Journal
By Asok Nadhani
5.1
Journal
The word journal has been derived
from French word ‘Jour’ (means ‘diary’). It is the book of original entry, in which all business transactions are recorded in
chronological order.
5.1.1
Format of journal book
A
journal book contains record of each transaction in there order of their date.
-
Date: In the date
column, date of transactions is recorded.
-
Particulars: In this column,
first the account which has to be debited in the transaction is recorded as
‘Dr’. In the next line, the account is to be credited is written by prefixing
word ‘To’ before the name of the account. Explanation of the transaction (called
narration) recorded in the next line in brackets. After narration a straight line
is drawn to demarcate the next line.
-
L.F (Ledger
Folio): This column is left blank and as filled up by the page number of the
ledger where the entry is posted in Ledger Book (in a computerized system, instead
of Ledger folio, the voucher Ref. i.e. transaction Ref. is shown).
-
Amount Debit: This column
records the amount to be debited to the respective account debited.
-
Amount Credit: This column
records the amount to be credited to the respective account credited.
5.2
Examples of Journal Entries
5.2.1
Transactions related to Discount
Discount is a concession
allowed by the seller to the buyer in the amount to be paid.
It is of two Types: (i)
Trade discount, and (ii) Cash discount.
(i)
Trade Discount: Trade discount
is shown as deduction in the invoice. The amount which remains after deduction
of trade discount is recorded in books of account. So, trade discount is not
reflected on book of accounts and it is allowed for promotion of sales and
trade.
Example :
|
Items
|
Rs.
|
Amount(Rs.)
|
|
|
|
10,000
|
|
|
|
Less: Trade Discount@10%
|
1,000
|
|
|
|
|
|
9,000
|
|
|
Trade
discount is directly deducted from the amount of sale or purchase. It is not
reflected on book of accounts. The journal entry will be
|
|||
|
Debtor A/c
|
Dr.
|
9,000
|
|
|
To
Sales A/c
(One piece of computer sold with 10% trade
discount.)
|
|
|
9,000
|
(ii)
Cash Discount: This discount
is allowed to those buyers who make payment during specified period. This
discount is always recorded in the books of account. Cash Discount is granted
by a supplier for making prompt payment of invoice price.
Example:
|
Items
|
Rs.
|
(Rs.)
|
|||
|
Purchase of 1 piece of computer @
Rs.10,000
|
10,000
|
|
|||
|
Less: Cash Discount@10%
|
1,000
|
|
|||
|
Net
Payable Amount
|
|
9,000
|
|||
|
Cash
discount is a gain in the hands of a customer and a loss to the seller. It is
reflected on book of accounts. The journal entry in the books of buyer will
be as follows
|
|||||
|
Purchase A/c
|
Dr.
|
10,000
|
|
||
|
To
Discount Received A/c
|
|
|
1,000
|
||
|
To
Cash A/c
(One piece of computer purchased with 10%
cash discount.)
|
|
|
9,000
|
||
|
In the books of seller the entry will be
as follows:
|
|
|
|
||
|
Cash A/c
|
Dr.
|
9,000
|
|
||
|
Discount Allowed A/c
|
Dr.
|
1,000
|
|
||
|
To
Sales A/c
(One piece of
computer sold with 10% cash discount.)
|
|
|
10,000
|
||
If
cash discount is given when the payment is made within a specified date the
journal entries are as follows:
Example:
AKN Co. a debtors, has to
pay Rs.1,000 to its Supplier. The Supplier offers, 10% cash discount if AKN
& Co. pays cash within 2 days.
Solution:
|
Items
|
Rs.
|
Amount(Rs.)
|
||
|
Total Amount payable
|
1,000
|
|
||
|
Less: Cash Discount@10%
|
100
|
|
||
|
Net
Payable Amount
|
|
900
|
||
|
Journal entry in the books of buyer will
be as follows
|
||||
|
Supplier A/c
|
Dr.
|
1,000
|
|
|
|
To
Discount Received A/c
|
|
|
100
|
|
|
To Cash A/c
(Cash
paid to supplier on receiving 10% cash discount on payment.)
|
|
|
900
|
|
|
In
the books of seller the entry will be as follows:
|
|
|
|
|
|
Cash A/c
|
Dr.
|
900
|
|
|
|
Discount Allowed A/c
|
Dr.
|
100
|
|
|
|
To
AKN Co. A/c
(Cash received from AKN Co. and allowed
him 10% cash discount on payment.)
|
|
|
1,000
|
|
5.2.2 Transactions related
to Goods
(i)
Withdrawal of
goods or cash from the business by the proprietor for his personal use: When the
proprietor of the business withdraws some goods from the business for his
personal use, then “Drawing Account” is debited and “purchase Account” is
credited because the proprietor draws the purchased goods.
