📒 Accounting Fundamentals
Detailed Journal Entries
with Golden Rules &
Modern Approach
A comprehensive practical guide to 30 essential journal entries — from business commencement to year-end closings, explained with the double-entry system.
Double Entry System
Golden Rules
Modern Approach
30 Examples
Quiz Included
📖What is a Journal Entry?
A journal entry is the initial record of a financial transaction in an accounting system. Every entry follows the double-entry bookkeeping system — meaning each transaction affects at least two accounts, with Debits (Dr.) always equalling Credits (Cr.).
This ensures the fundamental Accounting Equation remains balanced:
Assets = Liabilities + Equity
🏆The Golden Rules of Accounting
The traditional approach classifies accounts into three types, each with its own debit/credit rule:
Personal Account
Dr. → The Receiver
Cr. → The Giver
Individuals / Companies
Real Account
Dr. → What Comes In
Cr. → What Goes Out
Assets / Property
Nominal Account
Dr. → All Expenses/Losses
Cr. → All Incomes/Gains
Expenses / Income
⚡ Modern Approach (Element-based):
Assets↑ Dr | Liabilities↑ Cr | Capital↑ Cr | Expense↑ Dr | Revenue↑ Cr
📋30 Journal Entries — All Categories
| # | Particulars | Dr/Cr | Amount (₹) | Narration |
|---|---|---|---|---|
| Entry 1 | Cash / Bank A/c Capital A/c | DR CR | 5,00,000 | Business started; owner invests ₹5,00,000 |
| Entry 2 | Purchase A/c Cash A/c | DR CR | — | Cash purchase of goods ₹10,000 |
| Entry 3 | Purchase A/c Creditors A/c (Ramesh & Co.) | DR CR | — | Credit purchase from Ramesh & Co. |
| Entry 4 | Cash A/c Sales A/c | DR CR | — | Cash sales of goods ₹15,000 |
| Entry 5 | Debtors A/c (Shyam) Sales A/c | DR CR | — | Credit sales to Shyam |
| Entry 6 | Creditors A/c Cash / Bank A/c | DR CR | — | Paid ₹5,000 to Ramesh & Co. |
| Entry 7 | Cash / Bank A/c Debtors A/c (Shyam) | DR CR | — | Received ₹8,000 from Shyam |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 8 | Rent A/c Cash / Bank A/c | DR CR | Rent paid ₹10,000 for office |
| Entry 9 | Salary A/c Cash / Bank A/c | DR CR | Salary paid ₹20,000 to staff |
| Entry 10 | Bank A/c Commission Received A/c | DR CR | Commission ₹2,000 received |
| Entry 11 | Electricity Expenses A/c Bank A/c | DR CR | Electricity bill ₹3,000 paid |
| Entry 12 | Bank A/c Interest Income A/c | DR CR | Interest ₹1,500 credited by bank |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 13 | Bank A/c Cash A/c | DR CR | Cash deposited to bank ₹10,000 |
| Entry 14 | Cash A/c Bank A/c | DR CR | Withdrew ₹5,000 from bank for office use |
| Entry 15 | Bank Charges A/c Bank A/c | DR CR | Bank charges of ₹200 deducted |
| Entry 16 | Bank A/c Debtors A/c | DR CR | Received ₹7,000 cheque from customer |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 17 | Furniture A/c Cash / Bank A/c | DR CR | Bought furniture ₹25,000 |
| Entry 18 | Depreciation A/c Furniture A/c | DR CR | Depreciation ₹2,500 on furniture (10%) |
| Entry 19 | Drawings A/c Cash / Bank A/c | DR CR | Owner withdrew ₹3,000 for personal use |
| Entry 20 | Drawings A/c Purchase A/c | DR CR | Goods worth ₹1,000 used by owner personally |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 21 | Bank A/c Loan A/c (SBI) | DR CR | Loan of ₹50,000 taken from SBI |
| Entry 22 | Interest A/c Bank A/c | DR CR | Interest ₹5,000 paid on loan |
| Entry 23 | Closing Stock A/c Trading A/c | DR CR | Closing stock ₹30,000 recorded at year-end |
| Entry 24 | Trading A/c Opening Stock A/c | DR CR | Opening stock ₹40,000 transferred to Trading A/c |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 25 | Salary A/c Outstanding Expenses A/c | DR CR | Salary outstanding ₹5,000 (incurred, not paid) |
| Entry 26 | Prepaid Expenses A/c Insurance A/c | DR CR | Prepaid insurance ₹2,000 (paid in advance) |
