MyTeachingBlog: Journal

JOURNAL

“Be Original, Be like Journal – The Book of Original Entry”

Journal is the prime book of entry. It is also called as the original book of entry or the first book of entry. Journal is the book where all the business transactions are recorded first in a chronological order, (i.e. in the sequence in which they take place). Journal is a day book or the book of daily transactions. Journal is the starting point of the accounting process. It is only from here the transactions are posted into ledgers and then the trial balance is prepared for the purpose of final accounts. Recording of the transactions in the journal is called as Journalizing of the entries.

The process of recording the transactions in the journal is called as “Journalizing”.

The format of JOURNAL is given below:

Date	Particulars	L.F.	Debit	Credit
(1)	(2)	(3)	(4)	(5)

The columns are numbered only for the purpose of explanation but normally while preparing the Journal, columns should not be numbered.

(1) In the first column the date of the transaction is entered – the year is written at the top, then the month and in the narrow part of the column the particular date is recorded.

(2) In the second column the names of the accounts involved are written, first the account to be debited, with the word “Dr.” Written towards the end of the column. In the next line, after leaving a little space, the name of the account to be credited is written preceded by the word “To”. Then in the next line the explanation of the entry together with necessary details is given which starts with the word “Being” – This is called the NARRATION.

(3) In the third column the page number in the ledger on which the account is written up is entered. L.F. means the Ledger Folio or the Page No. of Ledger.

(4) In the fourth column the amounts to be debited to the various accounts concerned are entered.

(5) In the fifth column, the amounts to be credited to the various accounts are entered.

Important Points to be considered while recording Transactions in Journal:

1. Any Journal entry is not considered complete until an explanation to the entry is not given. Such an explanation to the entry is called as “Narration”. Narration to Journal is often compared as the clothes to Humans. As we are incomplete without clothes so is the case with a Journal entry without its narration.

Narration is to be given in brackets after each entry in the particulars column.

2. Journal entries can be simple entry (i.e. one debit and one credit) or compound entry (i.e. one or more debit and/or one or more credit), In such a case it is important to check that the totals of both the debit and credit are same.

3. If journal entries are recorded in several pages then both the amount column of each page should be totaled and the balance should be written at the end of each page and the same is to be carried forward at the beginning of the next page.

TYPES OF TRANSACTIONS

Before understanding the concept of Journal in detail it is important to understand the various types of transactions. The transactions can be classified into two main heads, i.e.

Cash Transactions & Credit Transactions:

Cash Transaction: A transaction in which there is an immediate flow of cash is called as a cash transaction.

Tips to identify a cash transaction:

a) If the word cash, cheque or bank is used in the transaction. Eg. Cash Purchases, Cash Sales to Ram, Purchased Furniture and issued Cheque, etc.

b) If nothing is mentioned in the transaction. Eg. Paid Rent, Received Commission, etc. i.e the words “Received or Paid” or “Purchased or Sold” are used with/without any name it is to be considered as cash transaction.

Credit Transaction: It is a kind of transaction in which the flow of cash is to take place at a later date; such a transaction is called as a Credit Transaction.

Note: Any transaction which is not a “Cash Transactions” is a Credit Transaction.

Tips to identify a Credit transaction:

a) If the name of the person/party involved in the transaction is mentioned and the word cash/cheque is not used then it is a credit transaction. Eg. Goods sold to Shyam, Purchased furniture from Strong Furniture’s, etc.

At times there can be some transactions which are neither cash nor credit in nature. Such transactions are known as Non-Cash Transactions – Eg. Deprecation, Etc.

