Learn Journal Entries With Ease, for FREE!

       Well if you are reading this chapter, I expect you to be a beginner. And you might be thinking what actually is 'Debit' and what 'Credit' is all about. You see, accounting is based on a simple logic that a "Tom" cannot have some money with him out of the blue, "Dick" must have given him for some reasons and "Dick" had to deduct some money from his pocket for giving it to "Tom" and here starts our Debit and Credit or (plus and minus).

       Simply; for every plus, somewhere, there has to be a minus. I cannot have money in my hand from nowhere. This is very well explained in double entry system of accounting which states that for every debit there has to be a corresponding credit.

       Now, coming to journalizing of accounting transactions, first of all you have to learn the "Three Golden Rules of Debit and Credit" thoroughly. You should learn in such a way that you can say the rules in fraction of a second. It should literally run into your blood. When a mosquito bites us, we don't need to aim to thrash that mosquito. It's a reflex action that hits back. The thorough learning should be like that.

       You will find that in every journal there are two sides Debit (Dr.) and Credit (Cr.) and two different accounts with different nature (Real, Nominal or Personal) are affected. And also that the amount of both the sides are equal. This is called Simple Journal. If more than two accounts are affected, we call them Compound Journal.

       Out of the two different accounts that are affected, you will find one account easier to understand, say Cash A/c (Real Account) which is either debited or credited. Catch that Cash A/c and you will find that the other account that is also affected becomes easier for you to find. But always follow the golden rules. In accounting, you cannot take one step forward without following the three rules. Please keep that in mind.

       Journal Book is called the book of original entry because business transactions are first identified and recorded chronologically in the journal book and is the first step of accounting cycle. According to the Double Entry System of Book Keeping, every transaction affects two accounts. If one account is debited then the other has to be credited.

This process of recording of business transaction is called journalizing of accounting transactions.

Steps Involved In Journalizing:

  1. The transaction first needs to be analyzed and the two accounts that are being affected is to be identified
  2. The nature of account whether Real, Personal or Nominal is to be ascertained and to determine which rule of debit and credit is involved
  3. To ascertain the amount to be debited against the amount to be credited
  4. The name of account to be debited is to be sufffixed with the word "Dr" and the account to be credited is to be prefixed with the word "To" leaving some space on the left side
  5. Finally, narration - a brief description of the above transaction is to be written within the brackets

Three Golden Rules Of Debit And Credit:

Real Account:

Debit: What Comes In

Credit: What Goes Out.

E.g. Any types of assets (Fixed and Current)

Personal Account:

Debit: The Receiver

Credit: The giver

E.g. Any types of persons (Natural and Artificial)

Nominal Account:

Debit: All Expenses and Losses

Credit: All Incomes and Gains

E.g. Any types of Expenses and Incomes

  1. When business is started with cash or when cash is brought into business:
  2. For Opening of a Bank Account:
  3. For Cash Purchases of Goods:
  4. For Credit Purchases of Goods:
  5. For Credit Sale of Goods:
  6. For Cash Sales of Goods:
  7. When Creditors are Paid Cash:
  8. Cash Received from Debtors:
  9. For Purchase Return of Goods or Return Outward:
  10. For Sales Return of Goods or Return Inward:
  11. Goods Taken by the Proprietor for Personal Use:
  12. For Cash Purchase of Fixed Assets:
  13. For Providing for Depreciation on Assets:
  14. For Cash Payment of Expenditures:
  15. For Free Distribution of Goods:
  16. For Cash Receipt as Income:
  17. For Loan taken from Bank:
  18. When Goods are Purchased Partly for Cash and Partly on Credit:
  19. For Payment of Interest on Bank Loan:
  20. When Amount of Insurance premium paid in Advance:
  21. For Loss of Goods on Fire:
  22. When Bad Debts are written Off:
  23. For Recovery of Bad Debts:
  24. For Advance Receipt of income:
  25. For Recording of Outstanding Expenses:
  26. For Recording of Income Accrued (Earned but not Received):
  27. For payment of Donation:
  28. For Receipt of Lottery:
  29. For Cash Payment to Creditors and Receipt of Discount:
  30. For Cash Received from Debtors and Discount Allowed:
  31. For Providing for Interest on Capital:
  32. For Loss of Stock on Fire and Receipt of Insurance claim:
  33. For Cash Drawings by the Proprietor for Personal Use:
  34. For Providing for Interest on Capital:
  35. For Receipt of Advance Against Sale from Suresh:
  36. For Payment of Advance Against Purchase from Dinesh:
  37. For Payment of Income Tax of the Proprietor of the Business:
  38. For Refund of Income Tax:
  39. For Receipt of Cheque from Debtor
  40. For Depositing of the Cheque of Debtor into Bank:
  41. For Receipt of Cheque from a Debtor and the same being deposited into Bank:
  42. For Payment by Cheque:
  43. For Interest on Deposit Being Credited in the Pass Book:
  44. For Bank Charges Being Debited in the Pass Book