| Entry 27 | Accrued Income A/c Interest Income A/c | DR CR | Interest ₹1,000 accrued (earned, not received) |
| Entry 28 | P&L A/c Provision for Bad Debts A/c | DR CR | Bad debt provision of ₹3,000 created |
| # | Particulars | Dr/Cr | Narration |
|---|---|---|---|
| Entry 29 | P&L A/c Capital A/c | DR CR | Net profit ₹10,000 transferred to Capital A/c |
| Entry 30 | Capital A/c Drawings A/c | DR CR | Drawings ₹3,000 adjusted against Capital A/c |
✅ Year-end entries close temporary accounts (income, expenses, drawings) and transfer balances to permanent accounts (Capital), readying the books for the next accounting period.
❓Frequently Asked Questions
How does the double-entry system work?
▾
Every transaction is recorded in at least two accounts. The total of all debits must always equal the total of all credits. For example, when cash is invested in a business, Cash/Bank A/c is debited (asset increases) and Capital A/c is credited (owner’s equity increases), keeping the accounting equation balanced.
What is the difference between cash and credit transactions?
▾
In a cash transaction, payment is made or received immediately — Cash/Bank A/c is directly affected. In a credit transaction, payment is deferred — the Creditors A/c (for purchases) or Debtors A/c (for sales) is used to track the obligation.
Why is depreciation debited to Depreciation A/c and credited to the Asset A/c?
▾
Depreciation is an expense (reduces profit), so we debit the Depreciation A/c following the Nominal Account rule — “Debit all expenses.” The Asset A/c is credited because the asset’s book value is declining — it represents value going out of the asset.
What are adjustment entries and why are they important?
▾
Adjustment entries ensure revenues and expenses are recognized in the period they occur (accrual basis), not just when cash changes hands. They include Outstanding Expenses (incurred but unpaid), Prepaid Expenses (paid but not yet used), Accrued Income (earned but not received), and Depreciation. Without these, financial statements would misrepresent the business’s true performance.
How is net profit transferred at year-end?
▾
At year-end, the net profit calculated in the P&L Account is transferred to the owner’s Capital Account by debiting P&L A/c and crediting Capital A/c. This closes the P&L Account and increases the owner’s equity, reflecting the profit retained in the business.
🧠Test Your Knowledge — Quick Quiz
Question 1 of 5
When a business is started with cash by the owner, which account is Credited?
Question 2 of 5
In a credit purchase, the Creditors A/c is ___
Question 3 of 5
Depreciation on Furniture is recorded by crediting ___
Question 4 of 5
Outstanding salary is a ___
Question 5 of 5
Net profit is transferred to ___ at year-end
0/5
Keep practising!
📚Key Terms Glossary
Double Entry System
Every transaction affects ≥2 accounts; debits always equal credits.
Capital A/c
Owner’s equity account representing investment in the business.
Debtors A/c
Asset account — amounts owed to business by customers on credit.
Creditors A/c
Liability account — amounts owed by business to suppliers.
Depreciation
Systematic reduction of an asset’s value over its useful life.
Drawings A/c
Withdrawals of cash or goods by owner for personal use.
Outstanding Expenses
Expenses incurred but not yet paid at period end (current liability).
Prepaid Expenses
Expenses paid in advance for a future period (current asset).
Accrued Income
Income earned but not yet received in cash (current asset).
Provision for Bad Debts
Estimated amount of receivables likely uncollectable.
Trading A/c
Account to calculate gross profit by matching COGS vs. Sales.
Closing Stock
Value of unsold goods at the end of the accounting period.
