Accountancy Journal Entries Full Explanation for UGC NET Notes (2024)

Accountancy journal entries are fundamental records used in accounting to capture financial transactions systematically. Each journal entry documents a specific transaction, detailing the accounts involved, amounts, and the date of the transaction. These entries serve as the foundation for preparing financial statements, tracking financial activities, and ensuring accuracy in accounting records. Understanding how to create and interpret journal entries is essential for accountants and financial professionals to maintain transparent and reliable financial reporting.

Accountancy journal entries is a vital topic to be studied for the commerce exams such as the UGC NET Commerce Examination.

In this article, the readers will be able to know about the following:

• Accounts Payable Journal Entry
• Accounts Receivable Journal Entry
• Journal Entry Golden Rules of Accounting

Accounts Payable Journal Entry

An accounts payable journal entry is used to record transactions where a company purchases goods or services on credit from suppliers or vendors. Here's how the accounts payable journal entry typically looks:

When Purchasing Goods or Services on Credit

• Accounts Payable: Represents the amount owed to suppliers or vendors.
• Expense or Asset Account: Represents the cost of goods purchased or services received.

Example
Suppose a company purchases Rs. 1,000 worth of inventory on credit from a supplier.

Journal Entry

Inventory (or Expense Account) Rs. 1000

Accounts Payable Rs. 1000

Explanation

In this entry, the "Inventory" account (or relevant expense account) is debited with Rs.1,000, representing the increase in inventory (or expense incurred). Simultaneously, the "Accounts Payable" account is credited with Rs.1,000, reflecting the liability owed to the supplier for the purchase.

When Making Payments to Suppliers

• Accounts Payable: Represents the amount owed to suppliers.
• Cash or Bank Account: Represents the cash paid to settle the payable.

Example

When the company pays $800 to the supplier against the accounts payable balance:

Journal Entry

Accounts Payable Rs. 800

Cash (or Bank) Rs. 800

Accounts Receivable Journal Entry

An accounts receivable journal entry is used to record transactions where a company makes a sale on credit to a customer. Here's how the accounts receivable journal entry typically looks:

When Making a Sale on Credit

• Accounts Receivable: Represents the amount owed to the company by customers for goods sold or services rendered.
• Revenue Account: Represents the income earned from the sale.

Example
Suppose a company sells Rs. 1,500 worth of goods to a customer on credit.

Journal Entry

Accounts Receivable Rs. 1500

Sales Revenue Rs. 1500

When Receiving Cash Payment from Customers

• Cash or Bank Account: Represents the cash received from customers.
• Accounts Receivable: Represents the reduction in the amount owed by customers.

Example

When the customer pays $1,200 to settle the accounts receivable balance:

Journal Entry

Cash (or bank) Rs. 1200

Accounts Receivable Rs. 1200

Journal Entry Golden Rules of Accounting

In accounting, the "Golden Rules" refer to fundamental principles that guide the recording of transactions using double-entry bookkeeping. These rules ensure accuracy and consistency in financial records. Here are the three Golden Rules of accounting:

Debit What Comes In, Credit What Goes Out (Real Accounts)

• Real accounts include assets (e.g., cash, inventory, equipment), which represent tangible or intangible items owned by the business.
• Rule: Increase the asset account with a debit entry (what comes in) and decrease it with a credit entry (what goes out).

Debit All Expenses and Losses, Credit All Incomes and Gains (Nominal Accounts)

• Nominal accounts include revenues, expenses, gains, and losses, which relate to income and expenses incurred during business operations.
• Rule: Record expenses and losses with a debit entry (increase) and record incomes and gains with a credit entry (increase).

Debit the Receiver, Credit the Giver (Personal Accounts)

• Personal accounts involve individuals, firms, or entities with whom the business has transactions.
• Rule: Debit the personal account of the receiver of the benefit (increase their account) and credit the personal account of the giver (decrease their account).

Conclusion

Accountancy journal entries form the backbone of financial record-keeping and reporting. They provide a chronological and detailed account of all financial transactions within an organization, ensuring transparency and accuracy in financial statements. By mastering the art of journal entry preparation and analysis, accountants can effectively track business activities, monitor financial health, and facilitate informed decision-making by stakeholders. The accuracy and completeness of journal entries are critical in complying with accounting standards and regulations, thereby enhancing trust and confidence among investors, creditors, and other users of financial information. Thus, journal entries play a pivotal role in maintaining the integrity and reliability of accounting information, supporting the overall financial management and strategic planning of an organization.

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