SOME BASIC JOURNAL ENTRIES

(Simple Entries)

1. Commenced business with Cash ₹ 100,000

Date	Particulars	L.F.	Debit	Credit
1	Cash A/c Dr.		1,00,000
	To Capital A/c			1,00,000
	(Being business started with cash)

2. Cash deposited into bank ₹ 40,000

Date	Particulars	L.F.	Debit	Credit
2	Bank A/c Dr.		40,000
	To Cash A/c			40,000
	(Being cash deposited into bank)

3. Goods purchased for cash ₹ 10,000

Date	Particulars	L.F.	Debit	Credit
3	Purchase A/c Dr.		10,000
	To Cash A/c			10,000
	(Being goods purchased for cash)

4. Purchased goods from Ram for ₹ 5,000

Date	Particulars	L.F.	Debit	Credit
4	Purchase A/c Dr.		5,000
	To Ram's A/c			5,000
	(Being goods purchased form Ram on credit)

5. Sold goods for cash ₹ 18,000

Date	Particulars	L.F.	Debit	Credit
5	Cash A/c Dr.		18,000
	To Sales A/c			18,000
	(Being goods sold for cash)

6. Sold goods to Sita for ₹ 4,000

Date	Particulars	L.F.	Debit	Credit
6	Sita's A/c Dr.		4,000
	To Sales A/c			4,000
	(Being goods sold to Sita)

7. Purchased Furniture from Strong Furniture for ₹ 5,000 and paid them by Cheque.

Date	Particulars	L.F.	Debit	Credit
7	Furniture A/c Dr.		5,000
	To Bank A/c			5,000
	(Being furniture purchased from Strong Furniture and payment made by cheque)

8. Paid rent to Arjun ₹ 1200

Date	Particulars	L.F.	Debit	Credit
8	Rent A/c Dr.		1,200
	To Cash A/c			1,200
	(Being rent paid to Arjun)

Note : Remember the Rule, “Purpose is important, Person is not.” Therefore Arjun’s name is

not used in the entry.

9. Received commission for ₹ 2,000

Date	Particulars	L.F.	Debit	Credit
9	Cash A/c Dr.		2,000
	To Commission A/c			2,000
	(Being commission received)

10. Outstanding Salaries ₹ 1,500

Date	Particulars	L.F.	Debit	Credit
10	Salaries A/c Dr.		1,500
	To Outstanding Salaries A/c			1,500
	(Being salaries due but not paid)

Note: For all outstanding expenses this is the standard entry only the name of the expense needs to be changed. Entry for outstanding Income is to be reversed.

11. Pre-Paid Insurance premium ₹ 500

Date	Particulars	L.F.	Debit	Credit
11	Pre-Paid Insurance A/c Dr.		500
	To Cash A/c			500
	(Being insurance premium paid in advance)

Note: For all pre-paid expenses this is the standard entry only the name of the expense needs to be changed. For income received in advance the entry needs to be reversed.

12. Depreciation on Assets ₹ 4000

Date	Particulars	L.F.	Debit	Credit
12	Depreciation A/c Dr.		4000
	To Asset A/c			4000
	(Being depreciation on asset provided)

Note: In this entry the term Asset can be replaced by the name of the asset like Building. Plant, Motor van, Furniture, etc.

13. Goods withdrawn by proprietor for personal use ₹ 750

Date	Particulars	L.F.	Debit	Credit
12	Drawings A/c Dr.		750
	To Purchase A/c			750
	(Being good withdrawn by Proprietor)

DISCOUNT

Discount means the amount of benefit allowed or received for entering in the transaction. Discount can be either received or allowed. Discount allowed is considered as an Expense or decreased income and Discount received is considered as an Income or decreased expense.

Discount can be mainly classified into two types, viz.

Trade Discount & Cash Discount:

Trade Discount: It is a kind of discount which is offered to increase the sales. The main purpose for such discount is to try and sell more than what the customer usually would like to purchase.

Trade discount is never shown in the books of accounts, but it is calculated and deducted from the list price of the product.

Cash Discount: As the name suggests this discount is offered with an intention to collect the cash earlier from the customer. Such a discount is provided only when the cash is paid/ received immediately or before the expiry of the credit period.

