journal entries complete notes

1. CA CHHAVI COMMERCE CLASSES
JOURNAL NOTES CLASS XI
Goods Account is classified into four accounts for the purpose of passing the Journal entries:—
(1) Purchases A/c. When goods are purchased, instead of debiting Goods A/c ‘Purchase A/c’ is
debited. Purchase A/c is a nominal account and while passing a Journal entry ‘Purchase A/c’ should
always be debited because of the rule of “Debit all Expenses and Losses.”
(2) Sales A/c. When goods are sold, instead of crediting Goods A/c ‘Sales A/c’ is credited. Sales
A/c is a nominal account and while passing a Journal entry ‘Sales A/c’ should always be credited
because of the rule of “Credit all Incomes and Gains”.
(3) Purchases Return A/c. This account is also named as ‘Returns Outward’. It is a nominal account
and should always be credited because purchases i.e., expenses are reduced.
(4) Sales Return A/c. This account is also named as ‘Returns Inward’. It is a nominal account and
should always be debited because incomes i.e., sales are reduced.
1. Ram started business with 20,000. From accountancy point of view business is a separate
entity. So the existence of the business is different from a businessman. The double effect
of the above transaction will be that the Cash balance of the business will be increased by
20,000 on the one hand and the Capital of the business will also be created by 20,000 on the
other hand. Cash is an asset and any increase in the asset is debited. So the Cash A/cwill be
debited and increase in Capital is credited. So the Capital A/c will be credited.
Following entry will be passed for the above transaction :
Cash Account Dr. 20,000
To Capital Account 20,000
2. Purchase furniture for cash 4,000. There are two accounts in this transaction, Furniture A/c
and Cash A/c. Both are Assets Accounts. The result of this transaction will decrease in cash and
increase in furniture. Increase in an asset is debited, so the Furniture A/c will be debited. Decrease
in an asset is created, so the Cash A/c will be credited.
Following entry will be passed :
Furniture Account Dr. 4,000
To Cash Account 4,000

2. CA CHHAVI COMMERCE CLASSES
3. Goods purchased for Cash 8,000. There are two accounts in this transaction, Goods A/c
(Purchases A/c) and Cash A/c. Both are Assets Accounts. The result of this transaction will decrease
in cash and increase in goods. Increase in an asset is debited, so the Purchases A/c will be debited.
Decrease in asset is credited, so the Cash A/c will be credited. Following entry will be passed :
Purchases Account Dr. 8,000
To Cash Account 8,000
4. Goods purchased from M/s Hari & Sons on credit for 6,000. This transaction again involves
two accounts, Goods A/c (Purchases A/c) and Hari’s A/c. Goods A/c is anAsset. Goods are increased
by this transaction. So the Purchases A/c will be debited. The other account is that of Hari ‘Creditor’
which increases the liabilities of the business. Such an increase is credited. Following entry will be
passed :
Purchases Account Dr. 6,000
To M/s Hari & Sons 6,000
5. Goods sold for Cash 7,000. The double entry effect of this transaction will be that on one side
the assets in the form of goods will be decreased and another asset cash will be increased. The
transaction involves two accounts : Cash Account and Goods Account (Sales Account) and both are
real accounts. Therefore, Cash Account will be debited because cash balance is increased and Sales
Account will be credited because stock of goods is decreased. Following journal entry will be passed
Cash Account Dr. 7,000
To Sales Account 7,000
6. Goods sold to M/s Shyam & Sons on Credit 7,000. This transaction affects two accounts—
Goods A/c (Sales A/c) and M/s Shyam Lal & Sons Debtor’s A/c. Sale of goods will decrease the goods
and decrease in an asset is credited. So the Sales A/c will be credited. Goods have been sold on
credit to M/s Shyam Lal & Sons. So he becomes the debtor of the business. Debtors are our ‘Assets’
and any increase in assets is debited. So M/s Shyam Lal & Sons’s account will be debited. Following
entry will be passed :
M/s Shyam Lal & Sons Dr. 7,000
To Sales Account 7,000
7. Paid Salaries 5,000. This transaction affects Salaries A/c and Cash A/c. Salaries paid will
increase the expenses. So Salaries A/c will be debited. It also reduces the Cash balance of the
business. Cash A/c is an asset. Any decrease in assets should be credited. So the Cash A/c will be
credited. Following entry will be passed :
Salaries Account Dr. 5,000
To Cash Account 5,000
Practice : Journalise the following transactions :
2020
Jan. 1 Anil Kumar started business with cash 1,00,000
Jan. 3 Goods purchased for cash 30,000
Jan. 5 Goods purchased from Sunil Kumar 20,000

