Basic Entries

All most all of the entries follow the rules of Debit & Credit . For example the first entry is about the purchasing of material. When we would purchase a material, material will increase. As material is an asset, and increase in asset is Debit, So we will debit the material. At the same time Accounts payable or Creditors are increasing, so Accounts payable will be credited. Now the entry would become:

To Accounts Payable

The second entry is passed when we return the material, purchased earlier. Logically this entry would be the reverse of what we passed when purchasing the material. i.e.
Accounts Payable
To Material.

But if you don’t want to do this topic with the logic, there is another way:
As we know a producer applies material, labour and overhead to make work in Progress. Work in Progress is converted in to finished goods, and then these goods are sold.
This whole process is shown below.
be1 Basic Entries

Now the principal is that every element which is near the head is DEBITED, and every element which is near the Tail, is CREDITED.

For example
Finished Goods
To Work in Process
(Entry No 10 below)


Work In Process
To Material
(Entry NO 3 below)

Another thing which you should note that, Direct Material, Direct Labour is charged to WIP Account, whereas indirect material etc are charged to FOH control Account.

You can download this Tutorial by right clicking on the picture and save target as

Click on the picture for bigger view.

basic entries2 Basic Entries

1 comment to Basic Entries