1. When business is started with cash or when cash is brought into business:

Cash A/c--------------------- Dr.

       To Capital A/c

(Being business started with cash)

Explanatory Note:

  1. Here Cash A/c is debited as cash has come into business in the form of Capital. Here debiting of Cash A/c signifies increase in Assets for the firm. It falls under Real A/c Where the Rule says: Debit-What Comes In.
  2. Capital A/c is credited as because capital is a liability for the business and increase in liability is shown on the credit side.

2.For Opening of a Bank Account:

Bank A/c---------------------Dr.

       To Cash A/c

(Being cash deposited into bank for opening of an Account)

Explanatory Note:

  1. Here Bank A/c is debited as cash is deposited into Bank for opening of an Account. Here debiting of Bank A/c signifies increase in Assets/Bank Balance of the firm. It falls under Real A/c Where the Rule says:Debit-What Comes In.
  2. Cash A/c is credited as because the Cash in Hand position if the business has come down or decreased due to the deposit so made with the bank. Here crediting of Cash A/c signifies decrease in Assets/Cash Balance of the firm. It falls under Real A/c Where the Rule says:Credit-What Goes Out.

3.For Cash Purchases of Goods:

Purchases A/c---------------------Dr.

       To Cash A/c

(Being goods purchased for cash)

Explanatory Note:

  1. When goods are purchased, Purchase A/c is to be debited as because the purchase is made for resale. The minute varieties of products which are meant for resale are described in one word as "Goods". Here purchase is treated as expenditure for the business and it is debited as it falls under Nominal A/c where the rule says: Debit - All expenses and losses.
  2. Cash A/c is credited as because cash has gone out of the business. Here crediting of Cash A/c signifies decrease in Assets/Cash Balance of the firm. It falls under Real A/c Where the Rule says:Credit-What Goes Out.

4. For Credit Purchases of Goods:

Purchases A/c---------------------Dr.

       To Creditors A/c

(Being goods purchased on credit)

Explanatory Note:

  1. When goods are purchased, Purchase A/c is to be debited as because the purchase is made for resale. The minute varieties of products which are meant for resale are described in one word as "Goods". Here purchase is treated as expenditure for the business and it is debited as it falls under Nominal A/c where the rule says: Debit - All expenses and losses.
  2. Here Creditor's A/c is credited because payment for the purchase is not made and this results in increase in liability for the firm as payment for the purchase has to be made to the creditor. As such creditor's A/c is creditors A/c is credited as because credit purchase signifies increase in liability and increase in liability always falls in the credit side.

5. For Credit Sale of Goods:

Debtors A/c---------------------Dr.

       To Sales A/c

(Being goods sold on credit)

Explanatory Note:

  1. When goods are sold on credit, it increases the amount of money receivables as because the business is supposed to get from the person to whom the goods are sold on credit and the persons from whom the business is supposed to receive money are called "Debtors". Debtors are treated as Current Assets. Here debiting of Debtors A/c signifies increase in Assets for the firm. It falls under Real A/c where the rule says Debit-What comes in. So Debtors A/c is debited.
  2. Here Sales (Cash or Credit) signify direct income for the business and it falls under Nominal A/c where the rule says: Credit "All incomes and gains". So sales A/c is credited.

