Journal Entry for Interest on Drawings is- Particulars Amount Amount Drawings A/c Dr $$$ To Interest on Drawings A/c $$$ So as per the modern approach: From the point of view of business, Interest on Drawings is an Income. When there is an inRead more
Journal Entry for Interest on Drawings is-
Particulars
Amount
Amount
Drawings A/c Dr
$$$
To Interest on Drawings A/c
$$$
So as per the modern approach: From the point of view of business, Interest on Drawings is an Income.
When there is an increase in the Income, it is credited.
When there is a decrease in the Income, it is debited.
From the point of view of the proprietor, Interest on Drawings is a Liability.
So as per the modern approach:
When there is an increase in the Liability, it is credited.
When there is a decrease in the Liability, it is debited.
So as per the modern approach, Interest on Drawings is credited because with Interest the income increases for the business. Whereas, the amount of such interest is a loss from the point of view of the owner/ Proprietor, as such the amount of drawings is increased by the amount of interest and hence the Drawings account is debited.
For Example, Harry charged interest on drawings on Rs 10,000 @ 12% for one year.
Explanation:
Step 1: To identify the account heads.
In this transaction, two accounts are involved, i.e. Drawings A/c and Interest on Drawings A/c.
Step 2: To Classify the account heads.
According to the modern approach: From the point of view of business, Interest on Drawings is a Revenue A/c and Drawings A/c is an Expense A/c.
Step 3: Application of Rules for Debit and Credit:
According to the modern approach: As Revenue increases because of interest on drawings received by the business, Interest on Drawings A/c will be Credited. (Rule – increase in Revenue is credited).
Drawings A/c is an expense account for the business and as expense increases, Drawings A/c will be debited. (Rule – increase in the expenses is debited).
So from the above explanation, the Journal Entry will be-
An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more
An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:
Non-Current Assets
Current Assets
The asset may be sold for several reasons such as:
An asset is fully depreciated.
It should be sold because it is no longer needed.
It is removed from the books due to unforeseen circumstances.
The journal entry for profit on the sale of assets will be:
Cash / Bank A/c
Debit
To Asset A/c
Credit
To Profit on Sale of Asset A/c
Credit
(Being sale of an asset made with a gain)
According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.
“Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.
The journal entry for loss on sale of the asset will be:
Cash / Bank A/c
Debit
Loss on Sale of Asset A/c
Debit
To Asset A/c
Credit
(Being sale of an asset made and loss incurred)
In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.
According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.
Cash / Bank A/c
Debit
Increases Asset
Loss on Sale of Asset A/c
Debit
Increases Expenses
To Asset A/c
Credit
Decreases Asset
To Profit on Sale of Asset A/c
Credit
Increases Expenses
For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.
According to modern rules, the journal entry will be:
Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue. Note that as per the accrual concept of accounting, sales are recognized on the daRead more
Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue.
Note that as per the accrual concept of accounting, sales are recognized on the day it was made, irrespective of whether the business receives cash or not.
The business records unbilled revenue by passing the following journal entry:
Unbilled Revenue is treated as an asset because it is yet to be fully recognized as an income. Therefore it is debited. Revenue A/c is credited as there is an increase in income.
Once the bill/invoice has been issued to the customer, the following entry is passed to close the Unbilled Revenue A/c.
Let me explain this concept with an example,
Luca Traders, a business dealing in stationery and office supplies receives an order on August 5th for 1,000 pens worth 10 each. On August 8th they deliver the pens but they are yet to issue an invoice to the customer. They issue the invoice only on August 13th.
So the sales revenue of 10,000 (1,000*10) will be treated as an unbilled revenue for the period of August 8th – August 12th. On August 8th the following entry is made to record unbilled revenue.
Unbilled Revenue A/c
10,000
To Revenue A/c
10,000
(Being entry for recording unbilled revenue worth 10,000)
When the invoice is sent to the customer on August 13th, the following journal entry is posted to close the unbilled revenue A/c.
