1. Basic Accounting Entries
In this lesson we shall try to make simple journal entries for a business and
then post them to the ledger accounts.

2. The 3 Golden rules of Accounting:
Debit what comes in and Credit what goes out.
2. Debit all expenses and Credit all incomes.
3. Debit the receiver and Credit the giver.

3. Exercise 1 -
Assets Transaction Entries
1 Cash paid to buy goods worth $2000.
2. Purchased machine worth $10,000 in cash.
Liability Transaction Entries
1. Took loan of $5000 from Kabul bank.
2. Purchased goods worth $6000 on credit from Ali & Co.
3. Owner contributed capital $10,000

4. Income Transaction Entries
1 Sales of $5000 in cash.
2. Sales of $4000 on credit to Rehmat.
Expense Transaction Entries
1. Paid fuel expenses of $400 in cash.
2. Repaid loan of $5000 along with interest expense of $500.

5. Date Explanation Ref. Debit Credit Goods a/c Dr. To Cash a/c $2000
(Cash paid to buy goods)
$2000
Machine a/c Dr.
(Cash paid to buy machine)
10000
Cash a/c Dr.
To Loan a/c
(Took a loan of from Kabul bank)
5000
To Ali & Co. a/c
(purchased goods on credit)
6000
To Capital a/c
(Capital contributed by the owner)

6. Interest expense a/c Dr. 5000 500 5500
Date
Explanation
Ref.
Debit
Credit
Cash a/c Dr.
To Sales a/c
(Sales of goods for cash)
$ 5000
Rehmat a/c Dr.
(Credit sales to Rehmat)
4000
Fuel expenses a/c Dr.
To Cash a/c
(Cash paid for fuel expenses)
400
Loan a/c Dr.
Interest expense a/c Dr.
(repaid loan along with the interest expense)
THIS IS AN EXAMPLE OF COMPOUND JOURNAL ENTRY
5000
500
5500

7. A journal entry in which more than 2 accounts are affected is called a COMPOUND JOURNAL ENTRY.

8. Posting to ledger accounts: Means transfer of entries from the journal to
the appropriate ledger accounts.
Steps to post a transaction from Journal to Ledger account :
1. If an account is getting debited in the journal entry, put the amount on the debit side of the account while posting. In the particulars column, write “To [name of account which is being credited in the journal entry].
2. If an account is getting credited in the journal entry, put the amount on the credit side of the account while posting. In the particulars column, write “By [name of account which is being debited in the journal entry].

9. Steps to get the balance of an account:
1. Total both the debit and credit sides of the account.
2. Write the total of the bigger side at the bottom of both the sides of the account.
3. Write the difference on the side with the smaller total; along with the following
lines in particulars column ;
To Balance c/d (if dr. side total < cr. side total)
By Balance c/d (if dr. side toal > cr. side total)

10. Date Particulars Amount $ dr. cr. Cash Account
To Loan a/c
To capital a/c
To sales a/c
5000
10000
20000
By goods a/c
By machine a/c
By Fuel exp a/c
By Loan a/c
By Interest expense a/c
By balance c/d
2000
400
500
2100
So we can see that the closing balance of the cash account on is
$ 2,100

11. Important points regarding account balances :
Asset accounts and expense accounts usually have debit balances.
Liability accounts and income accounts usually have credit balances.
These two rules along with the 3 rules of debit and credit make journalizing and
posting very easy for the accountant.

12. Exercise – 2
MAKE JOURNAL ENTRIES OF THE FOLLOWING ACCOUNTING EVENTS
AND THEN POST THEM TO THE APPROPRIATE ACCOUNTS:
1. On 04/05/2008, Hamid started business (his factory) with a capital $ 1,00,000.
2. Bought machine for $20,000 on 09/05/2008.
3. He purchased raw-materials worth $ 2,000 on credit of 30 days from Ali & Co.
on 11/05/2008.
4. Paid $400 in cash for fuel expenses on 15/05/2008.
5. Salary paid on 01/06/2008 , $ 5,000.
6. Took loan of $30,000 from bank on 07/08/2008.

13. Date Explanation Ref. Debit Credit 04/05/2008 Cash a/c Dr. Capital a/c
Capital contributed to start the business 12 01
$ 1,00000
09/05/2008
Machine a/c Dr.
Cash a/c
Machine purchased 20
20,000
11/05/2008
Raw materials a/c Dr.
Ali & Co.
Credit purchase of raw-materials 22 23
2,000
15/05/2008
Fuel expenses a/c Dr.
Fuel expenses paid in cash 25
400
01/06/2008
Salary a/c Dr.
Salary paid 30
5000

14. Date Explanation Ref. Debit Credit 07/08/2008 Cash a/c Dr. Loan a/c
Loan taken from bank
30,000

15. Date Particulars Amount $ dr. cr. Cash Account
04/05/08
07/08/08
To capital a/c
To Loan a/c
1,00,000
30,000
1,30,000
09/05/08
15/05/08
01/06/08
By machine a/c
By Fuel exp a/c
By Salary a/c
By balance c/d
20,000
400
5,000
1,04,600
So we can see that the closing balance of the cash account on 07/08/08 is
$ 1,04,600.

16. Date Particulars Amount $ Date Particulars Amount $
Dr capital account Cr.
Date
Particulars
Amount $
04/05/08
To balance c/d
1,00,000
By cash a/c
Dr machine account Cr.
Date
Particulars
Amount $
09/05/08
To cash a/c
20,000
By balance c/d

17. Date Particulars Amount $ Date Particulars Amount $
Dr Raw materials account Cr.
Date
Particulars
Amount $
11/05/08
To Ali & Co.a/c
2000
By balance c/d
Dr Ali & Co. account Cr.
Date
Particulars
Amount $
11/05/08
To balance c/d
2,000
By raw-materials a/c

18. Date Particulars Amount $ Date Particulars Amount $
Dr Fuel expenses account Cr.
Date
Particulars
Amount $
15/05/08
To cash a/c
400
By balance c/d
Dr Salary account Cr.
Date
Particulars
Amount $
01/06/08
To cash c/d
5,000
By balance c/d

19. Date Particulars Amount $ Dr. Loan account Cr. 07/08/08 To balance c/d
30,000
By cash a/c