Basics rules of journal entries and kinds of different accounts

1. There are three kindsof accounts:
1.Personal Account: -
Thisaccountincludesnameof personornameof organizationsuchasMohit,Bharati Sharma, Reliance
Industries Ltd, Tata sons Ltd, State Bank of India, Govt of Rajasthan and many such examples.
Since accounting follows double entry system so every transaction affects at least two accounts.
Whenever you are writing accounts of any organisation imagine yourself as an accountant or
proprietor of that organisation because rule starts from your side.
Rule of personal account says Debit the receiver, and credit the giver.
For example,if youare M/s HarishEnterprises andgetpaymentfromKamal,soKamal isthe personal
account since he is giving us payment so Kamal will be Credited.
On the contrary if Kamal is paying/depositingpaymentin State Bank of Indiait meansState Bank of
India is a receiver, as per rule receiver it debited, so account will be debited.
Journal of M/s Harish Enterprises
Date Particular L/F Debit
Amount
Debit
Amount
1 April State Bank of India A/C Dr receiver
To Kamal A/C giver
10000
10000
10000 10000
Real Account:-
Thisprinciple isappliedincase of real accounts.Real accounts involve machinery, cash, landand
buildingetc.Theyhave adebitbalance bydefault.Thus,whenyou debitwhatcomesin,youare
addingto the existingaccountbalance.Thisisexactlywhatneedstobe done.Similarly,whenyou

2. creditwhatgoesout, youare reducingthe account balance whena tangible assetgoesoutof the
organization.
For example M/sShri WaterLtd , buysa machinery foritsbusinesscostingRs40,000, here we find
that machineryis real accountand it iscomingto our businesssoitwill be debitedwe are making
paymentbycheque of SBI, SBI ispersonal accountand givingthe paymentsogiverwill be credited.
Journal of M/s Shri Water Ltd.
Date Particular L/F Debit
Amount
Debit
Amount
1 April Machinery A/C Dr what comes in
To State Bank of India credit the giver
40000
40000
40000 40000
Nominal Account:
Thisrule isappliedwhenthe accountin questionisa nominal account.The capital of the companyis
a liability.Therefore,ithasadefaultcreditbalance. Thisaccountincludes allexpenses /losses suchas
rent,salary, commissionpaidand all income and gain such as commissionreceived,profitonsale of
assets. Whenyoucreditall incomesandgains,you increase the capital andby debitingexpensesand
losses,youdecreasethecapital.Thisisexactlywhatneedstobedoneforthesystemtostayinbalance.
For example: Suppose M/s Shri water Ltd paid electricity bill for Rs 10000 here electricity exp is real
account and expenses are debited. Cash is real account so credit what goes out.
Journal of M/s Shri Water Ltd.
Date Particular L/F Debit
Amount
Debit
Amount
1 April Electricity Expense A/C Dr all expenses
To State Bank of India credit the giver
10000
10000
10000 10000

3. Process of writing Journal Entries
Nowbefore we startwritingjournal entries, we mustbe able toidentify nature of the accountand
accountingrule beingfollowedafter everytransaction. Colourcodingenablesyoutounderstandthe
journal comfortably.
S.No Transactions Accounts Nature of
accounts
Rule Dr/Cr Entry
1 Rahul started
businesswith cash
Cash A/c
Rahul’s
capital A/c
Real A/c
Personal
A/c
Dr what
comesin
Cr the giver
Dr
Cr
Cash a/c Dr
To Rahul capital
2 Purchases goodsfrom
Mohit andgave
cheque of SBI
Purchase
A/c
SBI A/c
Nominal
A/c
Personal
A/c
Dr All
expenses
Cr the giver
Dr
Cr
Purchase A/CDr
To SBI A/C
3 Boughtmachine from
M/s XYZ Co.
Machine
A/c
M/s XYZ A/c
Real A/c
Personal
A/c
Dr what
comesin
Cr the giver
Dr
Cr
Machine A/c Dr
T0 M/s XYZ a/c
4 Commission Received
fromM/s Bharati
Entp.Rs10000 (cash)
Commission is
received in form of
cash
Cash A/c
Commission
A/c
Real A/c
Nominal
A/c
Dr what
comesin
Cr all
incomes
Dr
Cr
Cash A/c Dr
To commission
received a/c
5 Cash payment
receivedform Mr Jack
Cash A/c
Mr Jack A/c
Real A/c
Personal
A/c
Dr what
comesin
Cr the giver
Dr
Cr
Cash A/c Dr
To Mr.Jack A/c
From the followingtransactionswritethe journal of M/sAmishaMachineryPvtLtd,Jaipur
1. Started businesswithcashRs20,00,000/-, Building35,00,000/-, Deliveryvan5,00,000/-
2. Openedbankaccountand depositedcashRs10,00,000 intoSBI
3. Purchased10 small generatorscostingRs20,000/- fromM/s KirloskerEngineering.
4. Cheque issuedtoM/sKirloskarforRs 1,50,000/-
5. 3 generators soldforRs 30,000 each forcash.
6. PurchasedgoodsRs 1,50,000 and cheque givenforRs1,48,000 in full payment.
7.PaidelectricitybillbycashRs 1500/-
8. Soldgoodsto M/s RajasthanTradersRs 14000/- and cheque depositedintoSBI.
9. Paidsalary Rs 70,000
10. Soldoldoffice furniture Rs21000.
Solution withdetailed explanations

4. 1. In firsttransactionswe have fouraccounts Cash,Building,DeliveryvanandAmishaCapital
account.
All assetsaccountsare real accountssince theyare comingintoto businesssoaspertheirnature
that iswhat comesinwill be debited.Amishaisthe businessownerwhoisgivingcapital sorule is
creditthe giverso Amishaa/cis credited.
Cash A/CDR 200000
Buildinga/cDr 350000
DeliveryvanA/CDr 500000
To capital 600000
2. We have two accountsSBI and cash , SBIis the receiverandpersonal account& saysdebitthe
receiversowill be debitedandcashisreal account and sayscreditwhat goesoutso cash is goingout
of business.
State Bank of IndiaA/C Dr 100000
To Cash 100000
3.There are twoaccounts Purchase andKirlosker,here generators are the purchasesasthe
companyisengagedinsellingof machinerysogeneratorispurchase forthe company.
Purchase isnominal accountsaysdebitall expensessowill be debitedandkirloskerisgiverof
generatorssowill be credited.
Purchases a/cDr200000
To Kirloskaer200000
4. Two accounts are effectedKirloskerandSBIaccount, cheque issuedmeansbankaccountthatis
SBI isgiverof paymentwhere rule appliescreditthe giveranddebitthe receiverbothare personal
account Kirloskerisreceiversowill be debited.
5.Two accountsare effected generatorssoldmeansSalesa/cthat isnominal accountas salesbrings
income sorulesappliescreditthe income andcashisanotheraccount isreal account saysDr what
comesin.
Nowexplainthe entriesfrom6to 10 as have beenmentionedabovebytakingfollowingsteps.
1. Identifythe accountsinvolvedinthe transactions
2. Findthe accountsnature
3. Thinkwhat to Debitor credit
4. Explainthe transaction.
5. write the journal