Thursday, September 18, 2014

Journalling

The accounting books in which transaction is recorded for first time from any of above source document are known as books of prime entry or journal because “journal” is one such book where business transactions are recorded in chronological order by following double entry system. It is shown below.


DateParticularsLedger folioDebit RsCredit Rs

Date: Year and month written first and only once till it changes followed by dates in that month. Sequence matters.
Particulars: For each transaction two accounts are affected, one account is debited and the other is credited. Account to be debited is written first followed by word “Dr”. Account to be credited is written in the next line which starts with word ‘To’, a few spaces away from the margin.
Narration: The transaction is explained briefly in brackets after entering particulars.
Ledger Folio (L.F): Entries from this journal are posted to the ledger account sometime later in the day. The folio (page) number of the ledger, where the posting has been made from the Journal is recorded in the L.F column of the Journal. Till such time, this column remains blank.
Debit Amount: In this column, the amount of the account being debited is written.
Credit Amount: In this column, the amount of the account being credited is written. If you are given a task of making entry (journal entry) into the journal to you, how will you do it? Follow following steps for ‘journalling”.
  • First analyse business transaction 
  • Determine which two accounts are involved in the transaction. 
  • Classify the above two accounts under Personal, Real or Nominal or asset, capital, liability, income, expenses etc 
  • Determine which rules are applicable for debit and credit for the above two accounts. 
  • Identify which account is to be debited and which account is to be credited. 
  • Record the transaction as per convention for date, particular, narration etc.
Illustrations for Journalling
Consider following transactions to be recorded in the journal.
1. August 1, 2009 – Shrikant started business with Rs. 1,00,000.
2. August 3, 2009 : Received cash from Vijay Rs. 25,000
3. September 7, 2009 – Paid cash to Tushar Rs.37,000.
4. October 7, 2009 – Bought goods for cash Rs. 80,000.
5. december10, 2004 – Cash sales Rs.90,000.
6. January 15, 2004 – Sold goods to Sudeep on credit Rs.1,00,000.
7. January 18, 2009 – Purchased goods from Simrat on credit Rs.1,50,000.
8. February 20, 2009 – Returned goods from Sudeep Rs.5,000.
9. February 25, 2009 – Goods returned to Simrat Rs.7,000.
10. February 27, 2009 – Paid salaries in cash Rs.6,000.
11. March 14, 2009 – Commission received Rs.5,000.

Journal Entry for first Transaction

Step 1Determine the two accounts involved in the transactionCash AccountCapital Account
Step 2Classify the account under Real, Personal, NominalReal AccountPersonal Account
Step 3Find out the rules of debit creditDebit what comes in Credit the giver
Step 4Identify which account is to be debited and creditedCash A/C is to be debitedCapital Account is to be credited


DateParticularsL.FDebit RsCredit Rs
August 1,Cash A/c Dr.1010000000
2009To Capital A/c2301000000
(Initial capital for business)

Journal Entry for Second Transaction

Step 1Determine the two accounts involved in the transactionCash AccountVijay's Account
Step 2Classify the account under Real, Personal, NominalReal AccountPersonal Account
Step 3Find out the rules of debit creditDebit what comes in Credit the giver
Step 4Identify which account is to be debited and creditedCash A/C is to be debitedVijay's Account is to be credited


DateParticularsL.FDebit RsCredit Rs
August 1,Cash A/c Dr.1025000-
2009To Vijay's A/c30-25000
(Cash received from Vijay)

The Ledger Folio column indicates 10 against Cash Account which means that Cash Account is found in page 10 in the ledger and this debit of Rs.1, 00,000 to Cash A/c can be seen on that page. Similarly 23 and 24 against Capital A/c and Vijay’s a/c respectively indicates the page number in which these accounts may be found.

 TRY IT OUT : Record remaining transactions in the above format.

Next Page: Special Cases of Journalling

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