entry.

Definitions and Processes

  • Debit: From the Latin word 'Debitum', meaning 'due.'
  • Credit: From the Latin word 'Creditum', meaning 'entrusted' or 'loan.'
  • The responsibility of the journal entry, after identifying and measuring the data, is to record the transaction under debit-credit rules.
  • Process: Just like Thakur Ji's both hands 'Jai' and 'Veeru' on one side, similarly in journal entry, there are 'debit' and 'credit' sides.

Classification of Accounts

  • Modern Approach: All accounts are divided into 5 main groups: Assets, Liabilities, Capital, Revenue, and Expenses.
  • Traditional Approach: Classified as Personal Accounts (Natural, Artificial, Representative), Real Accounts, and Nominal Accounts.

Rules of Debit and Credit

  • Personal Accounts: Debit the Receiver, Credit the Giver.
  • Real Accounts: Debit What Comes In, Credit What Goes Out.
  • Nominal Accounts: Debit All Expenses and Losses, Credit All Revenue and Gains.

Banking Transactions

  • When depositing cash in the bank: Bank Account Debit, Cash Account Credit.
  • When withdrawing cash from the bank: Cash Account Debit, Bank Account Credit.
  • Cheque endorsement: Index number for ledger posting.

Types of Discounts:

  • Trade Discount: Directly cut from the list price; no entry required.
  • Cash Discount: Extra benefit upon payment; entry is made.

Specific Nature Transactions

  • Bad Debt: Replaced by debits from loss.
  • Depreciation: Expenses Debit, Assets Credit.
  • Opening Entry: Bringing forward last year's balance.

Other Important Concepts:

  • Capital Expenditure: Adding expenses that increase the life of assets to the assets.
  • Revenue Expenditure: Routine repair expenses related to fixed assets.

Examples and Practice

  • Journal entries and their rules can be practiced by solving practice questions.
  • Regular practice clarifies differences and makes one adept at procedures.

Best Wishes!

Following the process and rules of journal entries correctly makes accounting accurate and organized. With practice, you will undoubtedly become proficient.

[Special Note]: Always keep smiling, because it is the greatest gift.

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