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolutionRead more
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm
Unrecorded assets are treated in two ways:
Either they can be sold for cash.
Taken over by any of the partners.
The journal entry for the unrecorded assets sold in cash is as follows:
Bank A/c ……..Dr
xxx
To Realization A/c
xxx
(Being unrecorded assets sold for cash)
To make the entries more simple for you let me give you a small example
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be
Bank A/c ……..Dr
3,000
To Realisation A/c
3,000
(Being old furniture sold for cash)
And the journal entry for unrecorded assets taken over by the partner is as follows:
Partner’s capital A/c ……..Dr
xxx
To Realization A/c
xxx
(Being unrecorded taken over by the partner)
For example:
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be
Bank A/c ……..Dr
3,000
To Partnership A/c
3,000
(Being old furniture taken by partner)
As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.
The journal entry for a loan to an employee is as follows: Loans to employee A/c …..Dr xxx To Bank/Cash A/c xxx (Being loan given to employee) From the above journal entry, we see that there are two accounts-first one is "Loan to employee accounRead more
The journal entry for a loan to an employee is as follows:
Loans to employee A/c …..Dr
xxx
To Bank/Cash A/c
xxx
(Being loan given to employee)
From the above journal entry, we see that there are two accounts-first one is “Loan to employeeaccount” and the second one is “Bank/cash account“. Both are assets for the company.
Loan to employees is considered an asset because they are expected to be returned by the employee within the stipulated time period. If the loan is repaid within one year it will be shown under the current asset and if it is not expected to be collected within a year or in short might be repaid after a year then it will be shown under long-term assets.
Also, we all know Bank/cash is an asset for the company.
Why loan to employee A/c is debited and Bank/cash A/c is credited?
As per the modern rule:
ASSETS
Increase
Debit
Decrease
Credit
Connecting the above-stated entry with the modern rule “loan to an employee” is debited as money comes back into the business hence there is an increase in an asset therefore debited. While in the second case “bank/cash account” is credited as the money goes out of the business, there is a decrease in assets of the company therefore credited.
Loan to employee
The inflow of cash in a future date
Increase in an asset
Debit
Bank/ cash
The outflow of cash
Decrease in an asset
Credit
We notice that in this entry there is an increase in one asset while a decrease of another asset. Therefore the impact on the balance sheet is Nil.
Let me give you a simple illustration of the above entry
Mr. Ross was an employee of Maxwell Pvt ltd. Mr. Ross was lent Rs 2,00,000 by the company for some emergency purpose. So as per modern rules the accounting entry in the books of the company will be as follows:
The journal entry for the opening stock will be: Particulars Amt Amt Trading A/c INR To Opening Stock A/c INR (Being opening stock transferred to Trading A/c) Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. ORead more
The journal entry for the opening stock will be:
Particulars
Amt
Amt
Trading A/c
INR
To Opening Stock A/c
INR
(Being opening stock transferred to Trading A/c)
Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.
Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.
Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.
In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.
According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenues, and decreases assets and expenses.
Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.
The formula for calculating opening stock is as follows:
Opening Stock = Cost of Goods Sold + Closing Stock – Purchases
For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.
The journal entry for asset purchase is- Particulars Amount Amount Asset A/c Dr $$$ To Bank A/c $$$ According to the Modern Approach for Assets Account: When there is an increase in the Asset, it is ‘Debited’. When there is a decreaseRead more
The journal entry for asset purchase is-
Particulars
Amount
Amount
Asset A/c Dr
$$$
To Bank A/c
$$$
According to the Modern Approach for Assets Account:
When there is an increase in the Asset, it is ‘Debited’.
When there is a decrease in the Asset, it is ‘Credited’.
So the journal entry here is about the purchase of an asset and since there is an increase in Asset, the assets account will be debited as per the modern rule and due to the decrease of cash in the bank account, it will be credited.
For Example, Richard purchased furniture worth Rs 6,000 for his business.
I will try to explain it with the help of steps.
Step 1: To identify the account heads.