Cash discount is always shown in the books of accounts and it is calculated after the deduction of trade discount.

Eg. Mr. Raj purchased goods worth ₹ 5000, on which he was offered a trade discount of 5% and cash discount of 10%.

₹

List Price 5000

Less: Trade Discount 250 (5% of 5000)

4750

Less: Cash Discount 475 (10% of 4750)

Cash Paid 4275

SOME BASIC JOURNAL ENTRIES

(Compound Entries)

1. Started business with Cash ₹ 40000, Furniture ₹ 2000, Machinery ₹ 30000, Land ₹ 23000 and Loan from Wife ₹ 15000.

Date	Particulars	L.F.	Debit	Credit
1	Cash A/ c Dr.		40,000
	Furniture A/c Dr.		2,000
	Machinery A/c Dr.		30,000
	Land A/c Dr.		23,000
	To Loan from Wife A/c			15,000
	To Capital A/c (Balancing Figure)			80,000
	(Being business started with various assets and liabilities)

Note: This entry is also known as “Opening Entry”. The amount of capital is the balancing figure. It is normally not given in the question.

2. Purchased Goods for ₹ 5000 and received a trade discount of 5% and cash discount of 10%.

Date	Particulars	L.F.	Debit	Credit
1	Purchase A/ c Dr.		4,750
	To Cash A/c			4,275
	To Discount Received A/c			475
	(Being goods purchased at a trade discount of 5% and 10% cash discount)

Note: Calculation for this entry is taken from the example on discounts. Also remember that trade discount is not to be shown in the entry and therefore the amount after deduction of trade discount is taken as the amount of purchase.

3. Sold goods for ₹ 10,000 to Deepa and allowed 10% trade discount and 10% cash discount, Half the amount received in cash.

Date	Particulars	L.F.	Debit	Credit
1	Cash A/ c Dr.		4,050
	Discount A/c Dr.		450
	Deepa's Dr.		4,500
	To Sales A/c			9,000
	(Being goods sold at a trade discount of 10% and 10% cash discount, half the amount received in cash.)

Note: The calculation of the entry is as follows:

Sales (Gross) 10,000

Less: Trade Discount 1,000 (10% of 10,000)

9,000

Half Half

4500 4500

Deepa Less: Cash Disc 450 (10% of 4,500)

(Credit Sales) Cash 4050

Cash Discount is allowed only on the amount received in cash immediately and not on the credit part of the transaction.

Short Questions:

1. Journalize the following transactions in the books of Mr. Rishi

i) Brought Goods on credit from Mr. Atish for ₹ 900

ii) Paid Salary to Ms. Binal ₹ 400

iii) Goods Returned by Ms. Anita ₹ 250

2. Journalize the following:

2015

March 1 Received Cash from Mr. Prasad 25000

3 Purchased goods from Ms. Namratha 10000

5 Sold goods to Mr. Partha 18000

9 Goods returned by Ms. Namratha 1000

15 Purchased furniture from ABC Furniture’s 2500

3. Journalize the following transactions in the books of Ms. Aarti

a) Aarti commenced business with cash ₹ 50000

b) Opened a bank account with SBI by depositing ₹ 10000

c) Paid interest of ₹ 1000 to Dhaval for the loan taken from him.

d) Received Commission of ₹ 2000 from Pradeep.

e) Bank charged interest of ₹ 500 on our account.

4. Pass necessary Journal Entries

1) A fire occurred in the premises of the company destroying the stock of ₹ 5000, of which the insurance company admitted the claim of ₹ 2000 only.

2) There is an outstanding salary or ₹ 3000

3) The insurance premium of ₹ 300 is paid in advance.

