Different Types of Journal Entries used in Accounting

Types of Journal Entries / What is Opening, Closing Journal Entry And Adjusting Entries, Etc.

There are different types of Journal Entries used in accounting and we record these in their respective journals according to their types of nature.


Different Types of Journal Entries used in AccountingThere are following eight mostly commonly entries which we record in the Journal:


1.   Opening Entries
2.   Closing Entries
3.   Adjusting Entries
4.   Rectifying Entries
5.   Transfer Entries
6. Reversing Entries
7. Contra Entries
8.   Rare Transactions or Residuary Entries




At the start of the year we record these entries. Assets, Liabilities and Owner’s Equity have balances so record opening entries for these accounts. Example of Opening Entries are:

Started business with Cash

Cash a/c

                Capital a/c

 Purchased furniture for Cash

Furniture a/c

                 Cash a/c


Note: If the business is just starting now, then it has no opening balances for Assets, Liabilities and Owner’s Equity in the first year.


Expenses and Revenues have no balances, so are closed at the end of accounting period. At the end of accounting period, all the expenses are credited to close them and revenues are debited to write off them. Examples are:

When salaries and rent expenses accounts are closed

Income Statement a/c

                                Salaries a/c

                                 Rent a/c

When Commission received are written off

Commission a/c

                        Income Statement a/c





There are some special transactions which must be made to make adjustments of the accounts in order to present the true and fair view of financial statements. These types of entries are made called adjusting entries. Examples are:

            Salaries a/c

                           Outstanding Salaries a/c



Due to errors and frauds, rectifying entries are passed for the correction of the accounts balances. Examples are:

Sold goods to Mr. A for Rs. 7000 wrongly debited to Mr. B. Now to rectify this error, we have to pass rectify entry as:

Mr. A            7000

          Mr. B  7000


The Wrong entry correct entry is



Mr. B            7000



        Sales a/c    7000


The correct entry is

Mr. A            7000

        Sales a/c    7000

But instead we debited Mr. B wrongly. Now we credit the Mr. B and debited the Mr. A to get the correct amount.
5.   Transfer Entries

Sometimes, there is transfer of amount from one account to another account. In that case, if transfer entries are made. For Example, we transfer the amount of Rs.1000 from the debit side of Mr. A to Mr. B, then the Mr. A ‘s account is decreasing so we credit it as there is decrease in debit and vice versa.

Mr. B    1000

        Mr. A   1000




These are passed to cancel the effect of an account that was previously recorded as debit or credit. For Example if Outstanding Salaries accrued for the period is Rs. 500000:

When Initially Salaries are accrued, then:


Salaries a/c    500000

                 
                 Outstanding Salaries a/c  500000


But, now these are actually paid, then we pass the following reversing entry to offset the effect of Outstanding Salaries's amount as shown below:

Outstanding Salaries a/c  500000

                                      Cash a/c  500000

In the above entry, it is clear that outstanding salary of Rs. 500000 is debited, that was previously debited, in order to cancel its effect.


7. Contra Entries


These are used to offset or cancel the effect of either different nature of accounts or same nature of accounts but in opposite side i.e. one is debit and other one is credit. For example if cash of Rs. 50000 is deposited into bank, then it is a Contra Entry and recorded as shown below:


Cash a/c  5000

               Bank a/c   5000


In case of different nature of accounts which are Contra Accounts that are reversal of the relevant type of accounts. Examples are Allowance For Doubtful Accounts, Accumulated Depreciation, Owner's Drawings Account, Sales Returns, Sales Allowances, Sales Discount, etc.


8.   Rare Transactions or Residuary Entries

There are some Transactions that take place in the accounting period of the business are called Rare Transactions. Example are:

Depreciation on Assets

Depreciation Equipment a/c

                                   Accumulated Depreciation a/c

Purchased Office Supplies for Cash

Office Supplies a/c

                   Cash Account a/c


So we can conclude that there are different types of journal entries used in accounting. All of these entries have special importance in accounting and without knowing them Accounting Cycle can not be completed accurately.

Comments

Shadhin Kangal said…
Recording of all transactions in one general journal is a time consuming, laborious and troublesome task. Under double entry system there are mainly 7 different types of journal in accounting.