In this transaction, two accounts are involved, i.e. Furniture A/c and Bank A/c as Richard has acquired the furniture paying a certain amount.
Step 2: To Classify the account heads.
According to the modern approach: Furniture A/c is an Asset account and Bank A/c is also an Asset account.
According to the traditional approach: Furniture A/c is a Real account and Bank A/c is also a Real account.
Step 3: Application of Rules for Debit and Credit:
According to the modern approach: As asset increases because Furniture has been bought, ‘Furniture A/c’ will be debited. (Rule – increase in Asset is debited).
Bank account is also an Asset account. As the asset is in the form of cash decreases because the amount has been paid by cash or cheque, Bank account will be credited. (Rule – decrease in Asset is credited).
According to the traditional approach: Furniture A/c is a Real account and Bank is also a Real account, for which the rule to be applied is ‘Debit what comes in and Credit what goes out’. Furniture being asset comes in the business, so Furniture A/c will be debited and as cash goes out Bank A/c will be credited.
So from the above explanation, the Journal Entry will be-
What is the journal entry for interest on Drawings?
Journal Entry for Interest on Drawings is- Particulars Amount Amount Drawings A/c Dr $$$ To Interest on Drawings A/c $$$ So as per the modern approach: From the point of view of business, Interest on Drawings is an Income. When there is an inRead more
Journal Entry for Interest on Drawings is-
So as per the modern approach: From the point of view of business, Interest on Drawings is an Income.
From the point of view of the proprietor, Interest on Drawings is a Liability.
So as per the modern approach:
So as per the modern approach, Interest on Drawings is credited because with Interest the income increases for the business. Whereas, the amount of such interest is a loss from the point of view of the owner/ Proprietor, as such the amount of drawings is increased by the amount of interest and hence the Drawings account is debited.
For Example, Harry charged interest on drawings on Rs 10,000 @ 12% for one year.
Explanation:
Step 1: To identify the account heads.
In this transaction, two accounts are involved, i.e. Drawings A/c and Interest on Drawings A/c.
Step 2: To Classify the account heads.
According to the modern approach: From the point of view of business, Interest on Drawings is a Revenue A/c and Drawings A/c is an Expense A/c.
Step 3: Application of Rules for Debit and Credit:
According to the modern approach: As Revenue increases because of interest on drawings received by the business, Interest on Drawings A/c will be Credited. (Rule – increase in Revenue is credited).
Drawings A/c is an expense account for the business and as expense increases, Drawings A/c will be debited. (Rule – increase in the expenses is debited).
So from the above explanation, the Journal Entry will be-
See lessWhat is the journal entry for sale of asset?
An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more
An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:
The asset may be sold for several reasons such as:
The journal entry for profit on the sale of assets will be:
According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.
“Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.
The journal entry for loss on sale of the asset will be:
In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.
According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.
For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.
According to modern rules, the journal entry will be:
What is the journal entry for unbilled revenue?
Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue. Note that as per the accrual concept of accounting, sales are recognized on the daRead more
Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue.
Note that as per the accrual concept of accounting, sales are recognized on the day it was made, irrespective of whether the business receives cash or not.
The business records unbilled revenue by passing the following journal entry:
Unbilled Revenue is treated as an asset because it is yet to be fully recognized as an income. Therefore it is debited. Revenue A/c is credited as there is an increase in income.
Once the bill/invoice has been issued to the customer, the following entry is passed to close the Unbilled Revenue A/c.
Let me explain this concept with an example,
Luca Traders, a business dealing in stationery and office supplies receives an order on August 5th for 1,000 pens worth 10 each. On August 8th they deliver the pens but they are yet to issue an invoice to the customer. They issue the invoice only on August 13th.
So the sales revenue of 10,000 (1,000*10) will be treated as an unbilled revenue for the period of August 8th – August 12th. On August 8th the following entry is made to record unbilled revenue.
When the invoice is sent to the customer on August 13th, the following journal entry is posted to close the unbilled revenue A/c.
What is the journal entry for unrecorded assets in a partnership?