6. For Cash Sales of Goods:

Cash A/c---------------------Dr.

       To sales A/c

(Being goods sold for cash)

Explanatory Note:

  1. Here Cash A/c is debited as money has come into the business due to the sale of goods. Cash/Bank falls under Real A/c where the rule says: Debit-What comes in. Here debiting of Cash A/c signifies increase in Assets.
  2. Sales or sale of goods signify direct income for the business and it falls under Nominal A/c where the rule says: Credit-All incomes and gains.

7. When Creditors are Paid Cash:

Creditors A/c---------------------Dr.

       To Cash A/c

(Being cash paid to creditors)

Explanatory Note:

  1. Creditors are those persons to whom the business the supposed to pay money. They denote liability for the firm and normally fall on the credit side. When liability increases, it is written on the credit side but when payments are made to creditors, it represents decrease in liability and is written on the debit side. As such Creditors A/c is debited here.
  2. Cash A/c is credited as because cash has gone out of the business due to the payment made to the creditors. Here crediting of Cash A/c signifies decrease in Assets/Cash Balance of the firm. It falls under Real A/c Where the Rule says:Credit "What Goes Out".

8. Cash Received from Debtors:

Cash/ Bank A/c---------------------Dr.

       To Debtors A/c

(Being cash received form debtors)

Explanatory Note:

  1. Here, Cash A/c is debited because money has come into the business due to the receipt of cash from the Debtors. Cash falls under Real A/c where the rule says:Debit-What comes in.
  2. Debtors represent assets of the firm. Receiving of payment form debtors signifies decrease in assets of the firm and as such debtors account is credited.

9. For Purchase Return of Goods or Return Outward:

Creditors A/c---------------------Dr.

       To Purchase Return or Return Outward A/c

(Being purchase return of goods made)

Explanatory Note:

  1. Creditors are those persons to whom the business the supposed to pay money. They denote liability for the firm and normally fall on the credit side. When liability increases, it is written on the credit side but when payments are made to creditors or goods purchased are returned back, it represents decrease in liability and is written on the debit side. As such Creditors A/c is debited. Here it is to be noted that purchase return of goods is possible only in case of credit purchase of goods.
  2. As goods are returned back, it signifies decrease in expenses of the firm. Here Purchase Return A/c is credited signifying decrease in the total amount of expenditure.

10. For Sales Return of Goods or Return Inward:

Return Inward/Sales Return A/c---------------------Dr.

       To Debtors A/c

(Being sales return of goods made)

Explanatory Note:

  1. Return Inward or Sales Return represents decrease in the amount of sales or decrease in revenue. As sales A/c is normally credited, Sales Return A/c is to be debited for any return of sale being made. Here debiting of Return Inward/Sales Return signifies decrease in the total amount of sales.
  2. Debtors are those persons from whom the company is supposed to receive money. Debtors are considered as assets of the firm. Here, due to the return of sales, the Debtors/Assets (money receivable) of the company have decreased, and as such the Debtors A/c is credited.

11. Goods Taken by the Proprietor for Personal Use:

Drawings A/c---------------------Dr.

       To purchases A/c

(Being goods taken by the proprietor for personal use.)

Explanatory Note:

When goods are purchased, it is recorded in Purchase A/c and is debited because the purchase is made for resale. The different varieties of products which are meant for resale are described in one word as "Goods". Here, it is to be noted that normally goods are purchased with the primary motive of resale and not for any other purpose. The total units of purchases must be equivalent with the total units of sale. The difference, if any, must be stated clearly.

  1. Here, Drawing of Goods are treated as decrease in capital for the business for the simple reason that goods that are treated as Capital for the business are withdrawn from the business for personal use.
  2. Purchase is treated as expenditure for the business and is normally debited. But when goods are withdrawn from the purchases made, it is to be credited for the simple reason that the expenses that are made while purchasing of goods are now decreased because it is withdrawn from the business.

12.For Cash Purchase of Fixed Assets:

Fixed Assets A/c---------------------Dr.

