Category of Accounts -- Hints for Journalizing - Advantages of Journal

13 min read
26 September 2022
Personal Accounts

Accounts recording transactions pertaining to individuals or even firms or company are referred to as personalized accounts. Personal balances may further get classified as:

(1) Natural person's private accounts: The accounts recording transactions relating to individual individuals e. g., Anand's A/c, Remesh's A/c, Pankaj's A/c happen to be classified as normal person's personal company accounts.

(2) Artificial individual's personal account: The accounts recording transactions relating to restricted companies. bank, company, institution, club. etc. e. g. Delhi Cloth Mill; Hans Raj College; Gymkhana Club are labeled as artificial persons' personal accounts.

(3) Representative personal records: The accounts recording transactions relating in order to the expenses plus incomes are classified as nominal records. But in particular cases due to the matching concept of accounting the total amount, on a particular date, is payable to the individuals or recoverable by individuals.

Such sum (a) relates to the actual head associated with expenditure or income and (b) represents persons to to whom itis payable or perhaps from whom it is recoverable. Such accounts are grouped as representative personal accounts e. grams. "Wages Outstanding Account", Pre-paid Insurance Consideration. etc.

Real Accounts

The accounts recording transactions relating in order to tangible things (which could be touched, obtained and sold) these kinds of as goods, money, building. machinery and so on., are classified because tangible real balances.

Whereas the records recording transactions related to. intangible issues (which do certainly not have physical shape) such as goodwill, patents and backup rights. trade represents etc., are classified as intangible true accounts.

Nominal Balances

The accounts recording transactions relating to the losses, increases. expenses and incomes e. g., Rent, salaries, wages, percentage, interest, bad debt etc. are classified as nominal accounts. As already talked about, wherever a small account represents typically the amount payable to be able to or receivable through certain persons it is known as representative personal account.

Regulations of Debit and even Credit (classification based)

one Personal Company accounts: Debit the device, Credit the giver (supplier)

2. Actual Accounts: Debit just what will come in, Credit just what goes out there

several. Nominal Accounts: Charge expenses and deficits, Credit incomes and gains.,

Hints intended for Journalizing

The following debate will help within diagnosing the purchase with a view to find away which accounts usually are relevant for passing the journal admittance.

1 . Treatment of cash/credit transaction.

Examine carefully the next transactions:

(i) Purchased items for Rs. one particular, 200 cash..
(ii) Purchased goods for Rs. 1, 200.
(iii) Purchased goods for Rs. just one, 200 from Arun.
(iv) Purchased goods for Rs. just one, 200 from Arun on cash.

Deal (i) and (iv) are clear while it has already been specifically stated that will purchases have recently been made on cash. Thus the access is:

Purchases consideration Dr. 1, 200 To Cash account 1, two hundred

Purchase (ii) and (iii) are not certain as to whether the purchases are usually for cash or even on credit. Nevertheless transaction (ii) truly does not mention virtually any name of typically the supplier; therefore that implies that the purchases are regarding cash. Similarly purchase (iii) mentions the name of the supplier but will be silent regarding cash-it implies that acquisitions are on credit: As a result the entry with regard to transaction (iii) is usually

Purchases account Medical professional. 1, 200 To be able to Amex 1200.

two. Take care of payment in personal/expenses account.

Any time payment is made to a particular person against amount due to him since per his ledger account-the personal bank account of the financial institution ought to be debited. Nevertheless in case the payment is definitely being made to some sort of person representing company expenditure then the particular particular expenditure (nominal) account should always be debited.

3. Therapy of receipt about personal/ income accounts.

When amount will be received from a person against volume recoverable from him or her as per journal account-the personal bank account of the debtor needs to be credited. Nevertheless when the amount acquired represents business earnings, then your particular revenue (nominal) account have to be credited.

some. Treatment of trade discount.

In a lot of cases the vendor enables to the buyer deduction off the list price. This kind of deduction is recognized as 'trade discount'. Trade discount consequently is not recorded in the books. The transaction is recorded together with only the web amount i. at the. (list price -trade discount).

5. Treatment- of cash discount (full settlement).

In some cases creditor may allow some obole to his debtor to prompt him to make the particular payment within the period of credit granted. Such concession is referred to as 'cash discount'. It is allowed by the person receiving the particular payment to represent, expenditure. It is utilized by the individual making the payment in addition to represents income.

6th. Treatment of Bad debts (debtor becoming insolvent).

An amount as a consequence coming from a debtor may possibly become irrecoverable possibly partially or totally. Reason may be that will he has already been declared insolvent or any other. These kinds of irrecoverable amount symbolizes loss for the enterprise and is debited to Bad financial obligations amount.

7. Remedy of Bad debts recovered

It is evident from the over entry that anytime irrecoverable amount is definitely written off of the personalized account is a certain amount. If over time any paymentis received towards a debt previously written of in that case it represents salary and as these kinds of should be acknowledged to an bank account styled as 'Bad debts recovered account'. Personal account need not be awarded.

Category of Accounts -- Hints for Journalizing - Advantages of Journal
8. Treatment of personal expenses involving the user

It is quite typical for the proprietor to be able to withdraw cash or even goods from the business for personal or perhaps domestic use. Sometimes premium for the living policy from the owner may also become paid by typically the business. Similarly income tax payable with the proprietor may be paid by company. All of this represents owner's personal expenses and are debited in order to his personal accounts viz. Drawings bank account.

