Financial Accounting

Financial Accounting
Business Process
Real &
Personal
Account
Input
Nominal
& Real
Account
Process
Personal,
Nominal
and Real
Account
Output
Double Entry System

Every Business transaction has a two- fold
effect and that it affects two accounts in
opposite directions and if a complete record
were to be made of each such transactions, it
would be necessary to debit one account and
credit another account.
FA is based on double entry system of accounting using
debits and credits
Types of Accounts
1. Personal Accounts:
The accounts which relates to an individual,
firm, company or an institutions
Types of Personal accounts
Natural
Personal
Accounts e.g.
Mohan, Arjun
Artificial
Personal
Account e.g.
BITS, SBH
Representative
Personal Account
e.g. Salary O/S,
Prepaid Rent
Golden Rule: Debit the receiver and Credit the giver
Objective of preparing Personal

Account
To ascertain how much amount a personal
account owes to the business i.e. How much
amount is due to be received and how much
amount is payable to him.
2. Real Account:
The accounts of all those things whose value can
be measure in term of money e.g. Cash A/c,
Furniture A/c, Machinery A/c, Building A/c.
Types of Real Accounts
Tangible Real
Accounts E.g. Stock
A/c, Land & Building
*Bank A/c
Intangible Real
Account E.G. Goodwill
A/c, Patents A/c, Trade
Mark and Copyright
A/c
Golden Rule: Debit what comes in and Credit what goes out
Objective of preparing Real Account

These accounts represents the value of
various properties owned by business in terms
of money and indicates the financial position
of the business
3. Nominal Accounts
These accounts include the accounts of all
expenses (and losses) and incomes (and
gains). For e.g. Salaries, Rent, Bad Debt
Recovered, Purchase & Sales A/c
Golden Rule: Debit the expenses & losses
Credit the incomes & Profits
Objective of preparing Nominal

Account
These accounts do not really exits but opened
to explain the nature of head for which cash
has been paid and received.
Steps in Journalizing
Analyze the transaction and identify the two
accounts that are being affected by the
transaction
Ascertain the nature of the accounts involved
as real personal or nominal
Determine which rule of debit and credit is
applicable to be credited
At the end page, both credit and debit
columns are totalled up. These total must be
equal because total the amount debited in
each entry equals the amount credit
1. Capital
2.Drawings
3. Cash A/c
4.Cash paid and

received
5.Commission
Paid
6.Commission
Received
7. Purchase A/c
8.Sales A/c
9.Furniture A/c
10. Bank A/c
11.Debtors A/c
12. Creditors A/c
13. Travelling
Expenses
14. Goodwill
15. Patents
16. Salary A/c
17. Salary
outstanding A/c
18. Insurance A/c
19. Bad debts
20. Bad Debts

recovered
Personal A/c
Real A/c
Nominal A/c
1. Capital
7. Cash A/c
12. Commission paid
2. Drawings
8. Cash Received and

Paid
13. Commission received
3. Bank A/c
9. Furniture
14. Purchase and Sales

A/c
4. Debtors A/c
10. Goodwill
15. Travelling Expenses
5. Creditors A/c
11. Patents
16. Salary A/c
6. Salary Outstanding A/c
17. Insurance A/c
Journal Entries
Transaction: Started Business with capital of
Rs. 750000
Type of Accounts
Golden Rule
Cash Real A/c

Capital Personal A/c
Debit what comes in

Credit the giver
Cash A/c Dr.

To Capital A/c
Rs. 750000
Rs. 750000
Transaction : Opened a bank account with SBI for Rs. 200000
Type of Accounts
Golden Rule
Bank Personal A/c

Cash -- Real A/c
Debit the receiver

Credit what goes out
Bank A/c Dr.

To Cash A/c
Rs.200000
Rs.200000
Transaction : Purchased goods from Tandon & Co for cash Rs. 100000
Type of Accounts
Golden Rule
Purchase Nominal A/c

Cash
-- Real A/c
Debit all expenses

Purchase A/c Dr. Rs. 100000

To Cash A/c
Rs. 100000
Transaction : Purchased goods from Burman for Rs. 200000
Type of Accounts
Golden Rule

Mr. Burman Personal A/c
Debit all expense

Credit the receiver
Purchase A/c Dr.

Rs. 200000
To Burman A/c
Rs. 200000
(for goods purchased goods from
Burman on credit)
Transaction : Goods Return to Burman of Rs. 50000
Type of Accounts
Golden Rule
Burman - Personal A/c

Purchase Return-Nominal A/c
Debit the receiver

Credit all gains
Burman A/c
Dr.
To Purchase Return A/c
Rs. 50000
Rs. 50000
Transaction : Paid Rs. 140000 in full settlement
Type of Accounts
Golden Rule
Burman Personal A/c

Discount Nominal A/c
Cash
- Real A/c
Debit the receiver

Credit all gains
Burman A/c Dr.

