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.
There 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
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
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.
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