Journal entry

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 October 2012 Hi

Please give a detailed explanation for the Journal Entry given below. I was not able to understand what reasoning from Golden Rules was used to reach this Journal entry. - Employees had taken stock worth 10,000(Cost price-7500) and the same was deducted from their salary in the subsequent month.
Journal entry-
Salaries A/C 7,500
To Purchase A/C 7,500 Question-

1.Explanation for Debit and Credit using Golden Rules
2.Why 7,500 is being debited and Credited,why not 10,000.

Dintakurthi Tirumala

Dintakurthi Tirumala (Expert)
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12 October 2012 1)Its very simple understanding Salary paid to the employees in the form of kind i.e not in the form of cash so salaries account debited according to "Nominal a/c" Rule and the paid kind is stock so the stock is going out and the stock is debited to the purchases account at the time of coming in so no stock goes out so credited to the purchases account according to "Real a/c" Rule.(Note: Here you can use sales account because of it is sales to staff but the amount is adjusted in the salaries)

2) Actually the company sold such goods to the public for Rs.10000 i.e with profit of RS.2500 and Because of customer(I.e buyer) is the employee of the company the company gave discount to them and sold goods to it's employees for cost only so Rs.7500 is debited and credited only.

For your more clarification and understand i also saying following entries.

Assume goods sold to the employees on credit and the company has liability to pay salary to such employee then entries is as follows.

For sale of goods on credit:

Employee a/c dr
To Sales a/c

For creating liability to pay salary

Salaries a/c dr
To Employee a/c

Now the employee balance shows net payable/receivable after adjustment of balance receivable from him with balance payable to him.

We can pass the compound entry to the above to entries in a single transaction instead of two transaction then the entry is
Employee a/c dr
Salaries a/c dr
To Sales a/c
To Employee a/c
Here same account reflecting at debit as well as credit so sett off both debit and credit balance of the same account and then the following entry
Salaries a/c dr
To Sales a/c
(Assume both debited and credited amount of same account is equal in case it is different balances then the same account will appear as debit or credit according to the net balance showing liability or receipt)

Thus the single entry is
Salaries a/c dr
To Sales a/c ( However here you used purchases a/c instead of sales a/c)

And the company sold goods for value of Rs.7500 to their employees so Rs.7500 debited and credited.

OM SAI SRI SAI JAI JAI SAI

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