5. Pass the opening entry in the books of Mr. Liar

On 1^st April he had the following assets and liabilities: Land – 100000, Creditors – 10000, Debtors – 15000, Bills Receivable – 3000, Bills Payable – 2000, Stock – 7000, outstanding Salaries – ₹1500, outstanding interest receivable ₹ 500, Cash in hand – 900, bank overdraft – ₹ 1100, Loan from Mr. ABC - ₹ 40,000, Loan to Mr. XYZ – ₹ 5000. (Ans. Capital ₹ 76800)

Long Questions:

1. Mr. Amar has the following transactions for the month of April.

Journalize these transactions.

April 1^st Commenced business with capital ₹ 100.000

4^th Purchased goods from Ajay ₹ 20,000

5^th Purchased goods for cash ₹15,000

8^th Purchased goods from Abhishek for Cash ₹ 9,000

10^th Bought goods from Abhinav on credit for ₹ 12,000

15^th Sold goods worth ₹ 15,000 to Avani

17^th Sold goods for cash ₹ 20,000

18^th Sold goods to Aditi for ₹ 6,000

20^th Sold goods to Arnab on credit ₹ 17,000

23^rd Returned goods to Ajay ₹ 3,000

24^th Goods returned by Avani ₹ 1,000

25^th Goods withdrawn by proprietor for personal use ₹ 1,000

26^th Bought Land for ₹ 50,000

27^th Purchased Machinery for cash ₹ 25,000

28^th Cash Sales ₹ 15,000

29^th Cash Purchase ₹ 22,000

30^th Purchased furniture for proprietors residence for ₹ 10,000

2. Journalize the following transactions in the books of Mr. Baldev.

1. Commenced business with cash ₹100000.

2. Purchased goods from Rs,50000.

3. Purchased goods from Bali for ₹ 14000

4. Goods sold to Binal for cash ₹ 20000

5. Goods sold to Baghwan for ₹ 40000

6. Bought computer from Brij Computers for ₹ 10000

7. Paid into Bank of Baroda ₹5000

8. Withdrew from bank ₹3000

9. Borrowed from bank ₹60000

10. Paid by cheque for rent ₹1000

11. Received cheque from Baghwan ₹ 30000

12. Received from Balaji a bill for ₹ 6000

13. Baldev withdrew for personal use ₹ 3000

14. Baldev paid Life insurance premium of ₹ 250.

3. Journalize the following transactions in the books of Mr. Charan:

2016 ₹

Jan. 2 Purchase goods for cash 12,000

3 Sold goods for cash 18,000

5 Purchased goods from Arjun 5,000

8 Sold Goods to Dhruv 4,000

10 Cash paid to Arjun 3,000

13 Sold goods to Rahul for cash 1,500

15 Paid Rent 1,000

18 Purchased goods from Gopal for Cash 3,200

21 Received Interest from Syham 800

22 Goods returned to Ajay 1,000

24 Received Commission 1,300

25 Goods Returned by Dhruv 1,100

28 Purchased Furniture from Furniturewala & Co 2,000

30 Paid Salary 1,400

4. Journalize the following transactions in the Books of Mr. Dhoni for the month of January, 2016.

2016 ₹

Jan. 1 Commenced business with cash 200,000

3 Deposited into bank 80,000

4 Purchased goods for cash 10,000

7 Sold goods for cash 16,000

9 Purchased machinery from Bhima and paid him by cheque 60,000 12 Sold goods to Hina for cash 12,000

15 Paid salary to Sudeep 8,000

17 Received commission from Abhimanyu 5,000

18 Purchased stationery 750

19 Paid for advertisement 1,750

22 Cash Purchase 5,500

22 Purchased from Karthik 4,500

24 Cash Sales 7,500

24 Sold to Lalu 2,750

25 Paid rent to landlord by cheque 6,000

27 Amount withdrawn from bank for personal use 3,000

27 withdrew goods for personal use 2,500

29 Cash withdrawn from bank for Office use 4,000

30 Bank charges 150

5. Mr. Eklavya started business on 1^st April, 2016 with Cash ₹ 5,000, Cash at bank ₹ 18,000, Furniture ₹ 2,000, Machinery ₹ 20,000. His transactions for the month of April are as follows:

