Accounting: Depreciation, Interest on Capital and Drawings, Classification of Journal (For CBSE, ICSE, IAS, NET, NRA 2022)

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Depreciation means decline in the value of an asset due to its wear and tear. It is an expense for the business. So, depreciation is debited. Asset A/c is credited.

Example: Depreciation on furniture ₹ 3,000 is charged for the year.

Depreciation A/c Dr. 3,000

To Furniture A/c 3,000

(Depreciation charged on furniture)

Interest on Capital

Business provides interest on capital to its proprietors. It is an expense for the business.

Example: Interest allowed on capital is ₹ 2,500.

Interest on Capital A/c Dr. 2,500

To Capital A/c 2,500

(Interest on Capital is allowed) .


When the proprietor withdraws some money from the business for his personal or domestic use, it is known as Drawings. Drawings reduce the amount of Capital. As decrease in Capital is debited, drawings will also be debited.

Example: Cash withdrawn by the proprietor for his personal use is ₹ 4,000.

Drawings A/c Dr. 4000

To Cash A/c 4000

Classification of Journal

Number of transactions done by a company is huge in number. Maintaing all those transaction in a single book is difficult. To make it simple, companies maintain different types of journal books. These books can be classified as follows


Classification of Journal

Special Journal

Special journals are those journals which are meant for recording all the transactions of a repetitive nature of a particular type. For example, all cash related transactions may be recorded in one book; all credit purchases in another book and so on.

These are:

(i) Cash Journal/Cash Book: All cash transactions i.e.. , cash receipts and cash payments will be recorded in Cash Book. It is of two types

(a) Simple Cash Book: It records only receipts and payments of cash.

(b) Bank Column Cash Book: This type of Cash Book contains one more column on each side for the Bank transactions. This Book provides additional information about the Bank transactions.

(ii) Purchases Journal/Purchases Book: This journal is meant for recording all credit purchases of goods (articles meant for trading) . Things like Machinery, Typewriter and stationary etc. are not recorded.

(iii) Sales Journal/Sales Book: To record all credit sales of goods made by the firm. Sale of old furniture, machinery etc. are not entered in the Sales Journal.

(iv) Purchase Returns or Returns Outward Journal: If the goods are not as per the specifications, the buyer may return these goods to the supplier. These returns are entered in Purchase Returns Book.

(v) Sale Returns or Returns Inward Journal: If goods are not as per the specifications customer may return goods to seller. Such returns (transactions) are recorded in Sales Returns Journal.

(vi) Bill Receivables Journal/Book: When goods are sold on credit and the date and period of payment is agreed upon between the seller and the buyer, this is duly signed by both the parties. This written document is called a Bill of exchange. For the seller it is a bill receivable and for the buyer it is a bill payable. Bills Receivable Journal/Book and Bills Payable journal Book are two journals prepared by a businessman.

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