3. CA CHHAVI COMMERCE CLASSES
Jan. 7 Goods sold for cash 10,000
Jan. 10 Goods sold to Vikas 30,000
Jan. 12 Cash paid to Sunil Kumar 10,000
Jan. 17 Cash received from Vikas 20,000
Jan. 23 Paid for wages 5,000
Jan. 25 Furniture purchased from Vansh for cash 2,000
Jan. 28 Paid for interest 1,000
Jan. 31 Paid for salaries 1,000
Simple and Compound Journal Entry
Simple Entry
Simple entry are those entries in which only two accounts are affected, one account is related to
debit and another account is related to credit.
Compound Entry
Compound entries are those entries in which at least two accounts are either debited or credited.
These entries are recorded for those transactions which are similar in nature and occur on the same
day.
ENTRIES OF SOME SPECIFIC TRANSACTIONS
Now we will discuss some complex journal entries of some special business transactions:
A. Bad Debts
When the business debtors are unable to pay their debts, or become insolvent, then the unrealised
amount is treated as a loss to the business firm and is termed as Bad debts.
Journal entry passed in the case :
(i) When the amount is irrecoverable :
Bad Debts A/c Dr.
To Debtor’s Personal A/c
(Being the amount not recoverable written off as bad debt)
(ii) When a part of the debt is recoverable : When a debtor becomes bankrupt, i.e., he is unable to
pay his total debt, the unrealised amount is a loss to the business, i.e., a bad debt. The Journal entry
passed is :
Cash or Bank A/c Dr. (With the amount received)
Bad Debts A/c Dr. (With the amount not recovered)
To Debtor’s Personal A/c (Total amount of debtor)
(Being the amount received and balance written off as bad debt being not recoverable)
B. Bad Debts Recovered
Sometimes an insolvent debtor whose account had been earlier written off as ‘Bad Debts’ pays some
amount. The amount so recovered is treated as a gain to the business and is termed as Bad Debts
Recovered. Journal entry passed in this case :
Cash or Bank A/c Dr.

4. CA CHHAVI COMMERCE CLASSES
To Bad Debts Recovered A/c
(Being the amount earlier written off as bad debt, now recovered)
C. Cash Withdrawn for Personal Use
Cash withdrawn for personal use is termed as ‘Drawings’. The entry passed is :
Drawings A/c Dr.
To Cash A/c
(Being the cash withdrawn for personal use)
D. Banking Transactions
In the real life business transactions, it is not viable to transact the business only through cash.
Moreover, expansion of trade meant maintaining banking account through which most of the
transactions are carried out. Let us discuss these transactions one by one :
RECORDING OF BANKING TRANSACTIONS
1. When cash is deposited into the bank
Bank A/c Dr.
To Cash A/c
2. When cash is withdrawn from the bank.
Cash A/c Dr.
To Bank A/c
3. When cheques, drafts etc. received from the customers are deposited into the bank on the same day
Bank A/c Dr..
To Customer’s Personal A/c
4. When cheques, drafts etc. received from the customers. are not sent to bank on the same day.
Cheque in Hand A/c Dr
To Customer’s Personal A/c
5. On the date when above cheques, drafts are sent to the bank.
Bank A/c Dr
To Cheque in Hand A/c
6. When a customer directly deposits the amount in our Bank.
bank A/c DR.
To Customer Personal A/c

5. CA CHHAVI COMMERCE CLASSES
7. When a cheque previously deposited into the bank is dishonoured.
Customer’s Personal A/c Dr.
To Bank A/c
8.When a cheque is received from a customer and discount is allowed to him, and if the cheque is deposited
into the bank on the same day.
Bank A/c Dr
Discount Allowed A/c Dr.
To Customer’s Personal A/c
9. In case the above cheque is dishonoured, the discount allowed to the customer will also be withdrawn.
Customer’s Personal A/c Dr.
To Bank A/c
To Discount Received A/c
10. When payment is made by issue of a cheque.
Personal A/c Dr.
To Bank A/c
11. When expenses are paid by the issue of a cheque.
Expenses A/c Dr.
To Bank A/c
12. When cash is withdrawn from the bank for the personal use of the proprietor.
Drawings A/c Dr.
To Bank A/c
13. When interest is charged by the bank
Interest A/c Dr.
To Bank A/c
14. When interest is allowed by the bank
Bank A/c Dr.
To Interest A/c
15. When bank charges some amount for the services rendered by the bank.
Bank Charges A/c Dr.
To Bank A/c

