In the double entry book-keeping system, all the transactions are recorded in the dual aspects in which one aspect of the transaction is debited from one account whereas the other aspect is credited on another account involving the equal amount. The task of deciding whether the account heads are to be debited or credited is very important. The systematic record of all financial transactions in the journal book is called journal entry. The process of passing the journal entry in the books of the journal is called journalizing. The rules are also known as rules of debit and credit.
There are two alternative rules of journalizing but the both rules give the same result. The two rules of journalizing are as follows:
Under double entry system, accounts are classified into three types. There are separate rules for debit and credit under these three accounts. These accounts are as follows:
The real account and nominal account are also known as an impersonal account. The rules of journalizing or the rules of debit and credit under personal, real and nominal accounts are as follows:
The application of double entry system has given birth to the new accounting equation which is also called the balance sheet equation. It states that the sum of the total of assets will always be equal to the sum of the total of liabilities and capital at any given period of time. Mathematically, it is expressed as follows:
Assets= Liabilities + Capital
Every financial transaction brings out an effect on asset, liability and capital. However, the total of assets will still remain equal to the total of liabilities and capital. This special feature of double entry system has developed another rule of journalizing which is based on the accounting equation. The rules can be summarized as follows:
|Assets and Expenses||Increase||Decrease|
|Capital, Liabilities, and Incomes||Decrease||Increase|
The system record of a transaction in the journal book is called journal entry, the process of passing journal entry is called journalising.The rules are also known as rules of debit and credit.
1. Personal Account:It is the account of a person or organization or debtor or creditor. It is the record of an individual or organization. Under it, the person receiving benefit is debited and the person giving benefit is credited. The rule of journalizing in personal account is as follows:
2. Real Account:It is an impersonal account. It is the account of a real thing or property. It is the record of assets of the business. Under it, asset coming into business through its purchase is debited and the asset going out of the business through its sale is credited. The rule of journalizing in real account is as follow:
3. Nominal account: It is another impersonal account. It is the account of expenses, loss, income and profit. It has no any physical shape. It does not exist in the business in real form. It appears only in the books. It is the record of financial sacrifice against the service received and the record of financial benefit against the service rendered. The rule of journalizing in nominal account is as follows:
cash a/c 5000000 to capital a/c 5000000
Which of the following statements is incorrect In the double entry accounting system maintained manually?
A journal entry should be substantiated by appropriate voucher and authorized at proper level.
A journal entry should always end with a narration explaining the need for it.
A journal entry should always consist of a single debit entry matched by a corresponding credit entry.
A journal entry is needed only in the absence of other suitable book of prime entry for the transaction.
The rule of journalizing in personal account is ______.
debit the giver, credit the receiver
debit all expenses and losses, credit all incomes and profits
debit the receiver, credit the giver
debit what comes in, credit what goes out
______ is the record of assets of the business.
______ does not exist in the business in real form. It appears only in the books.
All the answers are correct
Which one of them is the correct equation?
Expenses = Assets + Capital - Liabilities
Capital= Liabilities +Assets
Assets= Liabilities + Capital
Liabilities= Assets + Capital