Activity

Personal Accounts

Records recording transactions pertaining to individuals or firms or firm are generally known as personal accounts. Personal records may further get classified as:

(1) Natural person’s individual accounts: The accounts recording transactions related to individual people e. g., Anand’s A/c, Remesh’s Airconditioning, Pankaj’s A/c are usually classified as natural person’s personal accounts.

(2) Artificial personal personal account: The particular accounts recording purchases relating to restricted companies. bank, company, institution, club. and so on. e. g. Delhi Cloth Mill; Hans Raj College; Gymkhana Club are classified as artificial persons’ personal accounts.

(3) Representative personal accounts: The accounts saving transactions relating to be able to the expenses and even incomes are categorized as nominal company accounts. But in selected cases due in order to the matching concept of accounting the total amount, on a certain date, is payable to the persons or recoverable by individuals.

Such quantity (a) relates in order to the specific head of expenditure or revenue and (b) symbolizes persons to who itis payable or from whom that is recoverable. Many of these accounts are classified as representative private accounts e. gary the gadget guy. “Wages Outstanding Account”, Pre-paid Insurance Accounts. etc.

Real Company accounts

The accounts saving transactions relating to be able to tangible things (which could be touched, bought and sold) this kind of as goods, dollars, building. machinery and so forth., are classified since tangible real company accounts.

Whereas the accounts recording transactions related to. intangible items (which do certainly not have physical shape) such as information, patents and copy rights. trade scars etc., are categorized as intangible actual accounts.

Nominal Balances

The accounts recording transactions relating to the losses, benefits. expenses and incomes e. g., Lease, salaries, wages, commission payment, interest, bad bills etc. are labeled as nominal balances. As already discussed, wherever a small account represents the amount payable to be able to or receivable coming from certain persons it really is known as consultant personal account.

Regulations of Debit and even Credit (classification based)

1 ) Personal Accounts: Debit the recipient, Credit the giver (supplier)

2. Genuine Accounts: Debit just what is available in, Credit exactly what goes out

3. Nominal Accounts: Debit expenses and loss, Credit incomes and even gains.,

Hints intended for Journalizing

These discussion will help throughout diagnosing the purchase with a view to find away which accounts usually are relevant for completing the journal access.

1 ) Treatment involving cash/credit transaction.

Examine carefully the next transactions:

(i) Purchased merchandise for Rs. just one, 200 cash..

(ii) Purchased goods regarding Rs. 1, 200.

(iii) Purchased items for Rs. one, 200 from Arun.

(iv) Purchased goods for Rs. a single, 200 from Arun on cash.

Deal (i) and (iv) are clear while it has been specifically stated that purchases have recently been made on cash. Thus the entry is:

Purchases consideration Dr. 1, 200 To Cash account 1, two hundred

Purchase (ii) and (iii) are not specific as to whether the purchases will be for cash or on credit. On the other hand transaction (ii) will not mention any name of the particular supplier; therefore that implies that the particular purchases are regarding cash. Similarly deal (iii) mentions the name of the supplier but is usually silent regarding cash-it implies that purchases are on credit: Therefore the entry for transaction (iii) is

Purchases account Medical professional. 1, 200 To be able to Amex 1200.

a couple of. Treatment of payment on personal/expenses account.

Any time payment is produced to a person against amount thanks to him because per his journal account-the personal account of the financial institution ought to be debited. Even so if the payment is definitely being built to a person representing company expenditure then the particular expenditure (nominal) account should become debited.

3. Remedy of receipt on personal/ income accounts.

When amount will be received from a person against volume recoverable from him or her as per journal account-the personal consideration of the debtor needs to be credited. Even so in the event the amount received represents business revenue, then your particular income (nominal) account ought to be credited.

some. Treatment of trade discount.

In numerous cases the seller enables to the customer deduction off the particular list price. This kind of deduction is identified as ‘trade discount’. Trade discount as a result is not recorded within the books. The purchase is recorded along with only the web amount i. elizabeth. (list price -trade discount).

5. Treatment- of money discount (full settlement).

In a few cases creditor may allow some concession to his debtor to prompt him to make the payment inside the period of credit authorized. Such concession is known as ‘cash discount’. It really is allowed by typically the person receiving the payment to represent, spending. It is availed by the individual making the payment plus represents income.

6. Treatment of Debt (debtor becoming insolvent).

An amount as a consequence from a debtor may possibly become irrecoverable either partially or wholly. Reason might be that will he has already been declared insolvent or even any other. This sort of irrecoverable amount signifies loss towards the enterprise and is debited to Bad debts amount.

7. Treatment of Money owed reclaimed

It is evident from the previously mentioned entry that whenever irrecoverable amount will be written off of the individual account is credited. If as time passes any paymentis received against a debt in the past written of then it represents revenue and as this sort of should be a certain amount to an account styled as ‘Bad debts recovered account’. Personal account must not be acknowledged.

8. Treatment involving personal expenses of the owner

That is quite typical for that proprietor to be able to withdraw cash or even goods from the business for personal or even domestic use. Sometimes premium within the life policy from the user may also get paid by the business. Similarly earnings tax payable by proprietor may always be paid by enterprise. This all represents customer’s personal expenses and are debited to be able to his personal consideration viz. Drawings account.

