Every financial / Accounting transaction has Debit and Credit. The ledgers in a particular accounting transaction can be divided into debit and credit. Some of the ledgers will fall in DEBIT and Some of the ledgers will fall in CREDIT. And the debit and credit amounts must be equal in a journal entry. The total concept and meaning of debit and credit depend on Ancillary Rules. The Total Accountancy depends on Ancillary Rules. You have to know the Ancillary rules to pass a Journal Entry.
The terms in Ancillary rules categorised into six Accounting groups.
- Assets
- Liabilities
- Purchase
- Sales
- Income
- Expenses
Ancillary rules work on the Increase/Decrease (ledger balances) method. Ledger Balances will be increase/decrease based on the accounting transaction according to Ancillary Rules.
So, to pass a journal entry, first we have to know about Ancillary (debit and credit) rules.
FORMAT OF JOURNAL ENTRY:
_______________________________ A/c – Dr XXXXX (amount)
To______________________________________ A/c – Cr XXXXX (Amount)
The “Dr” term and the “Cr” term in Journal Entry denotes DEBIT THE RECORD and CREDIT THE RECORD
Here, is the list of ANCILLARY RULES
S.No | Nature of Account | Debit | Credit |
1 | ASSETS | INCREASE (+) | DECREASE (-) |
2 | LIABILITIES | DECREASE (-) | INCREASE (+) |
3 | PURCHASE | INCREASE (+) | DECREASE (-) |
4 | SALES | DECREASE (-) | INCREASE (+) |
5 | INCOMES | DECREASE (-) | INCREASE (+) |
6 | EXPENSES | INCREASE (+) | DECREASE (-) |
Some Important Examples for ASSETS:
- Cash
- Petty Cash
- Cash in hand
- Cash at any department of our company
- Stock in hand
- Machinery
- Assets like Computers, Furniture, etc.
- Bank Accounts
- Sundry Debtors
- Any Receivable Accounts
Some Important Examples for LIABILITIES:
- Bills Payable and any payable accounts
- Sundry Creditors
- Loans (secured / Unsecured)
- Capital Account
PURCHASE :
- Purchase
- Purchase Returns
SALES:
- Sales
- Sales Returns
Some Important Examples for INCOMES:
- Commission Received
- Interest Received
- Rents Received
Some Important Examples for EXPENSES:
- Salaries
- Electricity Charges
- Stationary
- Advertisement Expenses
EXAMPLES FOR JOURNAL ENTRIES
- What is the Journal Entry for Cash Sale ?
In this transaction, Sold goods by taking cash. Here, Cash value is increasing and Sales value also increasing. So, the Journal entry will be
CASH A/C – DR xxxx (as per ancillary rule Assets Increased)
To SALES A/C – CR xxxx (as per ancillary rule Sales Increased)
- What is the journal entry for Purchasing goods on credit ?
In this transaction, We purchased goods on credit from the party. So, we have to repay the amount to that sundry creditor. We are liable to the party. Here Purchase Value increased and Liability also increased. So the Journal Entry will be
Purchase A/c – Dr (As per Ancillary rule Increased)
To Party A/c – Cr – Cr (As per Ancillary rule Liability Increased)
- What is the Journal Entry for for cash withdrew in Bank ?
In this transaction, Cash and Bank Balance both are Assets. We withdrew cash from the Bank . So cash value is increasing and Bank Balance is decreasing. So, the Journal Entry would be
CASH A/C – DR xxxx (Asset increased)
BANK A/C – CR xxxx (Asset decreased)
- What will be Journal Entry for Carriage paid on Goods?
In this transaction, The Term Carriage Inward / Carriage outward is involved. Carriage Inward means, the expense on the transporting goods against the purchase order/purchase invoice. And Carriage outward means, the expenses on the transporting goods against the sales order/sales invoice.
So, the Journal Entry will be :
CARRIAGE INWARD / OUTWARD A/C – Dr ( As per Ancillary Rule Expenses increased)
CASH (OR) BANK A/C – Cr ( As per Ancillary rule Assets Decreased)
MORE EXAMPLES ON JOURNAL ENTRIES:
- Cash deposited in Bank
Bank A/c – Dr xxx ( Assets +)
Cash A/c – Cr xxx ( Assets – ) - Commission Received in cash
Cash A/c – Dr xxxx (Assets +)
Commission Received A/c – Cr (Income +) - Purchased Machinery from ABC Industries
Machinery A/c – Dr xxxx (Assets +)
ABC Industries A/c – Cr xxxx (Liabilities +) - Sold goods from RS industries
RS industries A/c – Dr xxxx ( Assets +)
Sales A/c – Cr xxxx (Sales +)
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