How to do Journal Entries/ How to make Journal :

 How to do Journal Entries/ How to make Journal :

Firstly, we should know the Journal format then we should have a knowledge about the Debit and Credit rules of Accounting. In Journal , we will have date columns, description or particular column , References column and debit and credit column. Now, we are going to see that how can we record the business transactions in Journal :

1.    Aqsa started Business with Cash on 2021, 1 January  with RS/-10,000.

So, in this entry , you will have two accounts cash and capital account. Cash is an assets and whenever assets increases it will be debited and  whenever capital increases, it will be credited.

 

 

2.    Purchased Goods of RS/-6,000 on January 2.

For goods purchases we will used purchases account so, purchases is our expenses and when expenses is increased it will be debited and we are paying cash so it means that we will do payment and whenever assets decreased it will be credited.

 

3.     Ali  buy goods  on January 3 for 6,000 in which he paid 3,000 in cash and remaining amount is billed for the next week.

            So, it is a compound entry in which Sales  account , cash and  Ali account is involved.         We will receive a cash and it will be debited because it is increasing and Sales  are credited because it is also increased and whenever it increased , it will be credited and Ali account is also debited because Ali is our debtor and debtor is Account receivable is asset so, it will be debited.

4.     Nadeem purchased goods from Aqsa on January 5, of RS/-8,000 in which she give him a discount allowed  of 2% .

Discount :

So, 8,000*2/100= 160.

Cash which Nadeem will pay :

Now, Subtract 8,000 from 160

 8,000-160=7,840.

 

5.    Aqsa pay rent in advance for Factory on Jan 9 of RS/-7,000.

In this entry, paid rent in advance is our prepaid assets because she does not utilize it so in this way , it is our assets . if you  don’t know about prepaid , I have explained it in detail in my previous blog of  types of Journal entries. Cash will be credit because it is decreasing.

 

6.    Aqsa take loan for four year  from bank of RS/-20,000 on Feb 1.

In this case, long term loan is liability and it is increasing so it will be credited and cash will be debited.

 

7.    Paid Salaries to employees on Feb 1 for RS/-3,000.

Salaries is expenses . expenses is increases so, debit the salaries account and cash will be credited.

 

8.    Withdraw cash of RS/-2,000 on Feb 2 for personal use.

Drawings is our expense so it is increasing so drawings will be debited and cash will be credited because it is decreasing from business.

 

9.    Aqsa purchases inventory on Feb 3 of RS/- 7,000 from Ayesha.

            Inventory is asset and it is increasing so debit the inventory account and credit the Ayesha account because  Ayesha is our creditor she has to pay them for inventory and creditor is our liability and it is increasing.

10. Ali paid RS/- 3,000 on Feb 6 which he had billed on January 3.

   So, Ali will be credited because he is our debtor and debtor is decreased because he paid. Cash will be credited.

 

11. Aqsa purchased furniture on Feb 7 for RS/-2,000 and received a discount of 8%.

Furniture is asset and it is increasing so debit furniture account and credit the cash account because she paid cash and discount received will be credited.

Discount Received :

2,000*8/100 = 160

Cash :

2,000-160 = 1840 because 160 is our discount and we don’t need to pay 160 that is why we will subtract 160 from original amount .

 

12. Aqsa paid RS/- 7,000 to Ayesha on Feb 9 which she  had billed previously

Ayesha account will be debited because she paid her liability and whenever lability decreased , it will be  debited and cash will be credit.

 

Top 6 Important Concepts of Accounting and Important Terms :

  Important Concepts of Accounting  and  Important Terms :

There are many important concept which you need to clear :

Terms :

1.    Debtor:

Debtor is that person  from which you want to receive money . He might purchase something from you on credit basis and he might has  not pay you for your services. So, debtor is your assets. Debtor is also known as Accounts Receivable .In the transactions , name is given for Accounts receivable or debtor .

2.    Creditor :

Creditor means we purchased something on credit  or we would take loan and did not pay them so it is our liability to pay them . creditors is also known as Accounts Payable . Creditor is that person to whom we pay them.

3.    Drawings:

As you know that business and the owner are separate parties so whenever owner take or with draw any amount from personal or domestic use is called drawings. So , in simple words drawings is an personal expenses of the owner. For instance if owner withdraw RS/-2,000 for paying children fee. Children  fee is  personal expense .

 

Drawings Expense                          Debit with RS/-2,000.

      Cash Account                            Credit with RS/-2,000.

 

Drawings is debited because personal expense is increasing and whenever expense is increased, it will be debited and cash is decreasing so it is credited.

Concepts of Accounting :

1.    Separate entity:

According to this concept the owner and their business are two different or separate things or entity. Whenever we are recording our business transactions, you should always consider them as two things and recorded them separately.

2.    Dual effect:

As you know that every business transactions has double entry system. First oe is called Debit and the second one is called Credit. For instance received cash from customer o RS/-3,000. So, in this entry our assets is increased because we are receiving cash and on the other  side our assets is also decreasing due to reduction of Accounts receivable. Customer is our debtor.

             Cash Account                                             Debit with RS/-3,000.

         Customer Account                              Credit with RS/-3,000.

As you see this entry also has dual or double aspects.

3.    Going Concern:

Going concern means that  business is running continue for a longer period of time and it will have unlimited period .

4.    Cost Concept:

In Accounting, we are following this cost concept. In this concept, we should record only that price for which we purchased the assets. For instance if we purchased machine for RS/-4,000 and now its market value or price is RS/-9,000. Then we will record that 4,000 because we purchased it for 4,000 not 9,000. So, by following this concept we will record only that amount or cost in  which we purchased it.

 

5.    Matching Concept ;

In this matching concept we will only record those expenses which are followed or incurred by the revenues only. We will not record all the expenses.

6.    Monetary Concept:

According to this concept, we will record only those or that transactions which have  value in terms of wealth or money. It can be measurable.