9. Treatment associated with payment/ receipt about behalf of customer or supplier.

Occasionally business might pay expenses on part of its buyers. Such payments do not constitute the expenditure of business. Hence it have to be debited in order to the personal bank account of the worried customer.

10. Treatment or exchange or new asset together with old one.

At times business may exchange its old resource with new one-only the difference in price is paid in cash. In such cases asset consideration needs debit just with the actual amount paid.

14. Take care of goods presented as charity/ advertising campaign.

Business might disperse goods as ‘free samples’ to advertise its products. In some cases it may in addition distribute goods because charity to increase its image. Both ‘advertisement’ and ‘charity’ will be expenses of the organization, hence should be debited and purchases consideration should be credited.

12. Treatment of goods lost within accident/ fire.

In certain case a business might endure loss of merchandise as a result of some car accident or fire and so on., destroyed or broken goods might include been insured also. In such situations total value of goods lost or destroyed is credited to purchases account in addition to the (i) insurance claim admitted is usually debited to Insurance carrier (ii) balance is debited to reduction by accident/ flames account.

13. Treatment of depreciation charged on fixed assets.

Set assets are all those properties/ possessions regarding the business which in turn are used for carrying on associated with business viz. plant, machinery, building and so forth. Depreciation may be the stable decrease in the value of an asset credited to usage, passageway of time and even obsolescence. Depreciation will be treated as a business expenditure. Fall account is debited as well as the respective resource account is acknowledged.

14. Treatment regarding payment/ receipt of representative personal records.

At the close of the earlier accounting year the business might have suffered expenditure which continued to be unpaid. Its known as ‘Outstanding expenditure’. It is some sort of representative personal accounts. When actual payment is made throughout current accounting period of time the concerned account is debited and even cash account is credited.

Advantages of Diary

(1) Dealings are recorded inside the chronological purchase, thus reducing typically the chances of omitting any transaction.

(2) Transactions, invariably, are really accompanied by narration. As a consequence, the entry will be supplemented with standard information regarding the transactions.

(3) Charge and credit portions are written area by side. This minimizes the odds of entering wrong amount.

Restricted using Journal

Originally the program of recording typically the financial transactions produced consisted of (1) writing each transaction, with narration, throughout the book involving original entry,

i actually. e.. Journal and after that (2) posting therefrom to the particular accounts in the principal book, my partner and i. e., ledger. Seeing that the number involving transactions’ grew typically the system was customized and the purchases of similar

character say purchases, product sales, cash etc. have been recorded in sub-journal instead of log for the following

reasons:

(i) If too many transactions are recorded in record it will be unwieldy.

(ii) Within every business cash balance is necessary to end up being ascertained at recurrent intervals, say, every day: therefore it was found convenient to use another reserve for recording cash

transactions.

(iil) By simply recording transactions associated with similar nature. in one sub diary, say, purchases of products in purchases diary saves time plus efforts in taking and posting.

Due to the fact of the factors listed above, nowadays, journal is utilized to record simply such transactions which often are infrequent. More recently computerized accounting has turned the entry associated with journal very easy and accurate.

Double Entry System

Within the 15th hundred years a Franciscan Monk, Lucas Pacioli, defined a method associated with arranging accounts on such a way that the double aspect (present inside of every account transaction) would be stated by way of a debit amount and an equivalent and offsetting credit rating amount.

Double Entrance system is the program under which every transaction is regarded to have two flip aspects and each the aspects will be recorded to attain complete record involving dealings. Double Access system of book trying to keep adheres to typically the rule. that for each transactions typically the debit amount (s) must equal typically the credit amount(s). That is why this system is definitely called Double Access.

Advantages of Double Entry System

(i) It enables to keep a complete report of business deals.

(ii) It offers a check in the arithmetical accuracy and reliability of books associated with accounts based upon equality of debit and credit.

(iii) It gives the outcomes of business pursuits either profit or even loss during typically the accounting period.

(iv) It tells typically the budget of the business at a stage of time. Total resources of the business, claims associated with the outsiders, volume due by outsiders etc. are revealed by an assertion known as Stability Sheet.

(v) That makes possible comparison of the current season with those associated with previous years helping the owner to deal with his business on better lines.

(vi) It reduces the likelihood of errors creeping in the accounting records due to the equality principle..

(vii) It helps to ascertain the details concerning any account very easily and accurately. Various other systems of book-keeping. In addition in order to the double admittance system, there is usually also single entry system.

The single-entry system is “a system of book-keeping through which as the rule only documents of cash plus of personal accounts are maintained; this is always incomplete double entry differing with circumstances. This kind of system may end up being economical however it is incomplete, unscientific and complete of defects.

Chemical substance Journal Items

In case in a record entry only one particular account is in order to be debited and only one account is usually to be credited then this kind of entry is ‘Simple Journal Entry’. Nevertheless , in some circumstances the entry may well require more as compared to one debit or even credit or both. Such entries usually are known as chemical substance entries. Compound items should be produced in which

(i) Purchase occur on typically the same day

(ii) One aspect associated with these transactions is definitely common; and

(iii) Accounts involved are definitely more than two The truth is compound entry is the combination of a couple of or more very simple journal ntries.