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Basic Accounting Entries

Basic Accounting Entries. In this lesson we shall try to make simple journal entries for a business and then post them to the ledger accounts. The 3 Golden rules of Accounting: Debit what comes in and Credit what goes out. 2. Debit all expenses and Credit all incomes.

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Basic Accounting Entries

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  1. Basic Accounting Entries In this lesson we shall try to make simple journal entries for a business and then post them to the ledger accounts.

  2. The 3 Golden rules of Accounting: • Debit what comes in and Credit what goes out. • 2. Debit all expenses and Credit all incomes. • 3. Debit the receiver and Credit the giver.

  3. Exercise 1 - Assets Transaction Entries 1 Cash paid to buy goods worth $2000. 2. Purchased machine worth $10,000 in cash. Liability Transaction Entries 1. Took loan of $5000 from Kabul bank. 2. Purchased goods worth $6000 on credit from Ali & Co. 3. Owner contributed capital $10,000

  4. Income Transaction Entries 1 Sales of $5000 in cash. 2. Sales of $4000 on credit to Rehmat. Expense Transaction Entries 1. Paid fuel expenses of $400 in cash. 2. Repaid loan of $5000 along with interest expense of $500.

  5. A journal entry in which more than 2 accounts are affected is called a COMPOUND JOURNAL ENTRY.

  6. Posting to ledger accounts: Means transfer of entries from the journal to the appropriate ledger accounts. Steps to post a transaction from Journal to Ledger account : 1. If an account is getting debited in the journal entry, put the amount on the debit side of the account while posting. In the particulars column, write “To [name of account which is being credited in the journal entry]. 2. If an account is getting credited in the journal entry, put the amount on the credit side of the account while posting. In the particulars column, write “By [name of account which is being debited in the journal entry].

  7. Steps to get the balance of an account: • 1. Total both the debit and credit sides of the account. • 2. Write the total of the bigger side at the bottom of both the sides of the account. • 3. Write the difference on the side with the smaller total; along with the following • lines in particulars column ; • To Balance c/d (if dr. side total < cr. side total) • By Balance c/d (if dr. side toal > cr. side total)

  8. dr. cr. Cash Account So we can see that the closing balance of the cash account on is $ 2,100

  9. Important points regarding account balances : • Asset accounts and expense accounts usually have debit balances. • Liability accounts and income accounts usually have credit balances. • These two rules along with the 3 rules of debit and credit make journalizing and • posting very easy for the accountant.

  10. Exercise – 2 MAKE JOURNAL ENTRIES OF THE FOLLOWING ACCOUNTING EVENTS AND THEN POST THEM TO THE APPROPRIATE ACCOUNTS: 1. On 04/05/2008, Hamid started business (his factory) with a capital $ 1,00,000. 2. Bought machine for $20,000 on 09/05/2008. 3. He purchased raw-materials worth $ 2,000 on credit of 30 days from Ali & Co. on 11/05/2008. 4. Paid $400 in cash for fuel expenses on 15/05/2008. 5. Salary paid on 01/06/2008 , $ 5,000. 6. Took loan of $30,000 from bank on 07/08/2008.

  11. dr. cr. Cash Account So we can see that the closing balance of the cash account on 07/08/08 is $ 1,04,600.

  12. Dr. capital account Cr. Dr. machine account Cr.

  13. Dr. Raw materials account Cr. Dr. Ali & Co. account Cr.

  14. Dr. Fuel expenses account Cr. Dr. Salary account Cr.

  15. Dr. Loan account Cr.

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