       To Cash A/c

(Being fixed assets purchased for cash)

Explanatory Note:

Whenever any asset is purchased, it is recorded by name as it meant for usage and not for sale. Also because the Asset will last over a long period of time and needs to be depreciated.

  1. Here, Assets A/c will be debited as it falls under Real A/c where the rule says:Debit-What comes in.
  2. Cash A/c is credited as money has gone out of business. Cash falls under real A/c where the rule says:Credit-What goes out.

13. For Providing for Depreciation on Assets:

Depreciation A/c---------------------Dr.

       To Assets A/c

(Being depreciation on assets provided for)

Explanatory Note:

  1. Depreciation represents decrease in the value of assets due to its usage. It is treated as indirect expenditure as because due to depreciation, the value of assets goes down. It falls under Nominal A/c where the rule says:Debit-All Expenses and Losses.
  2. Assets A/c is credited as the value of assets has decreased due to its depreciation. It falls under Real A/c where the rule says: Credit What Goes Out.

14. For Cash Payment of Expenditures:

Expenditure A/c---------------------Dr.

       To Cash A/c

(Being expenses met for cash)

Explanatory Note:

  1. Expenditures fall under Nominal A/c where the rule says:Debit-All Expenses and Losses. So Expenditure A/c is debited.
  2. Cash A/c is credited as money has gone out of the business. As Cash falls under Real A/c where the rule says:Credit-What goes out.

15.For Free Distribution of Goods:

Advertisement A/c---------------------Dr.

       To Purchases A/c

(Being goods distributed for free as advertisement.)

Explanatory Note:

  1. Advertisement is treated as indirect expenditure as money is not paid for it directly. Here, goods purchased for resale is used for advertisement. It falls under Nominal A/c where the rule says:Debit-All expenses and Losses. Here debiting Advertisement A/c signifies expenditure for the firm.
  2. Purchase A/c is credited as the goods purchased for resale are used for advertisement resulting in the decrease of units of goods purchased. As goods (Stock) falls under Real A/c where the rule says:Credit-What goes out. Here crediting Purchase A/c signifies decrease in Stock/Assets of the firm.

16. For Cash Receipt as Income:

Cash A/c---------------------Dr.

       To Income A/c

(Being income received for cash)

Explanatory Note:

  1. Here, Cash A/c is debited because money has come into the business in the form of income earned by the business. Cash falls under Real A/c where the rule says: Debit "What comes in. Here debiting Cash A/c signifies increase in Asset for the firm.
  2. Income A/c is credited as the business has earned money. Income falls under Nominal A/c where the rule says: Credit-All Incomes and gains. Here crediting Income A/c signifies increase in revenue of the firm.

17. For Loan taken from Bank:

Bank A/c---------------------Dr.

       To Bank Loan A/c

(Being loan taken form Bank)

Explanatory Note:

  1. Here, Bank A/c is debited because money has been deposited into Bank A/c as the business has received money in the form of Bank Loan. Bank falls under Real A/c where the rule says: Debit "What comes in". Here debiting Bank A/c signifies increase in Asset (Bank Balance) of the firm.
  2. Bank Loan A/c is credited as the liability of the business has increased due to bank loan taken by the business. Bank Loan is a liability of the business and liability is always credited. Here crediting Bank Loan A/c signifies increase in liability of the firm.

18. When Goods are Purchased Partly for Cash and Partly on Credit:

Purchases A/c---------------------Dr.

       To Cash A/c

       To Creditors A/c

(Being goods purchased partly for cash and credit)

Explanatory Note:

As it involves three accounts, it is the case of compound journal Entries.

  1. When goods are purchased, Purchase A/c is to be debited as because the purchase is made for resale. The minute varieties of products which are meant for resale are described in one word as "Goods". Here purchase is treated as expenditure for the business and it is debited as it falls under Nominal A/c where the rule says: Debit - All expenses and losses.
  2. Cash A/c is credited as because cash has gone out of the business. Cash A/c falls under Real A/c where the rule says:Credit-What goes out.
  3. Here Creditor's A/c is credited because payment for the purchase is not made and this results in increase in liability for the firm as payment for the purchase has to be made to the creditor. As such creditor's A/c is creditors A/c is credited as because credit purchase signifies increase in liability and increase in liability always falls in the credit side.