|
Drawing A/c
|
Dr.
|
|
To Purchase A/c
|
|
When he withdraws some cash
for personal use:
|
Drawing / Capital A/c
|
Dr.
|
|
To Cash A/c
|
|
(ii)
Distribution of
goods as free samples: To increase sales, the organization may distribute
goods as ‘sample’ free of cost. In this case, the journal entry may be
|
Free sample for Advertisement
A/c.
|
Dr.
|
|
To Purchase A/c
|
|
(iii)
Loss of goods
due to theft or other reasons: Goods destroyed or lost due to theft, fire
or any other reason is treated as a trading loss. In this case, “Loss on Theft /
Fire Account” will be debited and ‘Purchase Account’ will be credited by cost
price of that goods lost.
|
Loss on theft/ Fire A/c.
|
Dr.
|
|
To Purchase A/c
|
|
5.2.3 Transactions related to Debtors
(i)
Bad Debts: If a certain
amount is not realised (or partially realized) from debtors, then the unrealized
amount is treated as Bad Debts. In such case, Bad Debt account will be debited
and personal account of the Debtor will be credited.
|
Bad
Debts A/c
|
Dr.
|
|
To Debtors
|
|
If nothing to be received, the entire amount
is treated as Bad Debts.
(ii)
Bad Debts
Recovered : When any amount earlier treated as Bad Debt and debited to “Bad Debts Account”,
is subsequent recovered, then this is treated as business profit and ’Cash
account’ will be debited and ‘Bad Debts Recovered Account’ will be credited,
Debtors account is not effected, as it was earlier closed while treating it as
Bad debts.
|
Cash
A/c
|
Dr.
|
|
To Bad Debts recovered A/c
|
|
(iii)
On Insolvency of
Debtors: When any Debtor is declared insolvent, either a partial amount can be
received as dividend or nothing is to be received. If partial amount is
received-
|
Cash
A/c
|
Dr.
|
|
To Debtors
|
|
If nothing to be received,
the amount is treated as Bad Debts.
5.2.4 Transactions related to Expenses
(i)
Direct Expenses on an Asset: For carriage, cartage on
buying/ installation of Assets, respective assets account is debited (not
expenses A/c).
|
Asset
A/c
|
Dr.
|
|
To Cash / Bank
|
|
(ii)
General
Expenses: All sorts of small common expenses, are posted in a common account viz.
‘General Expenses ‘. So, for such expenses, the entry is,
|
General
Expenses A/c
|
Dr.
|
|
To Cash
|
|
5.2.5
Transaction related to Banking
1.
Cash Deposit into
Bank: When cash is deposited into bank, then money is going to Bank. So, the ‘Bank
Account’ is debited (because bank received the money) and ‘Cash Account’ is
credited, (because cash is going out).
|
Bank
A/c
|
Dr.
|
|
To Cash
|
|
If cash is
deposited in Fixed Deposit Account in a Bank, then ‘Fixed Deposit A/c’ is
debited.
|
Fixed
Deposit A/c
|
Dr.
|
|
To Cash
|
|
Bank A/c is for
regular trading, while Fixed Deposit A/c is not for day to day transactions and
is withdrawn on maturity.
2.
Depositing the
cheque for regular business purpose into
Bank: If any cheque is received from customer then ‘Bank A/c’ will be debited,
(because, money is going into Bank) and the respective ‘Customer’s A/c will be
credited (because Customer is the giver of money).
|
Bank A/c
|
Dr.
|
|
To Customer
|
|
So,
whenever money is deposited into Bank, the Bank A/c is debited, and the other
A/c is credited
3.
Withdrawal from
Bank
i. When Cash is
withdrawn through cheque, then ‘Cash A/c’ will be debited, and ‘Bank A/c’ will
be credited (because Bank A/c gives the money).
|
Cash
A/c
|
Dr.
|
|
To Bank A/c
|
|
ii. If the
businessman withdraws money for the personal use from bank, then ‘Drawing A/c’
will be debited and ‘Bank A/c’ will be credited.
|
Drawing
A/c
|
Dr.
|
|
To Bank
|
|
iii. On payment of
trading expenses, through cheque, “Expenses A/c’ will be debited and ‘Bank A/c’
will be credited.
|
Expenses
A/c
|
Dr.
|
|
To Bank
|
|
iv. If goods or
assets are purchased through cheque, then “Purchase A/c or Asset A/c will be
debited and ‘Bank A/c’ will be credited.
|
Purchase
(or Asset) A/c
|
Dr.
|
|
To Bank
|
|
So, whenever
money is taken out of bank, Bank A/c is credited and the other A/c is debited.