6. CA CHHAVI COMMERCE CLASSES
16. Bank makes payment on firm’s behalf (say insurance premium)
Insurance Premium A/c Dr
To Bank A/c
17. Collection by bank on our behalf(say dividend)
Bank A/c Dr.
To Dividend A/c
18. Repayment of bank loan in cash
Bank Loan A/c Dr
To cash A/c
19. Repaymant of bank loan by issue of cheque
Bank Loan A/c Dr
To Bank A/c
20. Transfer of funds from one bank to another. (say from ICICI to HDFC)
Bank (HDFC) A/c Dr.
To Bank (ICICI) A/c
E. Trade Discount and Cash Discount
Any incentive in the form of reduction in sale price, given to encourage more purchases or prompt
and timely payment is called discount. Discount is classified into :
Trade Discount. The discount allowed to a customer if he purchases goods above certain
quanity/amount is termed as trade discount. Such discount is reduced from the sale value and
sale/purchase is recorded in the books at the net value.
Cash Discount. The discount allowed to a customer to encourage prompt payment of due amount, is
termed as cash discount. Cash discount allowed is debited to Discount Allowed Account and discount
received is credited to Discount Received Account. Trade Discount is not recorded in the books and
entry is made with the catalogue or list price less trade discount. However, cash discount is
debited/credited with the cash receipts/payments. Following journal entries shall made.
A. In Case of Sale :

7. CA CHHAVI COMMERCE CLASSES
Cash/Cheque in Hand A/c Dr. [With the net amount received]
Discount Allowed A/c Dr. [With the amount of discount allowed]
To Sales A/c [With the gross sale amount]
(Being the goods sold at cash discount)
B. In Case of Purchase :
Purchase A/c Dr. [With the gross purchase amount]
To Cash/Bank A/c [With the net amount paid]
To Discount Received A/c [With the amount of cash discount received]
(Being the goods purchased at cash discount)
F. Goods Given as Charity
When the goods are given as charity the amount of purchases is reduced with the value of goods
given away as charity. Journal entry passed in this case is :
Charity A/c Dr.
To Purchase A/c
(Being the goods given as charity, hence credited to Purchases Account)
G. Goods Given as Free Samples
Sometimes firms adopt the method of free distribution of goods to increase sales. It is a part of
advertisement expense hence, it is debited to advertisement account and deducted from purchases
:Journal entry passed in this case is :
Advertisement A/c / Samples A/c Dr.
To Purchase A/c
(Being the goods distributed as free samples)
H. Goods withdrawn by properietor for Personal Use :
Sometimes proprietor withdraws goods or cash from the business for his personal use. So the total
amount of purchase should be reduced by the amount of goods if goods are withdrawn. Journal entry
passed in this case is
Drawings A/c Dr.
To Purchases A/c
(Being the goods taken for personal use)
I. Loss by Theft or Fire
Sometimes business may incur some abnormal losses, due to theft or fire i.e., other than due to
natural calamities. All these losses are recorded in the books in following way :

8. CA CHHAVI COMMERCE CLASSES
(i) For recording the loss
Loss by Fire/Theft A/c Dr.
To Purchases A/c
(Being the loss of goods by theft or fire)
Note. Loss by Theft or Fire Account is debited because the loss is a nominal account and
the Purchase Account is credited because the purchases decrease. The loss will be treated
in accounts as follows :
(i) When goods (stock) are fully insured, loss is to be borne by the Insurance Company.
The entry passed is :
Insurance Co. Or Insurance Claim A/c Dr.
To Loss by Theft or Fire A/c
(Being the loss of goods recoverable from the insurance company)
Insurance claim is an asset and will be shown as an asset in the Balance Sheet until actually received in cash.
(ii) When the full amount of claim is received from the Insurance Company :
Bank A/c/Cheque in Hand A/c Dr.
To Insurance Co.
(Being the insurance claim received)
(iii) When the Insurance Company does not admit full claim :
Bank A/c/Cheque in Hand A/c Dr. [claim admitted]
Profit & Loss A/c Dr. [claim not admitted]
To Insurance Co.
(iv) When the stock is not insured, whole of the loss will be borne by the firm. At the end
of the year balance in loss by Theft or Fire Account is transferred to Profit and Loss
Account
Profit and Loss A/c Dr.
To Loss by Theft Or Fire A/c
(Being the loss transferred to Profit and Loss Account)
Practice : Illustration . Journalise the following transactions :
1. Goods worth 2,000 were used by proprietor for personal use.
2. Goods worth 10,000 and cash 4,000 were stolen by an employee.
3. Goods worth 7,000 were destroyed by fire and the insurance company admitted
the claim of 5,000.
4. Goods worth 2,000 were given in Prime Minister Relief Fund as a charity.
5. Goods worth 2,000 were distributed as free samples.
J. Purchase and Sale of Asset
When a firm bought some asset, the particular asset account is debited and likewise when a asset is
sold, the account of that particular asset is credited. Assets may be bought on cash or on credit