19.For Payment of Interest on Bank Loan:

Interest on Bank Loan A/c---------------------Dr.

       To Cash A/c

(Being interest on bank loan paid for cash)

Explanatory Note:

  1. Here, interest on bank loan is treated as expenditure as it is paid in cash and expenditure falls under Nominal A/c where the rule says: Debit-All Expenses and Losses. Here debiting Interest on Bank Loan A/c signifies increase in expenditure for the business.
  2. Cash A/c is credited as because cash has gone out of the business because of the payment of interest on Bank Loan. Cash A/c falls under Real A/c where the rule says: Credit "What goes out".

20. When Amount of Insurance premium paid in Advance:

Prepaid Insurance A/c---------------------Dr.

       To Insurance A/c

(Being Insurance premium paid in advance)

Explanatory Note:

Prepaid means paid in advance. When any amount is paid in advance, it becomes an asset and is considered as a property until the amount is adjusted against the Account on which it is paid.

  1. Anything paid in advance or prepaid is considered as an asset because of the simple reason that the amount is paid before the due date and has to be adjusted on its occurrence. Here debiting Prepaid Insurance A/c signifies increase in Asset of the concern.
  2. Here, it is the case of insurance against which the amount has been prepaid. So Insurance A/c is credited as because premium of insurance which is treated as expenditure will have to be adjusted on the due date of the payment of insurance premium. Until the due date comes in and the prepaid insurance gets adjusted, it will have to be considered as liability for the firm and as such Insurance A/c has to remain on the credit side. Here crediting Insurance A/c signifies decrease in expenditure for the concern.

21. For Loss of Goods on Fire:

Loss by Fire A/c---------------------Dr.

       To Purchases A/c

(Being goods lost by fire)

Explanatory Note:

  1. When goods are lost by fire, the units of goods purchased with the object of resale get reduced from the total units purchased. So, it has to be deducted from Purchase A/c. Goods lost by fire are treated as expenditure and falls under Nominal A/c where the rule says:Debit-All Expenses and Losses.
  2. Purchase A/c has to be credited, as the goods lost by fire has to be deducted from the total units of stock purchased or decrease in Assets. When Goods were purchased, Purchases A/c was debited and when it is lost by fire, Purchases A/c has to be credited.

22. When Bad Debts are written Off:

Bad Debts A/c---------------------Dr.

       To Debtors A/c

(Being bad debts written off)

Explanatory Note:

  1. Bad Debts refer to those debts that cannot be recovered from Sundry Debtors. It is treated as Loss or Indirect Expenditure and falls Nominal A/c where the rule says: Debit "All Expenses And Losses".
  2. Debtors A/c is to be credited, as because due to bad debts, the amount of money receivable from Sundry Debtors have come down resulting in the decrease in the total value of Debtors that are considered as Current Assets of the firm. As Debtors are considered as Assets, it is normally written on the debit side, and any decrease in the value of (Debtors) Assets has to be written on the credit side. So, here Debtors A/c is credited because of the decrease in the value of debtors due writing off bad debts.

23. For Recovery of Bad Debts:

Cash A/c---------------------Dr.

       To Bad Debts Recovered A/c

(Being recovery of bad debts brought into account)

Explanatory Note:

  1. Here Cash A/c is debited as because cash has come into the business due to the recovery of Bad Debts. Cash falls under Real A/c where the rule says:Debit "All Expenses And Losses"
  2. As Bad Debts fall under Nominal A/c where the rule says:Credit-All Incomes and Gains. So Bad Debts A/c is credited due to the recovery of Bad Debts.

24. For Advance Receipt of Income:

Income A/c---------------------Dr.

