Journal Entry Rules for Assets

Journal Entry Rules for Assets

In this article we would discuss the journal entry rules for assets. These journal entry rules are similar to the journal entry rules for expenses i.e. increase in asset shall be debited and decrease in assets shall be credited.

Journal Entry Rule for Increase in Asset

The increase in asset is a routine thing for a business. When we receive money against cash sales (it means our cash asset has increased). We buy furniture for office on credit from Aslam; it means our fixed asset has increased. We may record these two transactions with the help of journal entry rule for assets. (Increase in asset is debited).

In first transaction our asset (cash) is increasing so we debited cash and sale was credited under the income rules for journal entry (increase in income is credited under the income rules for journal entry).

Date	Particular	Ledger Folio	Dr.	Cr.
01-08-2017	Cash		XXX
01-08-2017	Sales			XXX

In the below recorded transaction, our asset (furniture) is increasing, so we would debit the furniture account under the asset rules for recording the journal entry and we would create a liability by crediting the Aslam account. (Increase in liability is credit, the rules for recording the journal entry of liability would be discuss in my other article)

Date	Particular	Ledger Folio	Dr.	Cr.
01-09-2017	Furniture		XXX
01-09-2017	Aslam			XXX

Journal Entry Rule for Decrease in Asset

A decrease in asset is credited. We can understand this rule to a simple transaction, for example we receivable 10,000 from our customer against credit Sales made in last month. This transaction would be recorded as under

Date	Particular	Ledger Folio	Dr.	Cr.
01-11-2017	Cash		10,000
01-11-2017	Receivables			10,000

In this example our one asset is increasing i.e. cash and our second asset receivable is decreasing. Thus the increase asset is debited (cash) and decreased asset (receivable) is credited.

Examples of Recording Journal Entries of assets

Journal entries for recording the assets related transaction have been explained with some examples;

1.    Machinery purchased on Credit amounting 15,000 from Hammad.

2.    Furniture purchased on cash from Ali amounting 50,000.

3.    Vehicles sold for 3,000/-

Date	Particular	Ledger Folio	Dr.	Cr.
21-01-2017	Machinery		20,000
21-01-2017	Hammad			20,000

Date	Particular	Ledger Folio	Dr.	Cr.
22-01-2017	Furniture		50,000
22-01-2017	Cash			50,000

Date	Particular	Ledger Folio	Dr.	Cr.
21-01-2017	Cash		3,000
21-01-2017	Vehicles			2,000