9. CA CHHAVI COMMERCE CLASSES
basis. If an asset is bought on credit basis the account of seller is credited and similarly in case of
sale, the account of purchaser is debited. Purchase of fixed asset is not debited to Purchase Account
as fixed asset is not for the purpose of sales. Similarly, when fixed asset is sold, it is credited to
Asset Account and not to Sales Account. Journal entries passed in this case will be :
(i) On Purchase of Asset for Cash :
Asset A/c Dr.
To Cash or Bank A/c
(Being the asset purchased against cash)
(ii) On Sale of Asset for Cash :
Cash or Bank A/c Dr.
To Asset A/c
(Being the asset sold against cash)
(iii) On Purchase of Asset on Credit :
Asset A/c Dr.
To Supplier’s A/c
(Being the asset purchased on credit)
(iv) On Sale of Asset on Credit :
Purchaser’s A/c Dr.
To Asset A/c
(Being the asset sold on credit)
Note. Sometimes while purchasing machinery expenditure is incurred on the carriage and installation
of machinery i.e., freight, wages paid for the installation etc. These expenses are treated as ‘capital
expenditure’ and is debited to Machinery Account. Likewise, any expenditure incurred for the
construction of building such as purchase of construction materials and payment of wages are also
capital expenditure and debited to the Building Account.
K. Income Tax
In the case of sole proprietorship, income tax shall be treated as drawings of the proprietor because
it is neither loss nor an expense of the business.
Drawings A/c Dr.
To Cash A/c
(Being the income tax paid transferred to drawings)
L. Closing Stock
Closing Stock is the goods unsold at the end of the year. It is not given in Trial Balance but is given
as an additional information. In order to calculate the correct gross profit or gross loss, it should be
brought into the books. Adjustment entry for Closing Stock is as follows :
Closing Stock A/c Dr.
To Trading A/c
(Being the Closing Stock recorded)

10. CA CHHAVI COMMERCE CLASSES
Remember. Closing Stock is to be valued at cost or net realisable value (market price) whichever
is lower.
M. Depreciation
Due to continuous use or wear-tear of fixed asset, its value keeps on decreasing every year. This
decreased value is called depreciation. Following journal entry is passed in this case:
Depreciation A/c Dr.
To Concerned Asset A/c
(Being the depreciation asset provided)
N. Interest on Capital and Drawings
Interest on capital is loss for business and thus interest account is debited and capital account is
credited by the amount of interest. In case of drawings also, capital of the business gets reduced.
But interest charged on drawings is a gain for the business. For this, drawings account is debited and
interest on drawings account is credited.
Journal entries passed in these cases :
(i) In case of interest on capital
Interest on Capital A/c Dr.
To Capital A/c
(Being the interest on capital allowed @ . . . . .%)
(ii) In case of interest on drawings :
Drawings A/c Dr.
To Interest on Drawings A/c
(Being the interest on drawings charged @ . . . . .%)
O. Sundry Expenses
Often petty expenses, such as refreshment, postage, conveyance, etc., are incurred in a routine
business. It is not viable to record all such expenses in a separate account. Thus these expenses
generally are debited in one account i.e., Sundry Expenses Account.
Sundry Expenses A/c Dr.
To Cash A/c
(Being the sundry or miscellaneous expenses incurred)
P. Outstanding Expenses
According to the Accrual Concept of Accounting, expenses incurred during the accounting year should
be accounted whether they have been paid or not. Outstanding expenses are the expenses that relate
to the current accounting year but have not been paid till the year end. They should be recorded as
expenses and also payable.
Example. Wages for the year ended 31st March, 2020 are 8,000. Out of this, 1,000 for the month
of March, 2020 have been paid in April, 2020. Since, 1,000 as on 31st
March, 2020 is yet to be paid
it should be recorded in the books by passing the following Journal entry :
Wages A/c Dr. 1,000

11. CA CHHAVI COMMERCE CLASSES
To Outstanding Wages A/c 1,000
(Being the outstanding wages accounted)
Note. Outstanding wages is a liability.
Q. Prepaid Expenses
According to the Matching Concept of Accounting, expenses should be debited to Profit and Loss
Account, if their benefit has expired. Expenses like—Insurance, Rent of Shop, etc., are paid in
advance but their benefit may expire in the next accounting year. Such expenses are termed as
advance or prepaid expenses. Example. On 1st July, 2020, 3,600 were paid as insurance premium of
the shop for the whole year. Final accounts have to be prepared on 31st March, 2020. It means
advance payment has been made for the period 1st April, 2020 to 30th June, 2020. it should be
recorded in the books for the year ended 31st March, 2021 as prepaid expenses. Journal entry passed
is :
Prepaid Insurance A/c Dr. 900
To Insurance Premium A/c 900
(Being the amount transferred to Prepaid Expenses A/c of insurance for the period 1st April, 2020 to
30th June, 2020)
Note. Prepaid Insurance Premium A/c is an asset.