Journal Entries

A journal is a book in which all the transactions of a business are recorded for the first time. Every transaction affects two accounts; one is debited and the other is credited. ‘Debit’ (Dr.) and ‘Credit’ (Cr.) are the two terms used to denote the financial effect of any transaction.

1. Capital Account

The amount invested in the business, whether in the form of cash or kind, by the proprietor or owner of the business is called capital. The capital account will be credited, and the cash or assets brought in will be debited. 

Journal Entry:

Learn in Detail: Capital Account Journal Entry with Examples

2. Drawings Account

Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as "drawings." The drawings account will be debited, and the cash or goods withdrawn will be credited.

Journal Entry: 

Learn in Detail: Drawings Account Journal Entry with Examples

3. Expenses Paid

Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. The cash account will be decreased with the amount paid as expenses, so it will be credited and expenses will be debited.

Journal Entry: 

Learn in Detail: Expenses Paid Journal Entry with Examples

4. Income Received

Any monetary benefit arising from the business can be termed as income. The cash account will be increased with the amount received as income, so it will be debited and the income account will be credited.

Journal Entry: 

Learn in Detail: Income Received Journal Entry with Examples

5. Goods

Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as 'Purchases A/c' when goods are purchased and 'Sales A/c' when they are sold. 

Goods Account is classified into five different accounts for the purpose of passing journal entries:

A. Purchases Account: When goods are purchased in cash or credit, donated, lost, or withdrawn for personal use, in all these cases, goods are denoted as Purchases A/c.

Journal Entry: 

1. Goods purchased for cash
2. Goods Donated
3. Goods are withdrawn for personal use
4. Goods lost by fire

B. Sales Account: When goods are sold, then it is represented as Sales A/c. 

Journal Entry: 

C. Purchase Return or Return Outwards Account: When purchased goods are returned to the supplier, it is denoted as Purchase Return A/c or Return Outwards A/c.

Journal Entry: 

D. Sales Return or Return Inwards Account: When goods sold are returned by the customers, it is termed as Sales Return or Return Inwards A/c.

Journal Entry: 

E. Stock: The leftover unsold goods at the end of a financial year are represented through stock. Closing stock is the valuation of goods leftover at the end of a financial year, and opening stock is the valuation of goods an enterprise has at the beginning of the next financial year.

Journal Entry: 

Learn in Detail: Goods Journal Entry with Examples

6. Transactions 

Transactions related to the purchase and sale of goods can be of two types: cash or credit. 

A. Cash Transactions: Cash transactions are those transactions in which payment is made or received in cash at the time of purchase or sale of goods. Cash transactions can be identified by—

• When the name of the party and cash are both given in the transaction;
• When only cash is given in the transaction;
• When the name of the party and cash are both not given. 

Journal Entry: 

B. Credit Transactions: Credit transactions are those transactions in which payment is not made or received at the time of purchase or sale of goods. Credit transactions can be identified by:

• When only the name of the party is given in the transaction.

Journal Entry: 

Learn in Detail: Cash & Credit Transactions Journal Entry with Examples

7. Assets

Assets (machinery, buildings, land, etc.) can also be purchased or sold in cash or on credit. It is not represented through purchases but with the name of the asset.

Journal Entry: (When Assets Are Purchased)

Journal Entry: (When Assets Are Sold)

Learn in Detail: Assets Journal Entry with Examples

8. Depreciation

Depreciation is the decrease in the value of assets due to use or normal wear and tear. 

Journal Entry: 

Learn in Detail: Depreciation Account Journal Entry with Examples

9. Discount

A discount is a concession in the selling price of a product offered by a seller to its customers.

According to nature, there are two types of discount:

A. Discount Allowed: When at the time of sales or receiving cash, any concession is given to the customers; it is called discount allowed. 

Journal Entry: 

B. Discount Received: When at the time of purchase or paying cash, any concession is received from the seller; it is called discount received.

Journal Entry: 

 According to the business point of view, there are two types of discount:

A. Trade Discount: The discount provided by the seller to its customers at a fixed percentage on the listed price, mostly on bulk purchases, is called a trade discount. Trade discount is not shown separately in the journal entry.

Journal Entry: 

B. Cash Discount: A cash discount is offered to those customers who make quick payments or payment is made by them within a fixed period. 

Journal Entry: 

Learn in Detail: Discount Journal Entry with Examples

10. Amount Paid or Received in Full/Final Settlement

A business may allow or receive a discount at the time of full and final settlement of the accounts of debtors or creditors. 

Journal Entry: 

Learn in Detail: Amount Paid or Received in Full/Final Settlement Journal Entry with Examples

11. Compound or Composite Journal Entry

When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry instead of passing two or more entries. 

Journal Entry:

Learn in Detail: Compound or Composite Journal Entry with Examples

12. Opening Journal Entry

After closing all the books at the end of a financial year, every business starts its new books at the beginning of each year. Closing balances of all the accounts are carried forward to the new year as opening balances. As it is the first entry in the new financial year, it is called the opening journal entry.

