Drawings Account

1. Capital Account

The amount invested in the business whether in the means of cash or kind by the proprietor or owner of the business is called capital. The capital account will be credited, and the cash or assets brought in will be debited....

2. Drawings Account:

Withdrawal of any amount in cash or kind from the enterprise for personal use by the proprietor is termed as Drawings. The Drawings account will be debited, and the cash or goods withdrawn will be debited....

3. Expenses Paid:

Any amount spent in order to purchase or sell goods or services that generates revenue in the business is called expenses. The Cash Account will be decreased with the amount paid as expenses, so it will be credited and Expenses will be debited....

4. Income Received:

Any monetary benefit arising from the business can be termed as income. The Cash Account will be increased with the amount received as income, so it will be debited and Income Account will be credited....

5. Goods:

Goods are those items in which a business deals. In other words, goods are the commodities that are purchased and sold in a business on a daily basis. Goods are denoted as ‘Purchases A/c’ when goods are purchased, and ‘Sales A/c’ when they are sold....

6. Transactions:

Transactions related to the purchase and sale of goods can be of two types, Cash or Credit....

7. Assets:

Assets (Machinery, Building, Land, etc.) can also be purchased or sold in cash or on credit. It is not represented through Purchases, but with the name of the Asset....

8. Depreciation:

Depreciation is the decrease in the value of assets due to use or normal wear and tear....

9. Discount:

A discount is a concession in the selling price of a product offered by a seller to its customers. According to nature, there are two types of discount:...

10. Amount Paid or Received in Full/Final Settlement:

A business may allow or receive a discount at the time of full and final settlement of the accounts of debtors or creditors....

11. Compound or Composite Journal Entry:

When certain transactions of the same nature happen on the same date, it is preferred to pass a single journal entry instead of passing two or more entries....

12. Opening Journal Entry:

After closing all the books at the end of a financial year, every business starts its new books at the beginning of each year. Closing balances of all the accounts are carried forward to the new year as opening balances. As it is the first entry in the new financial year, it is called Opening Journal Entry....

13. Bad Debts:

When the goods are sold to customers on credit, there can be a situation where a few of them fail to pay the amount due to them because of insolvency or any other reason, the amount that remains unrecovered is called Bad Debts....

14. Banking Transactions:

All businesses make many transactions with the bank in their day-to-day activity. Journal Entries related to banking transactions are as follows:...

15. Bad Debts Recovered:

When the amount that is earlier written as bad debts is now recovered, it is called bad debts recovered....

16. Loss of Insured Goods/Assets:

Sometimes insured goods are lost by fire, theft, or any other reason. There can be three cases related to the loss of insured goods or assets....

17. Loan Taken:

A business can take an amount of money as a loan from a bank or any outsider. In return, the business has to pay interest....

18. Loan Given:

Businesses can also provide loans to any person or entity....

19. Outstanding Expenses:

Outstanding expenses are those expenses that are related to the same accounting period in which accounts are being made but are not yet paid....

20. Prepaid or Unexpired or Advance Expenses:

Such expenses which are concerned with the next financial year, but have been paid in the current year are called prepaid expenses....

21. Income Due or Accrued Income:

An income that has been earned, but not yet received in the current financial year is called Accrued Income....

22. Income Received in Advance or Unearned Income:

An income that has not been earned yet, but has been received in advance is called Unearned Income....

23. Income Tax:

Income Tax is paid by the business on the profit earned during the year. Income Tax is a personal liability of the proprietor. The journal entry will be:...

24. Life Insurance Premium:

Sometimes, Life Insurance Premium is paid by the business on the behalf of the proprietor....

25. Employee’s Life Insurance Premium:

Businesses purchase life insurance for their employees too....

26. Interest on Capital:

The proprietor can charge interest on the amount invested by him/her in the business as capital, which is shown as Interest on Capital....

27. Interest on Drawings:

The amount withdrawn from the capital by the proprietor for personal use is called drawings. Businesses can charge interest on the amount of drawings....

28. Use of Goods in Business:

Sometimes goods of a business are used in the business itself. If this happens, those goods are considered assets by the business....

29. Expenditure on Assets (Erection or Installation):

Any expenditure incurred in the erection or installation of any building or machinery or any type of asset is considered to be capital expenditure and debited under the name of the particular asset....

30. Expenses on Purchase of Goods:

Purchasing process involves a number of steps starting from placing an order and ending with the delivery of goods. Apart from the cost incurred in purchasing the goods, any additional expenses like Carriage, Import Duty, etc is also paid. Any expenses incurred during the purchase of goods will be shown separately unlike an expenditure on assets....

31. Outstanding Salary:

Outstanding Salary is a liability for the firm. Outstanding salary journal entry is passed to record the salary that is due concerning the employees but not yet paid. When salary is not paid on time, it is shown under the Liabilities side of the balance as an ‘Outstanding Salary’ which means it has now become the liability of the firm to pay salaries....

32. Prepaid Insurance:

Prepaid Insurance is the amount of insurance premium that the company pays in one financial year, and avails its benefit in some other financial year, generally in the upcoming financial year. Prepaid Insurance journal entry is passed to record the amount paid as advance for the insurance. Prepaid insurance is treated as the asset of the firm and is recorded under the Asset side of the balance sheet. Insurance premium is generally paid by the company on behalf of its employees....

33. Commission Received:

Commission received is the amount that an individual receives in exchange for the services offered by him/her. It is a kind of monetary remuneration that is said to be the asset of the individual/company. Commission received journal entry is passed in order to show the amount that an individual/a company received in exchange for their services as commission....

34. Cash Sales:

When goods/services are sold for cash, the transactions are known as Cash Sales, i.e., when the customer pays in terms of cash in exchange for goods and services, cash sales occur. Cash sales journal entry is passed to show the sales transactions that have been settled in cash. There are mainly two types of cash sales:...

35. Provisions:

A Provision in accounting is generally some set aside profits to be used under specific contingencies. They are the reserves that are being made for specific situations and are to be compulsorily used in those conditions only. A provision is seen as an upcoming liability and should not be treated as savings. Provisions journal entry is passed to show the amount set aside by the firm to meet contingencies....

36. Rent Paid:

Sometimes a business does not own any specific type of property, plant, and/or machinery. They take the required asset on rent and pay the pre-specified installment for the asset in terms of cash or cheques. Rent paid journal entry is passed in order to record the necessary rent payments against rented assets. Rent is an expense for business and thus has a debit balance....

37. Salaries Paid:

Salaries are the monetary remunerations the business gives to its employees in exchange for their services. Salaries Paid journal entry is passed to record the salary payments to employees by the business. Salaries are treated as an expense in the books of business, so when the salary is paid, the Salary account gets debited and the cash/bank A/c gets credited....

38. Deferred Revenue:

Deferred Revenue is the income received in exchange for goods that are yet to be delivered. Deferred Revenue is also known as Unearned Income or Unearned Revenue. Deferred revenue journal entry is passed to record the advance payments received for goods and services. In this case, the balance for cash/bank (debit balance) increases due to the inflow of income, and the balance for deferred revenue (credit balance) i.e. liability increases....