2 Purchased from Raja 3,500

3 Sold goods to Rani 3,000

6 Deposited in Bank of India 2,000

8 Paid to Raja ₹ 3,300in full settlement of his account.

9 Received from Rani 2,900

Discount allowed 100

10 Sold goods to Gulam 4,000

13 Cash Sales 2,000

14 Gulam is declared insolvent and only 50paise in a rupee is recovered from his estate.

16 Paid salaries to employees by cheque 1,000

21 Rent for the month is due but not paid 2,400

24. Insurance premium paid in advance 1,200

27 Commission received in advance 850

6. On 1^st April, 2016 Mr. Fayaz commenced business with Cash of ₹ 5000, Loan from Ms. Fida ₹ 15000, Stock ₹ 20000, Machinery ₹ 25000, Cash at bank ₹ 10000 and Furniture ₹ 5000. His transactions for the month of April 2016 were as follows:

April 3 Purchased goods from Ms. Jimmy ₹ 5000 and paid half the amount in cash
and balance in cheque.

7 Sold goods to Mr. Johar for ₹ 15000, he paid half the amount immediately
by cheque and the balance on credit.

9 Purchased stationery for ₹ 500

11 Mr. Johar settled his account after deducting 5% as discount.

15 Deposited ₹ 2000 in bank.

19 Paid salaries for the month ₹ 6000

22 Rent of ₹ 3500 is outstanding for the month.

25 Insurance of ₹ 300 is prepaid

27 Bad debts amounted to ₹ 500

30 Cash sales was ₹ 5000 and Cash purchases ₹ 4000.

7. Journalise the following transactions in the books of Mr. Rishi

2016

April 1 Sold Good to Ms. Radha for ₹12000

3 Brought goods from Rimmi for ₹ 15000

5 Received a cheque from Radha for ₹ 11700 in full settlement of her account

7 Issued a cheque to Rimmi for ₹ 14800 and received discount for the balance

9 Sold goods to Rakesh for ₹ 8000

10 Radha’s cheque is dishonoured.

15 Purchased machinery for ₹ 25000 by issuing a cheque for full amount and
paid Rs 2000 in cash for installation of machinery.

17 Rakesh is declared insolvent, we could recover only 40p. in a Rupee.

19 Bad debts written off earlier for Ms. Rita is now recovered Rs 2000

21 Paid Rent – ₹ 5000, Salaries – ₹ 8000 and Life Insurance - ₹ 2500.

23 Provide for Outstanding Rent – ₹ 1500 and Prepaid Advertisement ₹ 200.

25 Mr. Rishi distributed worth ₹ 5000 as charity and took goods worth ₹
1000 for domestic use.

8. On 1^st July, 2015, Mr. Zubair, a merchant started business with a capital of ₹ 1,50,000 and his transactions for July 2015 were as under:

July 2 Purchased one computer for ₹ 20,000

July 2 Bought furniture worth ₹ 10,000

July 3 Bought goods for cash, ₹ 5,000

July 3 Cash sales, Rs 1,500

July 4 Goods sold to Flora stores, ₹ 3,000

July 5 Goods sold to Artistic Stores, ₹ 1,500

July 6 Paid for stationery, ₹ 500

July 9 Received cash from Flora Stores, ₹2,000

July 10 Purchased goods from Colossal Traders, ₹6,000

July 12 Sold goods to Debjani, ₹ 4,500

July 13 Paid to Colossal Traders in full settlement, ₹ 5,500

July 19 Received cash from Artistic Stores, ₹ 1,400

July 21 Paid sundry expenses, ₹ 250

July 25 Sold goods for cash, ₹2,000

July 28 Paid electricity bill, ₹780

July 30 Paid salaries for the month, ₹10,000

July 31 Paid shop rent for the month, ₹4,000

Record these transactions in the journal.

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Monday, 15 July 2019

Journal

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