Journal Entry:

Learn in Detail: Opening Journal Entry with Examples

13. Bad Debts

When the goods are sold to customers on credit, there can be a situation where a few of them fail to pay the amount due to them because of insolvency or any other reason; the amount that remains unrecovered is called bad debt.

Journal Entry:

Learn in Detail: Bad Debts Journal Entry with Examples

14. Banking Transactions

All businesses make many transactions with the bank in their day-to-day activity. Journal entries related to banking transactions are as follows:

1. When cash is deposited in the bank:

Journal Entry: 

2. When cash is withdrawn from the bank:

Journal Entry: 

3. When cash is withdrawn from the bank for personal use:

Journal Entry: 

4. When the check, drafts, etc., are received from the customers

• When any check is received and not sent to the bank for collection:

Journal Entry: 

• When the above check was sent to the bank for collection: 

Journal Entry: 

• If the above check was endorsed in favor of any other party:

Journal Entry: 

5. When the checks, drafts, etc., received from the customers are sent to the bank for collection on the same date:

Journal Entry: 

6. When a customer directly deposits any amount in the firm's bank account:

Journal Entry: 

7. When a check previously deposited into the bank gets dishonored:

Journal Entry: 

Learn in Detail: Banking Transactions Journal Entry with Examples

8. Payment is received through check, and a discount is allowed.

A. When a check is received from a customer and a discount is allowed to him (the check is deposited into the bank on the same day):

Journal Entry: 

B. If the above check gets dishonored:

Journal Entry: 

9. When payment is made through check:

Journal Entry: 

10. When expenses are paid through check:

Journal Entry: 

11. When interest is charged by the bank:

Journal Entry: 

12. When interest is allowed by the bank:

Journal Entry: 

13. When a bank charges any amount for the services rendered:

Journal Entry: 

Learn in Detail: Banking Transactions Journal Entry with Examples

15. Bad Debts Recovered:

When the amount that was earlier written as bad debts is now recovered, it is called bad debts recovered.

Journal Entry:

Learn in Detail: Bad Debts Recovered Journal Entry with Examples

16. Loss of Insured Goods/Assets 

Sometimes insured goods are lost by fire, theft, or any other reason. There can be three cases related to the loss of insured goods or assets.

A. The claim does not get accepted by the insurance company: 

Journal Entry: 

B. The insurance company partly accepted the claim: 

Journal Entry: 

C. The insurance company fully accepted the claim: 

Journal Entry: 

For receiving the claim money:

Journal Entry: 

Learn in Detail: Loss of Insured Goods/Assets Journal Entry with Examples

17. Loan Taken

A business can take an amount of money as a loan from a bank or any outsider. In return, the business has to pay interest. 

A. Loan is taken from a bank or person:

Journal Entry: 

B. Interest charged by the bank or person and then paid: 

There can be a situation where the interest is charged first and then paid. There will be two journal entries in this case.

i. Journal Entry: (On charging of interest)

ii. Journal Entry: (On payment of interest)

Or

C. Interest paid to bank/person on the loan: 

In this case, only a single entry is passed because interest is directly paid.

Journal Entry: 

Learn in Detail: Loan Taken Journal Entry with Examples

18. Loan Given

Businesses can also provide loans to any person or entity.

A. A loan is given to a person:

Journal Entry: 

B. Interest charged and then received on loan given:

There can be a situation where the interest is charged first and then received. There will be two journal entries in this case.

i. Journal Entry: (On charging of interest)

ii. Journal Entry: (On receiving of interest)

Or

C. Interest received on loan given:

In this case, only a single entry is passed because interest is directly received.

Journal Entry: 

Learn in Detail: Loan Given Journal Entry with Examples

19. Outstanding Expenses

Outstanding expenses are those expenses that are related to the same accounting period in which accounts are being made but are not yet paid.

Journal Entry: 

Learn in Detail: Outstanding Expenses Journal Entry with Examples

20. Prepaid or Unexpired or Advance Expenses

Such expenses, which are concerned with the next financial year but have been paid in the current year, are called prepaid expenses.

Journal Entry: 

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21. Income Due or Accrued Income

An income that has been earned but not yet received in the current financial year is called accrued income.

Journal Entry: 

Learn in Detail: Accrued Income Journal Entry with Examples

22. Income Received in Advance or Unearned Income

An income that has not been earned yet but has been received in advance is called unearned income.

Journal Entry: 

Next year, unearned commission will be adjusted as

Journal Entry: 

Learn in Detail: Income Received in Advance Journal Entry with Examples

23. Income Tax

Income tax is paid by the business on the profit earned during the year. Income tax is a personal liability of the proprietor. The journal entry will be:

A. Payment of Income Tax:

Journal Entry: 

B. Refund of Income Tax:

Journal Entry: 

Learn in Detail: Income Tax Journal Entry with Examples

24. Life Insurance Premium

Sometimes, the life insurance premium is paid by the business on behalf of the proprietor.

Journal Entry: 

Learn in Detail: Life Insurance Premium Journal Entry with Examples

25. Employee's Life Insurance Premium

Businesses purchase life insurance for their employees too. 

