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The Journal can be defined as the primary book of accounts in which the transactions are first recorded in a chronological order. It is also know as the book of original entry.
There are two types of journal entries and they are as follows-
1. Simple Journal Entry- It can be defined as an entry in which only two accounts are affected with an equal amount, i.e., one account is debited and the other account is credited .
2. Compound Journal Entry- Entry in which more than two accounts are debited or credited with different amounts can be defined as the compound journal entry.
Another type of entry which is passed in the journal book is the opening entry which is the first entry passed in the journal book incorporating the balances of the previous year.
What are Source Documents?
Source Documents can be defined as the evidences on the basis of which the transactions are recorded in the books of accounts. These documents includes bills of purchases, invoices for sales, debit notes, credit notes, etc.
Meaning of Debit and Credit.
A debit entry signifies that value has flown to the named account, e.g. payment to creditor signifies that payment has been made for the goods purchased from him, thus his account is debited.
A credit entry signifies that value has flown out from the source indicated by named of the account, e.g receipt of cash from a debtor signifies that the debtor has made payment for the goods purchased by him, thus his account is credited.
Debits and Credits just can simply be seen as additions and subtractions from an account.
What are the rules of debit and credit?
There are three rules under which all the entries are recorded in the books of accounts-
1. Personal account- This rule states that debit the receiver and credit the giver.
2. Real account- It states that debit what comes in and credit what goes out.
3. Nominal accounts- It signifies that debit all expenses and losses and credit all incomes and gains.
Important Considerations.
1. If there is a purchase or sale transaction and if it is not stated that it is a cash transaction, and the name of the seller or purchaser is given, than that transaction is treated as a credit transaction. e.g goods sold to John.
2. In a given transaction if with the name of the purchaser or seller it is mentioned with cash, than that transaction will be treated as a cash transaction. e.g. Goods sold to John for cash.
3. Under a case of purchase or sale transaction, if the name of the party is not given, than that transaction will be treated as a cash transaction. e.g. Goods sold for 5000.
4. In the case of nominal accounts, even if the name of the party making payment or the receiving party is given, that transaction will still be treated as a cash transaction. e.g. a salary of 1000 is paid to John.
In the accounting system, the entity of the proprietor is separate and distinct from that of the business. Transactions are recorded in the books of accounts from the point of view of the business and not the proprietor.
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