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolutionRead more
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm
Unrecorded assets are treated in two ways:
The journal entry for the unrecorded assets sold in cash is as follows:
To make the entries more simple for you let me give you a small example
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be
And the journal entry for unrecorded assets taken over by the partner is as follows:
For example:
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be
As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.
See lessWhat is the journal entry for loan to employee?
The journal entry for a loan to an employee is as follows: Loans to employee A/c …..Dr xxx To Bank/Cash A/c xxx (Being loan given to employee) From the above journal entry, we see that there are two accounts-first one is "Loan to employee accounRead more
The journal entry for a loan to an employee is as follows:
From the above journal entry, we see that there are two accounts-first one is “Loan to employee account” and the second one is “Bank/cash account“. Both are assets for the company.
Loan to employees is considered an asset because they are expected to be returned by the employee within the stipulated time period. If the loan is repaid within one year it will be shown under the current asset and if it is not expected to be collected within a year or in short might be repaid after a year then it will be shown under long-term assets.
Also, we all know Bank/cash is an asset for the company.
Why loan to employee A/c is debited and Bank/cash A/c is credited?
As per the modern rule:
Connecting the above-stated entry with the modern rule “loan to an employee” is debited as money comes back into the business hence there is an increase in an asset therefore debited. While in the second case “bank/cash account” is credited as the money goes out of the business, there is a decrease in assets of the company therefore credited.
We notice that in this entry there is an increase in one asset while a decrease of another asset. Therefore the impact on the balance sheet is Nil.
Let me give you a simple illustration of the above entry
Mr. Ross was an employee of Maxwell Pvt ltd. Mr. Ross was lent Rs 2,00,000 by the company for some emergency purpose. So as per modern rules the accounting entry in the books of the company will be as follows:
What is the Journal Entry for Opening Stock?
The journal entry for the opening stock will be: Particulars Amt Amt Trading A/c INR To Opening Stock A/c INR (Being opening stock transferred to Trading A/c) Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. ORead more
The journal entry for the opening stock will be:
Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.
Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.
Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.
In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.
According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenues, and decreases assets and expenses.
Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.
The formula for calculating opening stock is as follows:
Opening Stock = Cost of Goods Sold + Closing Stock – Purchases
For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.
Here, the journal entry will be,
What is the journal entry for asset purchase?
The journal entry for asset purchase is- Particulars Amount Amount Asset A/c Dr $$$ To Bank A/c $$$ According to the Modern Approach for Assets Account: When there is an increase in the Asset, it is ‘Debited’. When there is a decreaseRead more
The journal entry for asset purchase is-
According to the Modern Approach for Assets Account:
So the journal entry here is about the purchase of an asset and since there is an increase in Asset, the assets account will be debited as per the modern rule and due to the decrease of cash in the bank account, it will be credited.
For Example, Richard purchased furniture worth Rs 6,000 for his business.
I will try to explain it with the help of steps.
Step 1: To identify the account heads.
In this transaction, two accounts are involved, i.e. Furniture A/c and Bank A/c as Richard has acquired the furniture paying a certain amount.
Step 2: To Classify the account heads.
According to the modern approach: Furniture A/c is an Asset account and Bank A/c is also an Asset account.
According to the traditional approach: Furniture A/c is a Real account and Bank A/c is also a Real account.
Step 3: Application of Rules for Debit and Credit:
According to the modern approach: As asset increases because Furniture has been bought, ‘Furniture A/c’ will be debited. (Rule – increase in Asset is debited).
Bank account is also an Asset account. As the asset is in the form of cash decreases because the amount has been paid by cash or cheque, Bank account will be credited. (Rule – decrease in Asset is credited).
According to the traditional approach: Furniture A/c is a Real account and Bank is also a Real account, for which the rule to be applied is ‘Debit what comes in and Credit what goes out’. Furniture being asset comes in the business, so Furniture A/c will be debited and as cash goes out Bank A/c will be credited.
So from the above explanation, the Journal Entry will be-
See less