4.
Deposited cheque
dishonored: On dishonor of cheque deposited, the personal account of the giver will
be debited and ‘Bank A/c’ will be credited (because dishonor of cheque is
equivalent to taking money out of Bank A/c).
|
Debtor A/c
|
Dr.
|
|
To Bank
|
|
You find that
this entry is just opposite to the entry when a cheque received is deposited
into Bank.
5.
Issued cheque dishonored: ‘Bank A/c’ will
be debited and the personal account will be credited.
|
Bank A/c
|
Dr.
|
|
To Creditor A/c
|
|
You find that
this entry is opposite to the entry for cheque paid to a creditor.
6.
Interest allowed
by Bank: Bank provides Inertest on deposits in bank, ‘Bank A/c’ is debited
(because, Bank A/c gets the money) and ‘Interest A/c’ is credited.
|
Bank A/c
|
Dr.
|
|
To
Interest A/c
|
|
7.
Interest on Bank
Loan: When bank charges interest on bank loan, ‘Interest A/c is debited and
‘Bank A/c” is credited (because interest is paid from the Bank A/c).
|
Interest A/c
|
Dr.
|
|
To Bank A/c
|
|
This entry is
just opposite to the entry when you received interest is from Bank.
8.
Bank charges
charged by Bank: Bank provides various services to its customer and charges fees known
as Bank charges. ‘Bank Charges A/c’ is debited and ‘Bank A/c’ is credited,
because customer of the bank does not pay the amount in cash, but bank itself takes
the amount from the respective account.
|
Bank Charges A/c
|
Dr.
|
|
To Bank A/c
|
|
This
entry is similar to Interest charged by Bank.
5.2.6
Transaction related to Representative
Personal Account
1.
Outstanding Expenses: Outstanding expenses are representative personal
account. It shows the amount payable. When the amount will be paid, the respective
outstanding expenses account will be debited and the cash account will be
credited.
|
Example: Salary of Rs.4,000 has not been paid yet.
|
Salary
A/c
|
Dr.
|
4,000
|
|
|
|
To Outstanding
Salary A/c
|
|
|
4,000
|
|
Later
or when the salary is paid. The entry for payment of outstanding expenses is
|
||||
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|
Outstanding
Salary A/c
|
Dr.
|
4,000
|
|
|
|
To Cash A/c
|
|
|
4,000
|
2.
Prepaid expense: It is also a
representative personal account. It shows the amount has been paid earlier.
Example: Insurance premium
for Jan. to Dec. 2010 paid Rs.12,000 in
Jan, 2010.
In this case,
Premium of Rs.12,000 paid for Jan. to Dec.2010 In Jan, 2010. The Financial year
is April 2009- March 2010. On 1st Jan.2010, the payment entry will
be passed as follows
|
|
Insurance premium A/c
|
Dr.
|
12,000
|
|
|
|
To Cash
A/c
|
|
|
12,000
|
From April, 2010 to Dec, 2010 for 9 months, Insurance premium
amount will be treated as prepaid expense. On 31st Mar 2010 , the entry will be as
follows
|
|
Prepaid Expense A/c
|
Dr.
|
9,000
|
|
|
|
To Insurance premium A/c (12,000 x 9/12)
|
|
|
9,000
|
3.
Accrued Income: Accrued Income A/c is a representative personal
account. It shows the amount earned but not yet received. When the amount will be received the Accrued
Income account will be credited and the cash account will be debited.
|
Example: Accrued interest of Rs.700 on Savings account on
|
||||
|
|
Accrued
Interest A/c
|
Dr.
|
700
|
|
|
|
To Interest A/c
|
|
|
700
|
|
On
|
|
|
|
|
|
|
Bank A/c
|
Dr.
|
700
|
|
|
|
To
Accrued Interest A/c
|
|
|
700
|
4.
Advance Income: It is also a representative
personal account. Cash A/c will be debited and Advance Income A/c will be
credited. After receiving the income, Advance Income A/c will be debited and
the particular income account will be credited.
|
Example: Advance received from customer for job work of Rs.4,000. the entry
will be as follows
|
||||
|
|
Cash
A/c
|
Dr.
|
4,000
|
|
|
|
To Advance Income
A/c
|
|
|
4,000
|
|
Later on, when the service is
rendered. to adjust the advance received, The entry will be as follows:
|
||||
|
|
Advance
Income A/c
|
Dr.
