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JOURNAL. MADE BY – Isha And Deepika. Introduction. JOURNAL IS DERIVED FROM FRENCH WORD ‘ JOUR ’ WHICH MEANS A DAY. Meaning Journal means daily record. It is a book of orignal record where every transaction is recorded in the first instance and then it is posted to ledger.
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JOURNAL MADE BY – Isha And Deepika
Introduction JOURNAL IS DERIVED FROM FRENCH WORD ‘JOUR’ WHICH MEANS A DAY. Meaning Journal means daily record. It is a book of orignal record where every transaction is recorded in the first instance and then it is posted to ledger. The form in which it is recorded is called journal entery. Recording of transaction in journal is known as Journalising.
Advantages of Journal • As a transaction in journal are entered as and when they take place, the possibility of ommission of a transaction in the books of accounts is minimised. • As transactions are recorded in chronological order it is easy to locate a the required transaction. • By analysing each transaction into debit & credit aspects, the journal facilitates the posing into ledger. • As journal carries a naration ledger can be made without explanation. • Since the entire transaction is recorded at one place in journal the identity of each transaction is maintained on a permanent basis.
Rules for Journalising • PERSONAL ACCOUNTS Debit the receiver & Credit the giver. Eg:- Paid rs 5000/- to Sham. Sham A/c dr 5000/- To Cash A/c 5000/- Eg;- Received rs 1000/- from Hari Cash A/c dr 1000/- To Hari A/c 1000/-
REAL ACCOUNTS Debit What Comes In & Credit What goes out. Eg :- Purchased furniture worth rs 10000/- Furniture A/c dr 10000 To Cash A/c 10000 Eg:- Sold machinery for rs 6000.- Cash A/c dr 6000 To machinery 6000
NOMINAL ACCOUNTS Debit all expenses and losses & Credit all incomes and gains Eg:- Paid salary rs 12000/- Salary A/c dr 12000 To cash A/c 12000 Eg:- Received rs 1000/- for commission. Cash A/c dr 1000 To commission 1000
Points to be noted before journalising • Purchases account: when goods are purchased instead of debiting “Goods A/c” “Purchase A/c” is debited. • Sales account: when goods are sold instead of crediting “Goods A/c” “Sales A/c” is credited. • If goods/assets are purchased on credit then “Supplier A/c” is credited. • If goods/assets are sold on credit then “Debtor A/c” is debited. • If nothing is mentioned whether cash or credit it will be treated as credit transaction • Expenditure on installation, errection or repair of an asset will be added to the cost of asset.
Opening Entries Compound Entries Bad Debts Bad Debts Recovered Outstanding Expenses Prepaid Expenses Depreciation Interest on Capital Interest on Drawings Discount Entries Some Special Enteries
Opening Entries: The closing balances of last year have to be carried forward to the next year, the first entry of the new year represents the same and is called opening entry. E.g.: Following balances appeared in the books of Sita on 1st Jan, 2009: Assets: Cash 8000; Stock 3000; Debtors 5000; Machinery 7000; Liabilities: Creditors 7000; Capital 20000;
Compound Entries Sometimes two or more transactions relating to a particular account take place on the same date. In such cases, instead of passing separate entries for all such transactions, only one entry is passed. Such journal entry is termed as compound journal entry. Eg. On 30th june paid rs.5000 for salaries and rs.2000 for rent 30th june Salary A/c dr 5000 Rent A/c dr 2000 To cash A/C 7000 Bad Debts Debts which can’t be recovered are called bad debts. Eg. Ram who owed 3000 to business was declared as insolvent Bad debt A/c dr 3000 To Ram A/c 3000
Bad Debts Recovered Sometimes, it so happens that the bad debts previously written off are subsequently recovered. Eg. Ram who was decclared bad debt ,his debts woth rs 3000 were recovered. Cash A/c dr 3000 To Bad debts recovered A/c 3000 Outstanding Expenses There are certain expenses which are yet to be paid at the end of the accounting year due to some reasons. Such expenses are termed as Outstanding expenses Eg. Employee is paid salary @ 1000 pm but salary has been paid only for 11 months. Salary A/c dr 1000 To Outstanding Salary A/c 1000
