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How to Prepare Journal Entries with Simple Explanation

To prepare the journal entries with its simple explanation, you should know what is journal. Journal is the book which we keep the records of transactions on daily basis and date-wise on the basis of debit and credit rules. This is the first book of book keeping and then we make second book that is called ledger where we keep ledger accounts. Then we make the trial balance and then we make the final accounts. In final accounts, we keep trading account and profit and loss account and balance sheet. It is simple accounting process. 

First learn the format of journal 

In this, first column comes Date, then particular about accounts which will be debit and credit in second column, then we will write the L.F. third column and then we will write the Debit amount and then Write Credit Amount 4th and 5th column. When we prepare the journal entries. It will be on the basis of some evidence or proof. 

______________________________________________________
Date ↓ particular              ↓ L.F. ↓ Dr. Amount ↓ Cr. Amount ↓
______________________________________________________

For preparing journal entries, you must know the classification of accounts and rules of debit and credit. 

So, learn these classification of accounts

1. Personal Accounts

In the personal account, two rules will apply. 

Debit : who is receiver of Asset, we have to know

Credit : Who is giver of asset, we have to know

2. Impersonal Accounts  

These are also two types of impersonal accounts. One is real account and second is of nominal account. 

Real accounts are also two types.

Tangible assets real account and intangible assets real account. So, in this, there are two rules

Debit : What asset comes in the business. We have to know

Credit : What assets goes from business. We have to know

Nominal accounts are also real account. We have to understand for preparing journal entries. 

Expenses and losses account and income and gains account

Debit : All the expenses and losses in the business

Credit : All the incomes and gains in the business.

Now, with the example of 10 Transactions, we try to prepare journal entries 

1 ) Started business with Sohan's capital of Rs. 1,00,000

2. ) Cash purchase Rs. 50,000

3.) Credit purchase from mohan Rs. 50,000

4. ) Cash sale Rs. 60,000

5.) Credit sales to Sham Rs. 60,000

6) Internet bill paid Rs. 2000

7.) Mobile charges Rs. 1000

8.) Deposited cash in SBI bank Rs. 25,000

9.) Transfer to Paytm Wallet from Bank Rs. 6000

10. Transfer to DEMAT Account from SBI Bank 10,000


1 ) Started business with Sohan's capital of Rs. 1,00,000

In the business, cash comes which is the part of current asset, asset comes, so, cash account will be debited. Sohan is the giver of cash. Giver of cash asset. Sohan. Sohan gives in the form of capital. Instead of writing Sohan credit, we will credit Sohan's capital as per accounting rules. 

Cash account Debit 1,00,000

Sohan's Capital account Credit 1,00,000

2. ) Cash purchase Rs. 50,000

Purchase is stock and it comes in the business. So, it will be debit. Even, some think, it is expense of business. That is also true. Again if it is expense of business, it will be debit. Cash is the asset which goes from business. So, any assets which goes from business will be credit

Entry will be

Purchase Account Debit Rs. 50,000

Cash Account Credit Rs. 50,000

3.) Credit purchase from Mohan Rs. 50,000

Mohan is the giver of material to us. So, Mohan account will credit. What comes in the business. Stock asset or what is our expense. Again, it not paid but still purchase is expense both way, Purchase account debit. So, entry will be


Purchase Account Debit Rs. 50,000

Mohan Account Credit    Rs. 50,000

 4. ) Cash sale Rs. 60,000

We have sold Rs. 60,000 stock with getting cash. It means, sale is stock which goes from business. Everything goes from business will be credit or sale is also income of business. We have earned material+profit value from this sale. So, every income will be Credit. So, sale must must be credit. Cash is current asset. It comes in the business. What asset comes in the business will be debit. So, cash account will be debit. 

Cash Account Debit Rs. 60,000

Sale Account Debit Rs. 60,000

5.) Credit sales to Sham Rs. 60,000

We sold to sham on credit. Means, Sham has to pay us. Sales, here again  is stock which goes from business. Everything goes from business will be credit or sale is also income of business. We have earned material+profit value from this sale. So, every income will be Credit. So, sale account must must be credit. Sham is receiver of same stock. So, receiver of asset must be debit. Sham now will become our asset. Because sham is our debtor. 

Entry will be

Sham Account Debit 60,000

Sale Account Credit 60,000

 6) Internet bill paid Rs. 2000

We have paid internet bill Rs. 2,000. It means, internet is our expense. Internet expense account will be debit. We have paid in cash. So, cash goes from business. So, what goes from business will credit. So, cash account credit 

Internet expenses account debit 2000

Cash Account Credit 2000

 7.) Mobile charges Rs. 1000

Mobile charges paid because we have used mobile service for our business for accepting or calling to our customers. So, Mobile charges are our business expense. All business expense will be debit. So, mobile charges account will be debited and cash goes from business. So, cash account will be credit

Mobile charges account debit 1000

Cash account credit 1000

 8.) Deposited cash in SBI bank Rs. 25,000

You may apply accounting rule on this transaction as your desire


SBI Bank is artificial person. So, who is receiver will debit. So, bank is receiver of money so, sbi bank account will be debit. SBI Bank also represent our asset. So, we have gotten sbi bank balance of Rs. 25,000 when we have deposited in it. So, account what comes in will be debit. Bank account will be debit and cash goes from business. So, it will be credit

SBI Bank Account Debit 25000

Cash Account Credit 25000

 9.) Transfer to Paytm Wallet from SBI Bank Rs. 6000

Today is the time of paytm. It is normal you transfer in paytm wallet for business expenses. So, what comes in. Paytm wallet asset or paytm company is the receiver of money. Both way, paytm wallet account debit. Your bank balance has decreased. Means giver is sbi bank through your balance. So, SBI bank account credit

Paytm wallet account debit 6000

SBI Bank account credit 6000

10.) Transfer to DEMAT Account from SBI Bank 10,000

Your business has opened demat account for buying and selling of shares online. If your SBI transferred the money of Rs. 10,000 through your upi action. It means, giver is your SBI Bank. So, SBI bank account must credit and receiver is your DEMAT Account because DEMAT account is also artificial person who hold this money for security transaction purpose. But if you pass this transaction. Next day, you have to pass reverse transaction because, DEMAT account transfer your fund throuh TF transfer credit if no transaction or balance fund after transaction.

DEMAT Account Debit 10,000

SBI Bank Account Credit 10,000

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Accounting Education: How to Prepare Journal Entries with Simple Explanation
How to Prepare Journal Entries with Simple Explanation
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