Journal Entry: 

Learn in Detail: Employee's Life Insurance Premium Journal Entry with Examples

26. Interest on Capital

The proprietor can charge interest on the amount invested by him/her in the business as capital, which is shown as interest on capital.

Journal Entry:

Learn in Detail: Interest on Capital Journal Entry with Examples

27. Interest on Drawings

The amount withdrawn from the capital by the proprietor for personal use is called drawings. Businesses can charge interest on the amount of drawings.

Journal Entry: 

Learn in Detail: Interest on Drawings Journal Entry with Examples

28. Use of Goods in Business

Sometimes goods of a business are used in the business itself. If this happens, those goods are considered assets by the business.

Journal Entry: 

Learn in Detail: Use of Goods in Business Journal Entry with Examples

29. Expenditure on Assets (Erection or Installation)

Any expenditure incurred in the erection or installation of any building or machinery or any type of asset is considered to be capital expenditure and debited under the name of the particular asset.

Journal Entry:

Learn in Detail: Expenditure on Assets Journal Entry with Examples

30. Expenses on Purchase of Goods

The purchasing process involves a number of steps starting from placing an order and ending with the delivery of goods. Apart from the cost incurred in purchasing the goods, any additional expenses like carriage, import duty, etc., are also paid. Any expenses incurred during the purchase of goods will be shown separately, unlike an expenditure on assets.

Journal Entry:

Learn in Detail: Expenses on Purchase of Goods Journal Entry with Examples

31. Outstanding Salary

Outstanding salary is a liability for the firm. An outstanding salary journal entry is passed to record the salary that is due concerning the employees but not yet paid. When salary is not paid on time, it is shown under the Liabilities side of the balance as an 'Outstanding Salary,' which means it has now become the liability of the firm to pay salaries.

Journal Entry:

Learn in Detail: Outstanding Salary Journal Entry with Examples

32. Prepaid Insurance

Prepaid insurance is the amount of insurance premium that the company pays in one financial year and avails its benefit in some other financial year, generally in the upcoming financial year. The prepaid insurance journal entry is passed to record the amount paid as an advance for the insurance. Prepaid insurance is treated as an asset of the firm and is recorded under the asset side of the balance sheet. Insurance premiums are generally paid by the company on behalf of its employees.

Journal Entry:

Learn in Detail: Prepaid Insurance Journal Entry with Examples

33. Commission Received

Commission received is the amount that an individual receives in exchange for the services offered by him/her. It is a kind of monetary remuneration that is said to be the asset of the individual/company. The commission received journal entry is passed in order to show the amount that an individual/company received in exchange for their services as commission.

Journal Entry:

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34. Cash Sales

When goods/services are sold for cash, the transactions are known as cash sales, i.e., when the customer pays in terms of cash in exchange for goods and services, cash sales occur. The cash sales journal entry is passed to show the sales transactions that have been settled in cash. There are mainly two types of cash sales:

• Sale of goods in cash
• Sale of an asset for cash

Journal Entry:

1. For the Sale of Goods in Cash: Sale of goods (in cash) is an income, so the balance of the cash account (debit balance) increases, and the balance of the sales account (credit balance) decreases.

2. For the Sale of an Asset for Cash—For the sale of an asset in cash, the balance of the cash account (debit balance) increases due to the inflow of cash, and the balance of the asset account will decrease due to the outflow of the asset.

Learn in Detail: Cash Sales Journal Entry with Examples

35. Provisions

A provision in accounting is generally some set aside profits to be used under specific contingencies. They are the reserves that are being made for specific situations and are to be compulsorily used in those conditions only. A provision is seen as an upcoming liability and should not be treated as savings. The provisions journal entry is passed to show the amount set aside by the firm to meet contingencies.

Journal Entry:

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36. Rent Paid

Sometimes a business does not own any specific type of property, plant, and/or machinery. They take the required asset on rent and pay the pre-specified installment for the asset in terms of cash or checks. The rent-paid journal entry is passed in order to record the necessary rent payments against rented assets. Rent is an expense for business and thus has a debit balance.

Rent is generally

• Paid every month
• Has fixed installment
• Recurring in nature
• Shown under the head of 'Office Rent' or 'Factory Rent'

Journal Entry:

Learn in Detail: Rent Paid Journal Entry with Examples

37. Salaries Paid

Salaries are the monetary remunerations the business gives to its employees in exchange for their services. The Salaries Paid journal entry is passed to record the salary payments to employees by the business. Salaries are treated as an expense in the books of business, so when the salary is paid, the salary account gets debited and the cash/bank account gets credited.

Journal Entry:

1. When Salary Is Due:

2. When Salary Is Paid:

Learn in Detail: Salaries Paid Journal Entry with Examples

38. Deferred Revenue

Deferred revenue is the income received in exchange for goods that are yet to be delivered. Deferred revenue is also known as unearned income or unearned revenue. Deferred revenue journal entry is passed to record the advance payments received for goods and services. In this case, the balance for cash/bank (debit balance) increases due to the inflow of income, and the balance for deferred revenue (credit balance), i.e., liability, increases.

Journal Entry:

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➣ For more journal entries on GST, kindly refer to: GST (Goods and Services Tax)