Before you begin:It's important for testing and exams to make sure you not only answer questions correctly but also complete them at the right speed. So make sure you time yourself while attempting this question.
Difficulty Rating: Intermediate --> Advanced
Time limit: 25 minutes
Create journal entries for the following transactions (Rs. = Rupees = Indian currency):
1. Harish started business with cash Rs. 10000 2. Bought goods from Manohar Rs. 5000 3. Purchase fittings for cash Rs. 800 4. Sold goods to Charanjeet Rs. 1600 5. Paid Manohar Rs. 3000 6. Sold goods Vadva Ram Rs. 2000 7. Received from Charanjeet Rs. 1540 and allowed him discount Rs. 60 8. Paid wages Rs. 80 9. Bought goods for cash Rs. 600 10. Sold goods to Ramesh Rs. 3400 11. Purchase goods from Purchotam Ra. 2600 12. Paid Manohar in settlement Rs. 1900 and discount allowed by him Rs. 100 13. Paid carriage from goods and sold Rs. 40 14. Paid wages Rs. 80 15. Bought goods Manohar Rs. 3000 16. Bought goods for cash Rs. 800 17. Sold goods Vadva Ram Rs. 3600 18. Vadva Ram paid on account Rs. 4000 19. Purchase goods from Harbans Rs. 1500 20. Sold goods for cash Rs. 1600 21. Paid wages Rs. 80 22. Paid to Harbans Rs. 1440 and discount allowed by him Rs. 60 23. Sold goods to Charanjeet Rs. 2600 24. Bought goods for Manohar Rs. 1400 25. Bought goods for cash Rs. 1460 26. Paid on account to Manohar Rs. 1460 27. Received from Charanjeet Rs. 4000 28. Paid wages Rs. 80 29. Paid for electric lighting Rs. 100 30. Paid rent Rs. 160 31. Harish drew for personal use Rs. 300 32. Purchases Rs. 80 33. General expense Rs. 190 34. Carriage outwards Rs. 60
In this example I am assuming the business is using the periodic inventory system, so we debit the purchases account (not the inventory account). Since the purchases are on credit, we have liabilities. Since liabilities increase on the right side, we credit the creditors.
3. Dr Fittings 800 Cr Bank 800
Fittings are fixed pieces of equipment inside a business or house which can be removed if needed. Examples include a ceiling lamp or a tap/faucet. Fittings are assets for the business. Since these assets are increasing, we do an entry on the left side of the accounting equation (debit). Bank is decreasing since it is a payment and so is credited. See the tutorial on the journal entry for purchasing an asset for a full example of this kind of transaction.
4. Dr Debtors 1,600 Cr Sales 1,600
A credit sale means that there will be income, which is credited. The debit goes to debtors (or "accounts receivable," an asset), which means that debtors is increasing. See the tutorial on the journal entry for income on credit for a full example.
5. Dr Creditors 3,000 Cr Bank 3,000
In this case we are paying the debt to our supplier. A payment means our bank is decreasing, which occurs on the right side (credit). Creditors (a liability) decreases too, which means this is debited. See our tutorial on the journal entry for paying a debt for a full example.
6. Dr Debtors 2,000 Cr Sales 2,000
Same as 4 above - credit sale.
7. Dr Bank 1,540 Dr Discount allowed (expense) 60 Cr Debtors 1,600
Since we're receiving money, our bank increases, which means we debit it. Debtors (accounts receivable) also decreases, since this debt to our business is being paid. The discount our business is giving is an expense and so is debited.
Same as 2 above except that this is a cash purchase, so our bank is decreasing (credit).
10. Dr Debtors 3,400 Cr Sales 3,400
Same as 4 and 6 above.
11. Dr Purchases 2,600 Cr Creditors 2,600
Same as 2 above.
12. Dr Creditors 2,000 Cr Bank 1,900 Cr Discount received (income) 100
In this case we are receiving a discount. This is counted as income, meaning we credit it. Our liability (debt) to our supplier is decreasing. Since liabilities increase on the right side, they decrease on the left, so are debited. The payment means bank is decreasing, so it gets a credit.
13. Dr Carriage on goods 40 Cr Bank 40
"Carriage" means "transport costs." It is an expense.
14. Dr Wages 80 Cr Bank 80
Same as 8 above.
15. Dr Purchases 3,000 Cr Creditors 3,000
Same as 2 and 11 above.
16. Dr Purchases 800 Cr Bank 800
Same as 9 above.
17. Dr Debtors 3,600 Cr Sales 3,600
Same as 4, 6 and 10 above.
18. Dr Bank 4,000 Cr Debtors 4,000
We are receiving money, so our bank increasing means we debit it. The credit is to the debtors (accounts receivable), which means we are recording this asset decreasing. See the tutorial on the journal entry for when a debtor pays for a full example and explanation.
19. Dr Purchases 1,500 Cr Creditors 1,500
Same as 1, 11, 15 above.
20. Dr Bank 1,600 Cr Sales 1,600
A cash sale means we record income on the right side of our accounting equation (credit) and our bank increasing means we make an entry on the left side to this account (debit). See the tutorial on the cash income journal entry for a full example.
21. Dr Wages 80 Cr Bank 80
22. Dr Creditors 1,500 Cr Bank 1,440 Cr Discount received (income) 60
Same as 12 above.
23. Dr Debtors 2,600 Cr Sales 2,600
24. Dr Purchases 1,400 Cr Creditors 1,400
25. Dr Purchases 1,460 Cr Bank 1,460
26. Dr Creditors 1,460 Cr Bank 1,460
27. Dr Bank 4,000 Cr Debtors 4,000
Same as 18 above.
28. Dr Wages 80 Cr Bank 80
29. Dr Electric lighting 100 Cr Bank 100
Electric lighting is an expense and so is debited.
30. Dr Rent 160 Cr Bank 160
Rent is also an expense.
31. Dr Drawings 300 Cr Bank 300
Drawings is the opposite of capital (owner's equity investment in a business). It means owner's equity, which is on the right side of our accounting equation, is now decreasing. So drawings occurs on the left side (debit). The credit is to bank, which means it is decreasing (a payment).
32. Dr Purchases 80 Cr Bank 80
There was no mention for this transaction if the purchases were made with cash or on credit. I assumed it was a cash purchase.
33. Dr General expense 190 Cr Bank 190
34. Dr Carriage outwards 60 Cr Bank 60
Carriage outwards is a transport expense of goods going out from the business.
That's it! Hope you enjoyed our Journal Entries Question!
All the best with your studies!
- Michael Celender Founder of Accounting Basics for Students