       To Income Received in Advance A/c

(Being advance receipt of Income recorded)

Explanatory Note:

  1. Income normally falls on the credit side as it belongs to Nominal A/c where the rule says: Credit-All Incomes and Gains. But here, it is debited because income is received in advance and it has to be deducted from the total value of income on the actual date of receipt. Here writing down income on the debit side signifies decrease in revenue and is debited.
  2. ncome Received in advance is credited because it is treated as liability because of the simple reason that whenever any money is received in advance, it has either to be deducted from the concerned A/c on the date of actual receipt or service against it has to be provided for and until and unless it is adjusted, it will be shown as liability of the firm.

25. For Recording of Outstanding Expenses:

Expenses A/c---------------------Dr.

       To Outstanding Expenses A/c

(Being outstanding expenses considered)

Explanatory Note:

  1. Expenses A/c is debited as it falls under Nominal A/c where the rule says:Debit-All Expanses and Losses.
  2. Outstanding Expenses A/c is credited as because here in this case money is not paid in cash but it is recorded into Outstanding Expenses A/c accepting that the expenses and been made and has to be paid off. It is considering or showing it as liability of the concern until and unless it is paid off.

26. For Recording of Income Accrued (Earned but not Received):

Income Accrued A/c---------------------Dr.

       To Income A/c

(Being income earned but not received)

Explanatory Note:

  1. Income Accrued means income has been earned but not physically received in cash. Here Income accrued is treated as Asset for the concern and is debited showing it as increase in assets.
  2. Here, Income A/c is credited showing it as increase in revenue or income of the concern.

27. For payment of Donation:

Donation A/c---------------------Dr.

       To Cash A/c

(Being donation paid in cash)

Explanatory Note:

  1. Donation is treated as expenses of the concern and falls under Nominal A/c where the rule says:Debit-All Expenses and Losses
  2. Cash A/c is credited as money has gone out of the business. Cash falls under Real A/c where the rule says:Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

28. For Receipt of Lottery:

Cash/Bank A/c---------------------Dr.

       To Lottery A/c

(Being cash receipt of lottery brought into account)

Explanatory Note:

  1. Here Cash A/c is debited as money has come in due to the receipt of lottery. Cash falls under Real A/c where the rule says:Debit-What comes. Here debiting of Cash A/c signifies increase in Assets.
  2. Here, Lottery A/c is credited showing it as increase revenue or income of the concern.

29. For Cash Payment to Creditors and Receipt of Discount:

Creditors A/c---------------------Dr.

       To Cash A/c

       To Discount A/c

(Being cash paid to creditors and discount received)

Explanatory Note:

  1. Creditors are normally treated as liability of the concern and are generally posted on the credit side. But, here Creditors A/c is debited as cash payment has been made showing it as decrease in liability of the concern.
  2. Cash A/c is credited as money has gone out of the business. Cash falls under Real A/c where the rule says:Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.
  3. Discount Received A/c is credited showing it as income or increase in revenue of the concern. Discount Received falls under Nominal A/c where the rule says:Credit-All Incomes and Gains.

30. For Cash Received from Debtors and Discount Allowed:

Cash A/c---------------------Dr.

Discount A/c---------------------Dr.

       To Debtors A/c

(Being Cash received form debtors and discount allowed)

Explanatory Note:

  1. Here Cash A/c is debited as money has come in due to the receipt of lottery. Cash falls under Real A/c where the rule says:Debit-What comes in. Here debiting of Cash A/c signifies increase in Assets.
  2. Discount A/c is debited showing it as expenditure or decrease in revenue of the concern. Discount Allowed falls under Nominal A/c where the rule says: Debit-All Expenses and Losses. Here debiting of Interest on capital A/c signifies increase in Expenditure.
  3. Debtors A/c is credited showing it as decrease in Assets of the concern. Debtors fall under Real A/c where the rule says: Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

31. For Providing for Interest on Capital:

Interest on Capital A/c---------------------Dr.

       To Capital A/c

(Being interest on capital provided for)

Explanatory Note:

  1. Here Interest on capital A/c is debited showing it as increase in expenses of the concern. Interest falls under Nominal A/c Nominal A/c where the rule says:Debit-All Expenses and Losses. Here debiting of Interest on capital A/c signifies increase in Expenditure.
  2. Here, capital A/c is credited showing it as increase in capital or liability of the concern.

