What is a Journal and Journal Entries in Accounting??
Journal is the first book in which transactions of business enterprises are recorded. After identification of transaction and source document, We record transaction in journal known as an Entries or Journal Entries. Business transactions are recorded in journal book in chronological order. Chronological order means the order in which transactions occur. Journal is also known as a book of original entry. Transactions may be recorded in journal by using accounting rules for debit and credit.
Basic format of Journal entries in the book of accounts:
DATE | PARTICULARS | LF | AMOUNT (Dr.) | AMOUNT (Cr.) |
| 2017 Jan 01 | Sample Debit Account Dr. To Sample Credit Account (being narration recorded here) | Ledger No. | XXXXX |
XXXXX |
Usage of above Columns :
Date: in this column, Date of transaction is entered. The Year is written at the top of each page, then Month and after that Date of each transaction. No need to write Year or month again unless year or month changes or new page begins.
Particulars: In this column, Account titles i.e. ledger accounts and description i.e. narration is written. In first line, the accounts to be debited are written, ending with the word “Dr”. In the next line, after leaving a little space, the name of the account to be credited is written, beginning with the word “To”. Then in the next line the explanation related to above accounts is given which is called as Narration.
L.F. (Ledger Folio): The page number of the ledger, in which relevant account is appearing, is entered. It is not filled in when transactions are recorded in the journal.
Amount (debit): In this column, Amount is entered against the accounts mentioned in particulars, which end with the word ‘Dr’.
Amount (credit): In this column, Amount is entered against the accounts mentioned in particulars, which begin with the word ‘To’.
Important points to be taken into account while making entries in the Journal:
- Once transactions is identified , It is important that the accounts to be debited or accounts to be credited are also identified.
- Transaction should be recorded in the order in which they occur.
- Sometimes, A journal entry contains one debit and two or more credits or two or more debits and one credit or two or more debits and credits (Compound Journal Entries). In such cases, it is important to check that the total of both debits and credits are equal.
- 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 that page and also that the same total should be carried forward at the beginning of the next page.
- No need to enter Year and Month again and again in date column unless year or month changes or until new page is begun.
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Example:
On 1st April 2017, Mr. Natwarlal commenced business as a Trader , and introduced Cash of Rs. 5,00,000 in business as a Capital.
3rd April. Cash of Rs. 3,00,000 deposited in Bank.
8th April. Bought machinery of Rs. 1,00,000 from M/S Metal Trading on credit.
13th April. Purchased goods of Rs. 1,50,000 and amount was paid in cheque.
17th April. Cheque of Rs.75,000 issued to M/S Metal Trading.
20th April. Cash purchased of Rs. 45,000.
23rd April. Goods Purchased from M/S Dharma Trading worth Rs. 1,20,000.
27th April. Goods sold to M/S Subham Trading of Rs. 1,70,000.
28th April. Cheque of Rs.85,000 issued in favor of M/S Dharma Trading.
29th April. Cash Sales of Rs. 52,000.
30th April. Paid Monthly office expenses in cash of Rs. 30,000.
30th April. Received a cheque of Rs.1,40,000 from M/S Shubham Trading.
Pass Journal entries in the book of Mr. Natwarlal for the month of April 2017.
Solution:
In the books of Mr. Natwarlal
Journal
| Date | Particulars | L.F. | Dr. (Rs.) | Cr. (Rs.) |
| 2017 April 01 03
08
13
17
20
23
27
28
29
30
30 | Cash A/C Dr. To Capital A/C (Being Capital introduced in the form of Cash) | 5,00,000
3,00,000
1,00,000
1,50,000
75,000
45,000
1,20,000
1,70,000
85,000
52,000
30,000
1,40,000 |
5,00,000
3,00,000
1,00,000
1,50,000
75,000
45,000
1,20,000
1,70,000
85,000
52000
30,000
1,40,000 | |
| Bank A/C Dr. To Cash A/C (Being Cash deposited into bank) | ||||
| Machinery A/C Dr. To M/S Metal Trading A/C (Being Machinery purchased on credit) | ||||
| Purchase A/C Dr. To Bank A/C (Being goods purchased and paid by cheque.) | ||||
| M/S Metal Trading A/C Dr. To Bank A/C (Being cheque issued to M/S Metal Trading) | ||||
| Purchase A/C Dr. To Cash A/C (Being cash purchase) | ||||
| Purchase A/C Dr. To M/S Dharma Trading A/C (Being goods purchased on credit from M/S Dharma Trading) | ||||
| M/S Shubham Trading A/C Dr. To Sales A/C (Being goods sold to M/S Shubham Trading on credit) | ||||
| M/S Dharma Trading A/C Dr. To Bank A/C (Being Cheque issued to M/S Dharma Trading) | ||||
| Cash A/C Dr. To Sales A/C (Being Cash sales) | ||||
| Office Expenses A/C Dr. To Cash A/C (Being expenses paid in cash) | ||||
| Bank A/C Dr. To M/S Subham Trading A/C (Being cheque received from M/S Subham Trading) |
Transactions must be recorded correctly. Journal entries are very important in order to prepare error-less financial statement of business.
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