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Query - Basic question - Accounting entry

Anil (1638 Points)

01 January 2010

I know this is basic question. But I am confused and need to know the answer . Please help. I know the rules for passing accouting entry for nominal, personal and real account.. But i am not sure of their application ( i.e not sure when to apply which rule) . For example

Transaction : Cash paid for puchase of pens from xyz store.

The 3 rules say Debit different things.

1) Dr. the giver - in this case xyz store

2) Dr. what comes in - in this case pens

3) Dr. all expenses -in this case stationary expenses.

Of the three how I will know for sure which one to Debit

What is the rule to be applied while applying the above rules?

Thanks.

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5 Replies

(Guest)

See the meaning of Real a/c...it applies to assets(u shld knw the meaning of asset) Similarly Personal a/c applies to person both natural and artificial a/cs. Nominal a/cs to Exp. loss, income and gains.

Accounting is not merely blindly following rules of accounting, one should record the transactions keeping in view the happening i.e what is actually happening in tat transaction and the future consequences of it.

In ur illustration,

There is cash purchase of stationery, this is what happening in relation to the transaction. If u see the future events in regards this,there is absolutely no effect on future events directly, in other words, there is cash purchases n u will not be interested to knw who the party is as its not on credit. If it would hv been on credit u would hv brought XYZ store into ur books by applying Personal A/c rule( Cr . the giver) so that it would be knwn tat u hv to pay xyz store.

coming to ur 2nd & 3rd view point, Pens are stationery which r not assets(Pens dnt give benifit fr more than ayear) so it has to be rcrded as per nominal A/c rule by debiting Stationery exp.A/c.... Cash is gng out apply rule of real A/c by crediting cash A/c

Hence entry wiil be.. Stationery Exp. A/c Dr.

To cash A/c

Hope i hv shed some light. In my opinion u shld practise basics of A/cs with applicablity of concepts and principles. Accounting Is not recording of some numbers rather it is recording of what is happening in monetory terms with reference to past, present and future effects.....

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Jag Bhushan Sharma (Faculty in a B-School) (633 Points)
Replied 02 January 2010

Very well explained by Mr. Faiz. Before forming a journal entry just give some thought to the transaction. In the double entry book keeping system, one has to record both the aspects of the transaction. For example if you buy pens by paying cash, this transaction has two aspects i.e. 1. you are receiving pens and 2. you are giving cash. Though from a layman's angle pens should be assets, but they are treated as expense( because they are of small value and can be treated as consumables). As all expenses are debited, that is why Stationery A/c is debited. Secondly you have I hope by mistake written that Debit the giver, actually it is credit the giver. For example if we had bought these goods from xyz on credit, then they would have become giver. Since we have bough goods by cash, so cash has gone out. So Cash A/c will be credit (credit what goes out). If you still have some doubt, ask again.