32. For Loss of Stock on Fire and Receipt of Insurance claim:

Cash A/c---------------------Dr.

Loss by Fire A/c---------------------Dr.

       To Purchases A/c

(Being goods lost by fire and insurance claim received)

Explanatory Note:

  1. Here, Cash A/c is debited as money has come in due to the receipt of insurance claim. Cash falls under Real A/c where the rule says: Debit-What comes in. Here debiting of Cash A/c signifies increase in Assets.
  2. Loss by Fire A/c is debited showing it as loss or decrease in assets of the concern. Discount Allowed falls under Nominal A/c where the rule says: Debit-All Expenses and Losses. Here debiting of Interest Loss by Fire A/c signifies Loss or Expenditure of the concern.
  3. Purchase A/c is credited showing it as decrease in the units purchased or expenses made by the concern.

33. For Cash Drawings by the Proprietor for Personal Use:

Drawings A/c---------------------Dr.

       To Cash A/c

(Being cash withdrawn by the proprietor for personal use.)

Explanatory Note:

  1. Here drawings refer to withdrawal of Cash from the capital of the concern. Drawings A/c is debited showing it as decrease in capital of the Firm. Drawing is treated expenses of the concern and falls under Nominal A/c where the rule says:Debit-All Expenses and Losses. Here debiting of Drawings A/c signifies expenditure of the concern.
  2. Cash A/c is credited as money has gone out of the business. Cash falls under Real A/c where the rule says:Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

34. For Providing for Interest on Capital:

Interest On Capital A/c---------------------Dr.

       To Capital A/c

(Being Interest on capital provided for)

Explanatory Note:

  1. Here interest on capital is treated as expenditure of the concern. Interest on Capital A/c is debited showing it as expenditure of the concern. Interest on Capital falls under Nominal A/c where the rule says: Debit-All Expenses and Losses. Here debiting of Interest on Capital A/c signifies Expenditure of the concern.
  2. Here, capital A/c is credited as because money is not paid in Cash but the Interest is added to the amount of capital showing it as increase in capital of the concern.

35. For Receipt of Advance Against Sale from Suresh:

Cash A/c---------------------Dr.

       To Suresh A/c

(Being advance received against sale to be made)

Explanatory Note:

  1. Here Cash A/c is debited as money has come in due to the receipt of insurance claim. Cash falls under Real A/c where the rule says: Debit-What comes in. Here debiting of Cash A/c signifies increase in Assets.
  2. Here, Suresh A/c is credited showing it as increase in liability of the concern as the advance amount received has to be adjusted with the amount of the sale to be made in the near future.

36.For Payment of Advance Against Purchase from Dinesh:

Dinesh A/c---------------------Dr.

       To Cash A/c

(Being advance payment made against purchase.)

Explanatory Note:
  1. Here as payment has been made in advance, Dinesh A/c is debited signifying increase in Asset. The payment that is made in advance is to be adjusted against the purchase that is to be made in the near future.
  2. Cash A/c is credited as money has gone out of the business. Cash falls under Real A/c where the rule says: Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

37. For Payment of Income Tax of the Proprietor of the Business:

Capital A/c---------------------Dr.

       To Bank A/c

(Being income tax of the proprietor paid out of business cash)

Explanatory Note:

  1. Any income earned by the business is added to the capital of the firm unless otherwise stated. And any tax paid for the income so earned is to be deducted from the capital A/c. So here Capital A/c is debited signifying decrease in capital of the firm.
  2. Bank A/c is credited as money has gone out of the business. Cash/Bank falls under Real A/c where the rule says:Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

38. For Refund of Income Tax:

B

ank A/c---------------------Dr.

       To Capital A/c

(Being increase in the amount of capital recorded due to receipt of refund of income tax)

Explanatory Note:

  1. Here Bank A/c is debited as money has come in due to the receipt of the refund of Income tax. Cash/Bank falls under Real A/c where the rule says:Debit-What comes in. Here debiting of Bank A/c signifies increase in Assets.
  2. Cash A/c is credited as cash has gone out of the business. Cash falls under Real A/c where the rule says: Credit-What goes out. Here crediting of Cash A/c signifies decrease in Assets.