Prepaid Expenses Certain expenses which are related to the next year but have been paid during the current year in advance are called prepaid expenses. The benefit of such expenses will be received during the next accounting year. E.g out of the rent paid during this year , rs. 1,000 is related to next year. Prepaid rent A/c dr 1000 To rent A/c 1000 Depreciation Decrease in the value of fix asset on account of wear and tear, passage of time etc. E.g Provide 10% depreciation on furniture costing rs 5000 Depreciation A/c dr 500 To Furniture A/c 500
Interest on Capital In order to ascertain the true efficiency of the business it is a normal practice to charge business with interst on proprietor’s capital. E.g provide 12% interst on capital amounting to rs. 1,00,000 Interst on capital A/c dr 12000 To capital A/c 12000 Interest on Drawings It is an expense for the proprietor and a gain to the business.it is charged on the drawings made by the proprietor. E.g Charge interst on drawings rs. 800 Drawings A/c dr 800 To interest on drawings A/c 800
Trade discount: The discount is allowed by seller to its customers at a fixed percentage on the listed price of the goods is termed as trade discount. No separate entry is passed for trade discount. Cash discount: This discount is allowed to customers to make prompt payment.as the discount is allowed at the time of payment , so the entry for cash discountis recorded along with the entry for payment. SOMETIMES CUSTOMER IS ALLOWED BOTH THE ACCOUNTS .IN SUCH A CASE ,FIRST TRADE DISCOUNT IS TO BE DEDUCTED FROM LIST PRICE AND THEN CASH DISCOUNT IS TO BE CALCULATED ON THE BALANCE OF PAYMENT
For e.g if a M/s Ram sells goods of list price of rs 20000 at 10% trade discount and 2% cash discount ,the net amount will be calculated as under: Rs. List price 20,000 less: trade discount @ 10% 2,000 18,000 less: cash discount @ 2% 3,60 17,640 The entry will be:- Cash A/c dr 17,640 Discount A/c dr 360 To Sales A/c 18,000
Special Transactions Related To Goods • DRAWINGS IN GOODS : sometimes proprietor withdraws goods from the business for his personal use. E.g. Proprietor withdrew for his personal use cash Rs. 2,000 and goods worth Rs. 1000 Drawings A/c dr 3,000 To Cash A/c 2,000 To Purchases A/c 1,000 • GOODS GIVEN AWAY AS CHARITY : charity is an expense of business, as such charity account will be debited goods are going out of business at cost price, hence purchases are reduced to that extent and as such, purchases account will be credited. E.G Goods for Rs. 5,000 were given away as charity. Charity A/c dr 5,000 To purchases A/c 5,000
GOODS DISTRIBUTED AS FREE SAMPLES : Sometimes the goods are distributed as free samples to the potential buyers in order to promote sales. As such, free samples can legitimately be treated as an expense of business. E.g. Goods worth Rs. 2500 were distributed as free samples. Free samples A/c dr 2500 To Purchases A/c 2500 • LOSS OF GOODS BY THEFT/FIRE :cost value of goods have been lost so we will credit the purchases. E.G Goods worth Rs. 5000 were stolen by an employee Lost by theft A/c dr 5000 To purchases A/c 5000
Limitations Of Journal • When the number of transactions is large, it is not possible to record all transactions in journal • In order to ascertain cash balance everyday, cash transaction are usually recorded in separate book called ‘cash book’ .thus transactions need not to be recorded in journal. • Journal does not provide the required information on prompt basis. • Many transactions are repetitive in nature and if all transactions are recorded in journal it will involve debiting and crediting the same accounts and repetitive posting labour also.
Conclusion Though it has some limitations but its advantages overshadow all its limitations. Thus Journal as a book of prime entry is of utmost importance.