|
4,000
|
|
|
|
To Service fees
A/c
|
|
|
4,000
|
5.2.7 Transaction related to Depreciation in Assets
When depreciation is charged on Assets, Depreciation account is debited
and the respective Asset A/c is credited. When it is transferred to Profit
& Loss A/c, Profit & Loss A/c is debited and Depreciation account is
credited.
|
Depreciation A/c
|
Dr.
|
|
To Asset A/c
|
|
|
For transferring to Profit & Loss A/c, the following
entry is passed
|
|
|
Profit & Loss A/c
|
Dr.
|
|
To Depreciation A/c
|
|
5.3
Opening Balances
The assets and liabilities
appearing in the Balance Sheet at the end of the year has to be brought forward
by passing a journal entry on the first day of the next year. This type of
journal entry is said as ‘Opening Entry.’ All assets accounts are debited and
all liabilities and capital accounts are credited. The total of all assets
Debited is equal to total of all liabilities Credited, the total of Debits and
Credits of such journal entry will be equal.
Example :
|
2010
|
Kumar started a business
on
|
Rs.
|
|
|
Cash
|
5,000
|
|
|
Stock
|
10,000
|
|
|
Debtors
|
15,000
|
|
|
Machinery
|
20,000
|
|
|
Creditor
|
10,000
|
|
Jan.2
|
Purchased goods on cash
and on credit from
Pankaj
|
12,000
5,000
|
|
Jan.3
|
Sold goods on cash
and on credit to Asit
Goods returned to Pankaj
Goods returned from Asit
|
15,000
8,000
2,000
1,000
|
|
Jan.4
|
Advance commission
received
|
500
|
|
Jan.5
|
Cash deposited into bank
|
5,000
|
|
Jan.6
|
Issued a cheque to Pankaj
of Rs.
|
2,500
|
|
Jan.7
|
The cheque has been
dishonoured.
|
|
|
Jan.8
|
Cheque received from Asit
and deposited into bank
|
4,000
|
|
Jan.9
|
The above cheque has been
dishonoured
|
|
|
Jan.11
|
Rent paid
|
1,000
|
|
Journal Entries in the
books of Kumar
|
|||||
|
Date
|
Particulars
|
|
L.F.
|
Dr.
Amount(Rs.)
|
Cr.
Amount(Rs.)
|
|
2010
Jan.1
|
Cash
Stock
Debtors
Machinery
|
Dr.
Dr.
Dr.
Dr.
|
|
5,000
10,000
15,000
20,000
|
|
|
To Creditor A/c
To Capital A/c
|
|
|
|
10,000
40,000
|
|
|
(Opening Balances of respective A/c brought forward.)
|
|||||
|
Jan.2
|
Purchase A/c
|
Dr.
|
|
17,000
|
|
|
|
To Cash A/c
To Pankaj
(Purchase made on cash and credit from Pankaj)
|
|
|
|
12.000
5,000
|
|
Jan.3
|
Cash A/c
Asit A/c
To Sales A/c
(sold goods on cash and
credit)
|
Dr.
Dr
|
|
15,000
8,000
|
23,000
|
|
Jan.3
|
Pankaj A/c
To Purchase Return A/c
(goods returned to pankaj)
|
Dr.
|
|
2,000
|
2,000
|
|
Jan.3
|
Sales Return A/c
To
Asit A/c
(goods returned from Asit)
|
Dr.
|
|
1,000
|
1,000
|
|
Jan.4
|
Cash A/c
|
Dr.
|
|
500
|
|
|
|
To Advance Commission A/c
(Advance commission
received)
|
|
|
|
500
|
|
Jan.5
|
Bank A/c
|
Dr.
|
|
5,000
|
|
|
|
To Cash A/c
(Cash deposited into bank)
|
|
|
|
5,000
|
|
Jan.6
|
Pankaj A/c
|
Dr.
|
|
2,500
|
|
|
|
To Bank A/c
(Paid to Pankaj by cheque.)
|
|
|
|
2,500
|
|
Jan.7
|
Bank A/c
|
Dr.
|
|
2,500
|
|
|
|
To Pankaj A/c
(Cheque issued to Pankaj
dishonoured)
|
|
|
|
2,500
|
|
Jan.8
|
Bank A/c
|
|
|
4,000
|
|
|
|
To Asit A/c
(Cheque received from Asit)
|
|
|
|
4,000
|
|
Jan.9
|
Asit A/c
|
Dr.
|
|
4,000
|
|
|
|
To Bank A/c
(Cheque received from Asit
dishonored)
|
|
|
|
4,000
|
|
Jan.11
|
Rent A/c
|
Dr.
|
|
1,000
|
|
|
|
To Cash
A/c
(Rent paid in cash)
|
|
|
|
1,000
|
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