Rs.150000
To Discount A/c
Rs.10000
To cash A/c
Rs.140000
(Being cash paid to Mr. Burman and
received discount)
Transaction : Paid Mr. Dharam, the landlord Rs. 50000 towards rent
Type of Accounts
Golden Rule
Rent - Nominal A/c

Cash - Real A/c
Debit all expenses

Rent A/c Dr. Rs.50000

To Cash A/c
Rs.50000
(Being Rent paid in cash)
Transaction : Withdraw cash for household expenses Rs.60000
Type of Accounts
Golden Rule
Drawings - Personal A/c

Cash
- Real A/c
Debit the receiver

Drawings A/c Dr.

Rs.60000
To Cash A/c
Rs.60000
(being cash withdrawn for household
expenses)
Transaction: Sold goods to Mr. Karan for Cash Rs. 250000
Type of Accounts
Golden Rule
Cash- Real A/c

Sales - nominal A/c
Debit what comes in

Credit all incomes & gains
Cash A/c
Dr. Rs. 250000
To Sales A/c
Rs.250000
(Being goods sold for cash)
Transaction : Sold goods to Dev on credit for Rs. 100000
Type of Accounts
Golden Rule
Dev Personal A/c

Sales - nominal A/c
Debit the receiver

Credit all gains and income
Dev A/c Dr. Rs.100000

To sales A/c
Rs. 100000
(Being goods sold for dev on Credit )
Transaction : Goods return by Mr. Dev for Rs. 25000
Type of Accounts
Golden Rule
Sales Return Nominal A/c

Dev - Personal A/c
Debit all expenses and losses

Credit the receiver
Sales Return A/c Dr.

Rs.25000
To Dev A/c
Rs.25000
(Being goods returned by Dev)
Transaction : Received cash from Mr. Dev Rs. 70000 in full settlement
Type of Accounts
Golden Rule
Cash Real A/c

Discount- Nominal A/c
Dev Personal A/c
Debit what comes in

All expenses and losses
Credit the giver
Cash A/c
Dr.
Rs.70000
Discount A/c Dr.
Rs. 5000
To Mr. Dev A/c
Rs.75000
(Being cash received from Dev and allowed him
discount)
Transaction: Purchased furniture for office use for Rs. 100000
Type of Accounts
Golden Rule
Furniture Real A/c

Cash
- Real A/c
Debit what comes in

Furniture A/c
Dr.
Rs.100000
To Cash A/c
Rs.100000
(Being Furniture purchased for office use
by cash)
Transaction: Purchased furniture for re-sale Rs. 100000
Type of Accounts
Golden Rule
Purchase - Nominal A/c

Cash Real A/c
Debit all expense

Purchase A/c
Dr.
Rs.100000
To cash A/c
Rs.100000
(Being furniture purchased for resale)
Transaction 1: Paid cartage on goods purchased Rs. 35000

Transaction 2: Paid Cartage on good sold Rs. 80000
Type of Accounts
Golden Rule
Cartage inwards- Nominal A/c

Cash Real A/c
Debit all expenses

Cartage outwards- Nominal A/c
Cash - Real A/c
Debit all expenses

Cart. Inwards A/c

To Cash A/c
Cart. outwards A/c
To Cash
Dr.
Dr.
Rs.35000
Rs. 35000
Rs.80000
Rs.80000
Journal Entries Question : 2(1/2)

Transaction
Type of Accounts
Golden Rule
Journal Entry
Mr. X started business

with cash Rs. 50,000
Cash Real Account

Mr. X Personal A/c
Debit what comes in

Credit the giver
Cash A/c Dr.

To Capital A/c
Purchased goods for

cash Rs.20000
Purchase -Nominal A/c

Cash
-Real A/c
Debit all expenses

Purchase A/c Dr. Rs.20000

To Cash A/c
Rs.20000
Purchased goods from

Mr. A for Rs. 12000
(Credit Purchase)

Mr. X
- Personal A/c
Debit all expenses

Credit the giver
Purchase A/c Dr.Rs.12000

To Mr. A A/c
Rs.12000
Purchase furniture for

cash for Rs. 6000
Furniture Real A/c

Cash
- Real A/c
Debit what comes in

Furniture A/c Dr. Rs.6000

To Cash A/c
Rs.6000
Sold goods for cash for

Rs. 13000
Cash
Sales
- Real A/c
- Nominal A/c
Debit what comes in

Credit all gains
Cash A/c
Dr. Rs.13000
To Sales A/c
Rs.13000
Sold goods to Mr. B for

Rs. 15000
Mr. B
Sales
- Personal A/c
- Nominal A/c
Debit the receiver

Credit all incomes and
gains
Mr. B A/c
Dr. Rs.15000
To Sales A/c
Rs.15000
Paid cash to Mr. A Rs.

