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Principles of Journalizing
(Rules of Debit & Credit)
1. Assets
↑Assets ⇒ Debit, ↓Assets ⇒ Credit
2. Expenses
↑Expenses ⇒ ↓Owner’s Equity ∴ Debit
3. Losses
Loss ⇒ ↓Owner’s Equity ∴ Debit
Loss by fire; Loss by accident; Loss by theft
4. Drawings / Owner’s withdrawal
Drawings/Owner’s withdrawals ⇒ ↓Owner’s Equity/Capital ∴ Debit
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BUSINESS TRANSACTIONS
1. Purchased Machinery and payment made by cheque PKR 500,000.
2. Sold furniture for cash PKR 25,000.
3. Paid salaries to employees PKR 150,000.
4. Paid PKR 75,000 to daily Jang for advertisement.
5. Rent expenses for the month of November paid by cheque PKR 80,000.
6. Two chairs and one table worth PKR 35,000 were lost by fire.
7. Cash PKR 600,000 stolen/snatched by a thief.
8. Due to an accident, the loss of goods/merchandise caused in transit worth PKR 120,000.
9. Proprietor withdrew cash PKR 75,000 for his personal use.
10. Goods/merchandise costing PKR 20,000 taken away by the proprietor for his domestic
use.
11. Manager withdrew cash PKR 120,000 from business bank account for owner’s
household.
JOURNAL ENTRIES
Date
Details / Particulars / Description
1.
Machinery
Bank
(bought machinery)
____________________________________
2.
Cash
Furniture
(sold furniture)
LF
Debit
PKR
Credit
PKR
500,000
500,000
25,000
25,000
5. Liabilities
Liabilities ⇒ Right side of the Accounting Equation ∴ Credit
↑Liabilities ⇒ Credit, ↓Liabilities ⇒ Debit
6. Capital
Capital / Owner’s Equity ⇒ Right side of the Accounting Equation ∴ Credit
7. Income / Revenue / Sales
Income ⇒ ↑Capital ∴ Credit
8. Purchases
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‘Purchase’ means buying the goods / merchandise which are bought and sold on
profits.
Purchases ⇒ ↑Stock of Goods/Inventory ⇒ ↑Current Assets ∴ Debit
Purchases Account is normally debited, but it is credited in the following cases:
1. Drawings in goods
2. Loss of goods by fire / accident / theft
3. Free Sample
4. Charity in goods
9. Trade Discount
Trade discount is referred to as discount given to a retailer by a wholesaler at the
time of purchase of goods, as the deduction in the list price of the quantity sold.
There is no record maintained in the books of both buyer and seller for trade
discount.
10.
Cash Discount
Cash discount is referred to as a discount allowed to customers by the seller at
the time of making the payment of purchases, as a deduction in the invoice price
of the commodity, to facilitate a prompt payment and thereby avoiding the credit
risk.
Discount allowed ⇒ Expense ∴ Debit
Discount received ⇒ Income ∴ Credit
11.
Compound Entry
The entry in which more than one account is debited or more than one account is
credited, is known as compound entry.
• BUSINESS TRANSACTIONS
12. Purchased Machinery worth PKR 75,000 from Ahsan Traders on credit.
13. Paid to Ahsan Traders for Machinery purchased on credit.
14. Received loan in cash PKR 100,000 from HBL.
15. Loan PKR 150,000 taken from bank and deposited in business bank account on the
same day.
16. Mr. Bilal started business with cash PKR 850,000.
17. Mr. Salman started business with merchandise inventory (Stock-in-trade) work PKR
370,000.
18. Mr. Huzaifa started a service business with tools and equipments worth PKR 340,000.
19. Received PKR 50,000 as commission revenue.
20. Sold goods for cash PKR 45,000/
21. Sold goods / merchandise to Abid on account / on credit PKR 10,000/
22. Received cash from Abid in full settlement of his account.
23. Purchased goods for cash PKR 50,000/
24. Bought goods worth PKR 14,500/ from Javed Sons on account.
25. Goods/merchandise costing PKR 6,000 taken by the owner for his private use.
26. Due to an accident, the loss of goods costing PKR 27,000 caused in transit.
27. Goods costing PKR 20,000/ distributed as free sample.
28. Goods costing PKR 25,000/ given as charity.
29. Goods costing PKR 15,000/ given as charity on behalf of the owner.
30. Returned defective goods costing PKR 4,000 to Javed Sons. These goods were
purchased on credit.
31. Purchased goods worth PKR 10,000/ from Shahid & Co; subject to 10% Trade Discount.
32. Goods/merchandise of the list price of PKR 5,000 was sold to Huzaifa on account at 5%
Trade Discount.
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33. Received cash PKR 4,500/ from Huzaifa in full settlement of his account.
34. Paid PKR 8,500/ to Shahid & Co. in full settlement of his account.
35. Mr. Zubair started business with cash PKR 135,000/, Machinery worth PKR 100,000/
and merchandise inventory costing PKR 50,000/
36. Paid in cash: wages PKR 50,000/, Salaries PKR 300,000/, Rent PKR 40,000/, and
advertisement expenses PKR 25,000/
37. Received commission PKR 35,000/ and Dividend collected by the bank PKR 55,000/.
Problems
1. On 1st March, 2020 Mr. Zeeshan established a new business. The transactions
for the month were as follows:
March 01 Introduced cash in the business Rs. 350,000 out of which Rs. 100,000
deposited in the business bank account.
March 01 Bought Furniture for Rs. 65,000.
March 03 Cash purchases for Rs. 95,000.
March 04 Purchased goods valued Rs. 15,000 on account from Noor Mills Ltd;
terms 2/10-n/30.
March 04 Loss of goods valued Rs.500 while the goods were in transit.
March 09 Goods valued Rs.1,000 returned to Noor Mills Ltd;
March 13 Paid cash to Noor Mills Ltd. in full settlement of their account.
March 15 Sold goods valued Rs.10,000 to Mobeen & Co. terms 2/10-n/30.
March 16 Goods costing Rs. 1,000 returned by Mobeen & Co.
March 20 Issued a cheque for Rs.10,000 paying tuition fee of the owner’s son.
March 22 Goods costing Rs.2,000 given as charity on behalf of the owner.
March 23 Received cash from Mobeen & Co. in full settlement of their account.
March 25 Sold furniture for Rs.5,000.
March 28 Paid wages Rs. 14,000 and Electricity charges Rs. 6,000.
March 31 Issued cheques for payment of salaries Rs. 170,000 and insurance
premium Rs. 50,000.
Required: Journalize the above transactions.
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