9. Treatment regarding payment/ receipt on behalf of buyer or supplier.

In some cases business might shell out expenses on part of its consumers. Such payments carry out not constitute the particular expenditure of enterprise. Hence it ought to be debited in order to the personal accounts of the involved customer.

10. Remedy or exchange or perhaps new asset together with old one.

Sometimes business may change its old asset with new one-only the in worth is paid in cash. In this kind of cases asset accounts needs debit just with the genuine amount paid.

10. Treatment of goods offered as charity/ ad.

Business might spread goods as 'free samples' to advertise its products. Occasionally it may in addition distribute goods as charity to increase their image. Both 'advertisement' and 'charity' will be expenses with the enterprise, hence must be debited and purchases consideration should be a certain amount.

12. Treatment regarding goods lost within accident/ fire.

Within certain case a new business might suffer loss of items because of some crash or fire and so forth., destroyed or ruined goods might have got been insured furthermore. In such instances total value of goods lost or damaged is credited to be able to purchases account in addition to the (i) insurance plan claim admitted is debited to Insurance provider (ii) balance will be debited to loss by accident/ open fire account.

13. Treatment of depreciation charged upon fixed assets.

Set assets are these properties/ possessions associated with the business which in turn are used with regard to carrying on regarding business viz. plant, machinery, building and many others. Depreciation will be the quality decrease in the cost of an asset thanks to damage, passing of time plus obsolescence. Depreciation is treated as some sort of business expenditure. Fall account is debited plus the respective resource account is acknowledged.

14. Treatment associated with payment/ receipt associated with representative personal records.

At the near of the earlier accounting year some sort of business might have received expenditure which always been unpaid. It truly is recognized as 'Outstanding expenditure'. It is the representative personal account. When actual settlement is made inside current accounting period of time the concerned account is debited and cash account is credited.

Advantages associated with Journal

(1) Transactions are recorded on the chronological purchase, thus reducing the chances of omitting any transaction.

(2) Transactions, invariably, are combined with narration. So, the entry is definitely supplemented with standard information regarding typically the transactions.

(3) Debit and credit amounts are written area by side. This minimizes the odds of entering completely wrong amount.

Restricted using Journal

Originally the system of recording typically the financial transactions created consisted of (1) writing each purchase, with narration, within the book of original entry,
i actually. e.. Journal and then (2) posting therefrom to the respective accounts in the principal book, i. e., ledger. Seeing that the number of transactions' grew the particular system was altered and the dealings of similar
character say purchases, sales, cash etc. have been recorded in sub-journal instead of record for that following
factors:

(i) If as well many transactions will be recorded in log it will get unwieldy.

(ii) Within every business cash balance is required to get ascertained at frequent intervals, say, daily: therefore it has been found convenient to be able to use another guide for recording funds
transactions.

(iil) By simply recording transactions associated with similar nature. throughout one sub journal, say, purchases of products in purchases journal saves time plus efforts in recording and posting.

Check over here to the fact of the reasons listed above, today, journal is utilized to record simply such transactions which in turn are infrequent. More recently computerized accounting made the entry associated with journal very simple and accurate.

Dual Entry System

Inside the 15th centuries a Franciscan Monk, Lucas Pacioli, referred to a method regarding arranging accounts on such a method that the twin aspect (present inside of every account transaction) would be portrayed by way of a debit amount of money and an the same and offsetting credit amount.

Double Entry system is the machine under which each and every transaction is regarded to possess two flip aspects and the two the aspects are recorded to acquire complete record involving dealings. Double Access approach to book maintaining adheres to the particular rule. that for each transactions the debit amount (s) must equal the particular credit amount(s). For this reason , this system is definitely called Double Entry.

Advantages of Double Entry System

(i) It enables to maintain a complete document of business purchases.

(ii) It gives a check in the arithmetical precision of books regarding accounts based upon equality of debit and credit.

(iii) It gives the outcomes of business routines either profit or perhaps loss during the particular accounting period.

(iv) It tells the financial position of the business with a level of time. Full resources of typically the business, claims of the outsiders, sum due by outsiders etc. are revealed by an affirmation known as Harmony Sheet.

(v) This makes possible a comparison of the current 12 months with those of previous years supporting the owner to handle his business about better lines.

(vi) It reduces the chances of errors creeping in the accounting records because of equality principle..

(vii) It helps in order to ascertain the important points relating to any account very easily and accurately. Other systems of book-keeping. In addition in order to the double entry system, there is also single admittance system.

The single-entry system is "a system of book-keeping by which as a rule only information of cash plus of personal account are maintained; it is always incomplete double entry various with circumstances. Such system may end up being economical but it really is imperfect, unscientific and full of defects.

Compound Journal Articles

In case in a record entry only one particular account is to be debited in support of one account is to be credited then such an entry is 'Simple Journal Entry'. Nevertheless , in some cases the entry might require more as compared to one debit or perhaps credit or equally. Such entries are usually known as compound entries. Compound articles should be developed exactly where

(i) Deal occur on the same day

(ii) One aspect associated with these transactions is common; and

(iii) Accounts involved are more than two In fact compound entry will be the combination of a couple of or more easy journal ntries.
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