12000
Mr. A
Cash
- Personal A/c
- Real A/c
Debit the receiver

A A/c
Dr. Rs.12000
To Cash A/c
Rs.12000
Received cash from Mr.

B Rs. 15000
Cash
Mr. B
- Real A/c
- Personal
Debit what comes in

Credit the giver
Cash A/c
Dr.Rs.15000
To Mr. B A/c
Rs,15000
Rs.50000
Rs.50000
Journal Entries Question 2 (2/2)

Transaction
Type of Accounts
Golden Rule
Journal Entry
Brought machinery for

cash for Rs.80000
Machinery Real A/c

Cash
- Real A/c
Debit what comes in

Machinery A/c Dr. 80000

To Cash
80000
Withdrew cash from office

for personal use Rs. 25000
Drawings - Personal A/c

Cash
- Real A/c
Debit the receiver

Drawings A/c
To Cash A/c
Dr. 25000
25000
Paid Rent of Rs. 4000 by

Cheque
Rent
Bank
- Nominal A/c
- Personal A/c
Debit all expenses

Credit the giver
Rent A/c
To Bank A/c
Dr. 4000
4000
Paid Wages for cash Rs.

4500
Wages
Cash
- Nominal A/c
- Real A/c
Debit all expenses

Wages A/c
To cash A/c
Dr. 4500
4500
Paid salary to Mr. Ram Rs.

1200
Salary
Cash
- Nominal A/c
- Real A/c
Debit all expenses

Salary A/c
To Cash A/c
Dr. 1200
1200
Received Commission Rs.

2000
Cash
- Real A/c
Commission Nominal A/c
Debit what comes in

Credit all gains
Cash A/c
Dr. 2000
To Commission
2000
Salaries due to clerks Rs.

2000
Salaries
Debit all expenses
Salaries A/c
Outstanding salaries (liability)

Representative personal A/c
Credit the giver
To O/S Salaries
Prepaid rent (asset)

Representative personal a/c
Debit the receiver
Prepaid Rent A/c Dr. 600
Rent- Nominal A/c (benefit for

next year)
Credit all gains
To Rent A/c
Out of the rent paid this

year , Rs. 600 is for next
year
- Nominal A/c
Dr. 2000
2000
600

Financial Accounting - Journal Entries

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Double Entry System

Golden Rule: Debit the receiver and Credit the giver

Objective of preparing Personal

Objective of preparing Real Account

Objective of preparing Nominal

4.Cash paid and

10. Bank A/c

12. Creditors A/c

16. Salary A/c

18. Insurance A/c

19. Bad debts

20. Bad Debts

12. Commission paid

8. Cash Received and

13. Commission received

14. Purchase and Sales

15. Travelling Expenses

16. Salary A/c

6. Salary Outstanding A/c

17. Insurance A/c

Cash Real A/c

Debit what comes in

Cash A/c Dr.

Transaction : Opened a bank account with SBI for Rs. 200000

Bank Personal A/c

Debit the receiver

Bank A/c Dr.

Purchase Nominal A/c

Debit all expenses

Purchase A/c Dr. Rs. 100000

Transaction : Purchased goods from Burman for Rs. 200000

Purchase Nominal A/c

Debit all expense

Purchase A/c Dr.

Transaction : Goods Return to Burman of Rs. 50000

Burman - Personal A/c

Debit the receiver

Transaction : Paid Rs. 140000 in full settlement

Burman Personal A/c

Debit the receiver

Burman A/c Dr.

Rent - Nominal A/c

Debit all expenses

Rent A/c Dr. Rs.50000

Transaction : Withdraw cash for household expenses Rs.60000

Drawings - Personal A/c

Debit the receiver

Drawings A/c Dr.

Transaction: Sold goods to Mr. Karan for Cash Rs. 250000

Cash- Real A/c

Debit what comes in

Transaction : Sold goods to Dev on credit for Rs. 100000

Dev Personal A/c

Debit the receiver

Dev A/c Dr. Rs.100000

Transaction : Goods return by Mr. Dev for Rs. 25000

Sales Return Nominal A/c