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Journal

This is the fundamental book of original entry. In this book, transactions are recorded in the sequential order, as and when they take place. Later, transactions from this book are posted to the respective accounts. Each transaction is individually recorded after determining the particular account to be debited or credited. The format of Journal is shown is figure 3.5
 
Journal

Date

Particulars

L.F.

Debit Amount Rs.

Credit Amount Rs.

 

 

 

 

 

Fig. 3.5: Showing the format of journal

 

The first column in a journal is Date on which the transaction took place. In the Particulars column, the account name to be debited is written on the first line beginning from the left hand corner and the word 'Dr.' is written at the end of the column. The account name to be credited is written on the second line leaving adequate margin on the left side with a prefix 'To'. Below the account names, a brief description of the transaction is given which is called Narration. After writing the Narration a line is drawn in the Particulars column, which indicates the end of recording the specific journal entry.
 

 

 
The column relating to Ledger Folio records the page number of the ledger book on which appropriate account appears. This column is filled up at the time of posting and not at the time of making journal entry.

The Debit amount column records the amount against the account to be debited and similarly the Credit Amount column records the amount against the account to be credited. As the number of transactions is very large and these are recorded in number of pages in the journal book, at the end of each page of the journal book, the amount columns are totaled and carried forward (c/f) to the next page where such amounts are recorded as brought forward (b/f) balances.
 

 

 
The journal entry is the fundamental record of a business transaction. It may be simple or compound. When only two accounts are involved to record a transaction, it is called a simple journal entry.
 

 

Problem #1
 
Goods Purchased on credit for Rs.30,000 from M/s Govind Traders on December 24, 2005, involves only two accounts: (a) Purchases A/c (Goods), (b) Govind Traders A/c (Creditors).
 

 

 
Solution:
 
This transaction is recorded in the journal as follows:
Journal

 

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2005
 

Dec.24

Purchases A/c Dr.
 
To Govind Traders A/c
(Purchases of goods -in -trade from Govind Traders)

 

30,000

 

 

 

30,000

 
It can be noticed here that although the transaction results in an increase in stock of goods, the account debited is purchases, not goods. In fact, as explained in chapter 7 the goods account is divided into five accounts, they are: purchases account, sales account, purchases returns account, sales returns account, and stock account. When the number of accounts to be debited or credited is more than one, then the entry made for recording the transaction is called compound journal entry. That means compound journal entry involves multiple accounts.

Problem #2
For Rs. 25,000 Office furniture is purchased from Modern Furniture's on July 4, 2005 and Rs. 5,000 is paid by cash immediately and balance of Rs. 20,000 is still payable. It increases furniture (assets) by Rs. 25,000, decreases cash (assets) by Rs. 5,000 and increases liability by Rs.20,000.

Solution:
The entry made in the journal on July 4, 2005 is:

Journal

Date

Particulars

L.F.

Debit Amount

Credit Amount

 

2005

July 4

Office Furniture A/c Dr.

To Cash A/c

To Modern Furniture A/c

(Purchases of office furniture fromModern Furnitures)

 

25,000

 

5,000

20,000

Now refer to Problem# 1 again and examine how the transactions listed are recorded in the journal:


                                                                               Journal

 

 

Date

Particulars

L.F.

Debit

Amount

Rs.

Credit

Amount

Rs.

2005

July 4

Cash A/c Dr.

To Capital A/c

(Business started with cash)
________________________________

Bank A/c Dr

To Cash A/c

(Opened bank account with State

Bank of India)
________________________________

Furniture A/c Dr.

To Bank A/c

( Purchased furniture and made

payment through bank))
________________________________

Plant and Machinery A/c Dr.

To Cash A/c

To Ramjee Lal A/c

(Bought Plant and Machinery from M/s Ramjee Lal, made an advance payment by cash for Rs. 10,000 and balance at the later date )

________________________________

Purchases A/c Dr.

To M/s Sumit Traders A/c

(Goods bought on credit)

________________________________

Rajani Enterprises A/c Dr.

To Sales A/c

(Goods sold on profit)

 

Total

 

5,00,000

 

 




4,80,000

 

 

 

 



60,000

 

 

 




1,25,000

 

 

 

 

 

 


55,000

 

 

 

 


35,000

 

 

_______

12,55,000

 



5,00,000

 

 




4,80,000

 

 

 

 



60,000

 

 

 




10,000

1,15,000

 

 

 

 

 

55,000

 

 

 

 



35,000

 

_______

12,55,000





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