39. For Receipt of Cheque from Debtor:

Cash/Bank A/c---------------------Dr.

       To Debtor's A/c

(Being cheque received and recorded into Cash Book)

Explanatory Note:

  1. Here Cash A/c is debited as money has come into the business due to the receipt of cheque from the Debtor. Cash/Bank falls under Real A/c where the rule says:Debit-What comes in. Here debiting of Cash A/c signifies increase in Assets. Here, it is to be noted that here inspite of receiving of cheque; Cash A/c is debited as because the cheque received is not deposited into the bank the same day.
  2. Here Debtors A/c is credited as the money received from debtors signifying decrease in Assets of the Firm.

40. For Depositing of the Cheque of Debtor into Bank:

Bank A/c---------------------Dr.

       To Cash A/c

(Being cheque deposited into bank)

Explanatory Note:

  1. Here Bank A/c is debited as because the cheque earlier received from debtor is now deposited into the Bank. Cash/Bank falls under Real A/c where the rule says:Debit-What comes in. Here debiting of Bank A/c signifies increase in Bank Balance.
  2. Here Cash A/c is credited as the cheque which was now deposited into the Cash Book is now being deposited into the bank withdrawing it form the Cash A/c or cash Book. Cash/Bank falls under Real A/c where the rule says:Credit-What goes out. Here crediting of Cash A/c signifies decrease in Cash Balance.

41. For Receipt of Cheque from a Debtor and the same being deposited into Bank:

Bank A/c---------------------Dr.

       To Debtor's A/c

(Being cheque received and deposited into bank.)

Explanatory Note:

  1. Here Bank A/c is debited as because the cheque received from debtor is deposited into the bank the same day. Cash/Bank falls under Real A/c where the rule says: Debit-What comes in. Here debiting of Bank A/c signifies increase in Assets.
  2. Here Debtor's A/c is credited as the cheque which is received from debtor signifies decrease in the value of Asset. As Debtors fall under Real A/c where the rule says:Credit-What goes out. Here crediting of Debtors A/c signifies decrease in Assets.

42. For Payment by Cheque:

Creditors/Purchases/Assets A/c---------------------Dr.

       To Bank A/c

(Being payment of expenditure made by cheque)

Explanatory Note:

  1. Making of any type of payment signifies either decrease in liability or expenditure or Increase of Asset of the concern, so it is debited as it falls under Nominal A/c where the rule says:Debit-All Expenses and Losses.
  2. Making of any type of payment signifies decrease in Cash/ Bank Balances or decrease in Assets of the concern, so it is credited as it falls under Real A/c where the rule says:Credit-What Goes Out.

43. For Interest on Deposit Being Credited in the Pass Book:

Bank A/c---------------------Dr.

       To Bank Interest A/c

(Being bank interest credited in the pass book)

Explanatory Note:

  1. Here Bank A/c is debited as because interest on deposit is credited by the bank or deposited into the Bank Account. Cash/Bank falls under Real A/c where the rule says:Debit- What comes in. Here debiting of Bank A/c signifies increase in Assets.
  2. Here Bank Interest A/c is credited as because it is treated as revenue for the firm. Any types of revenue falls under Nominal A/c where the rule says:Credit-All Incomes and Gains.

44. For Bank Charges Being Debited in the Pass Book:

Bank Charges A/c---------------------Dr.

       To Bank A/c

(Being bank charges debited in the pass book)

Explanatory Note:

  1. Here Bank Charges A/c is debited as because bank charges is treated as expenditure for the firm. It falls under Nominal A/c where the rule says:Debit-All Expenses and Losses. Here debiting of Bank Charges A/c signifies increase in Expenditures.
  2. Here Bank A/c is credited as because it is treated as decrease in Assets/Bank Balance for the firm. It falls under Real A/c where the rule says:Credit-What Goes Out.