Meaning
The term Journal has been derived from the French word ‘Jour’
which means a diary. Journal is the basic book of original entry. All the
business transactions are first of all recorded in this book in the
chronological order (date-wise) with the help of vouchers supported by the
source documents. All the business transactions are recorded as per rule of
debit and credit with precise description called as narration. Journal book is
also known as book or original entry or book of prime entry.
Features of Journal
1.
All the business transactions are recorded
first of all in the chronological order in the Journal.
2.
It records both credit and debit aspects of
a transaction according to Double Entry System of Book Keeping.
3.
Each Journal entry is accompanied with a
brief explanation in the form of ‘Narration’ for easy understanding of the
transaction.
4.
Transactions are recorded in the Journal on
daily basis.
5.
Since a journal entry has debit and credit
aspect with equivalent amount so they can be easily posted into ledger accounts
to know account wise detail.
Advantages of Journal
1.
Reduces the possibility of committing
error.
2.
Provides complete detail of transaction.
3.
Provides chronological record of
transaction.
4.
Facilitates ledger posting of transaction.
Disadvantages of Journal
1.
Not suitable in case of large volume of
transactions.
2.
Does not reveal cash balance.
3.
Does not act as a substitute of ledger.
4.
Complex system of recording.
Format of Journal
Date- This column records the date, month and year of the transaction.
Particulars- As
per dual aspect, every transaction has two aspects i.e. one account is to be
debited and other has to be credited. In the first line, name of the account to
be debited is written and the word ‘Dr.’ is also written towards the end of the
column. In the second line, name of the account to be credited in written. The
credit account starts with the word ‘To’, a few space away from the margin to
make it distinct from the debit account. In the third line ‘Narration’ i.e. a
brief description of the transaction is written.
L.F. (Ledger Folio)- The
column records the page number of ledger book where the posting of this account
has been made.
Dr. Amount- In
this column, amount of account debited is written.
Classification of Accounts and Rules of
Double Entry System
1. Personal Accounts-
The accounts related to an individual, firm, company, institution etc. are
called personal accounts.
·
Natural Personal Accounts refer to accounts
of human beings. Example Ram’s A/c, Mohan's A/c etc.
·
Artificial Personal Accounts refer to
accounts of firm, company, institutions etc. are personal accounts but they do
not have physical existence like human beings so these accounts are known as
artificial personal accounts.
·
Representative Personal Accounts represent
a particular person or group of person is termed as representative personal
account. Examples- Wages Outstanding A/c, Prepaid Rent A/c, Accrued Commission
A/c etc.
Rule- Debit the Receiver and Credit the Giver
2. Real Accounts- The accounts of all the assets of the business whether tangible or intangible are termed as real account.
Tangible Real Accounts- All those assets of the business which can be seen, touched, felt and measured in terms of money are called tangible real accounts. Example- Cash A/c, Furniture A/c etc.
Intangible Real Accounts- All those assets of the business which are measurable in terms of money but which cannot be seen, touched, felt are called intangible real accounts. Example- Goodwill A/c, Trade Mark A/c etc.
Rule- Debit what comes in and credit what goes out
3. Nominal Accounts- All the accounts related to expenses, losses, revenue, income and gains are termed as nominal accounts. Examples- Purchases A/c, Salary A/c, Rent A/c, Discount A/c etc.
Rule-
Debit the losses and expenses and credit the gains and incomes.
Meaning of Goods in
Accounting
Goods are
the commodities in which the business deals. Goods may be classified as:
1.
Purchases A/c
2.
Sales A/c
3.
Purchases Return A/c
4.
Sales Return A/c
5.
Stock A/c
Discount
Discount is any type of reduction in the price by the
seller to the buyer. It may be of two types:
(1)
Trade Discount
(2)
Cash Discount
1. Trade Discount: Trade discount is allowed by the
manufacturer to the wholesaler or by the wholesaler to the retailer on list
price of the goods at a fixed percentage rate. It is allowed on both on cash
sales and on credit sales. No separate entry is passed for trade discount in
the book of accounts both by the buyer and by the seller of the goods.
Example: A sells goods to Y of the list price Rs. 10,000 at a trade discount of 10%. Pass Journal entry in the books of both the parties:
2. Cash Discount: Cash discount is allowed by the seller of goods to the customer for making prompt payment or early payment. It is always recorded in te books of both the parties. Discount A/c is debited when it is allowed to the customer and it is credited when discount is received by the buyer of the goods. If both trade discount and cash discount are allowed, then trade discount is deducted first and thereafter, cash discount is deducted.
Example: Ram sold goods of the list price of Rs. 30,000 at a trade discount of 10% and cash discount of 5% to Mohan. Pass Journal entry in the books of both the parties:
Entries of Specific Nature
1.
Bad Debts: Bad
Debts is the amount that has become irrecoverable from a debtor. The following
Journal entries are passed in case of Bad Debts:
(i)
When whole amount is irrecoverable-
Bad
Debts A/c Dr.
To Debtor’s Personal A/c
(Being
amount not recoverable written off as bad debts)
(ii)
When
amount is partly irrecoverable-
Cash
or Bank A/c Dr. (with the amount received)
Bad
Debts A/c Dr. (with the amount not received)
To Debtor’s Personal A/c (with the total amount of debtor)
(Being
amount received and balance amount not recoverable written off as bad debts)
2.
Bad Debts Recovered: Sometimes,
the amount written off as bad debt from a customer is realised in the next
accounting year. The amount so realised is a gain now as it was previously
considered as a loss (bad debt). In such a case, Journal Entry passed is:
Cash
or Bank A/c Dr.
To Bad Debts Recovered A/c
(Being
bad debts recovered which was previously written off)
3. Drawing of goods: If
the proprietor of the firm takes goods from the firm for his personal use, it
is called as drawings. The entry passed is:
Drawing A/c Dr.
To Purchases A/c
(Being goods withdrawn for personal
use)
4. Goods given away as charity:
The
goods given away as charity reduces the purchases of goods. The entry passed
is:
Charity A/c Dr.
To Purchases A/c
(Being goods given as charity)
5. Distribution of goods
as free samples: Goods are often distributed as free samples
to promote the sales. It is a part of advertisement expenses and it is deducted
from purchases. The entry passed is:
Advertisement A/c Dr.
To Purchases A/c
(Being goods distributed as free
samples)
6. Goods is used for
making the assets: Goods may be used for making an asset.
Example- A timber merchant used wood for making table and chairs for office.
The entry passed is:
Furniture A/c Dr.
To Purchases A/c
(Being goods used for making
furniture for office)
Loss by Fire/Theft A/c Dr.
To Purchases A/c
(a) If goods is not insured
Profit
& Loss A/c Dr.
To Loss by Fire/Theft A/c
(b) If goods is fully insured
Insurance
Co. Dr.
To Loss by Fire/Theft A/c
(c)
On recovery of insurance claim
Bank
A/c Dr.
To Insurance Co.
(d)
When insurance company admit partial claim
Profit & Loss A/c Dr.
1.
Outstanding Expenses- Outstanding expenses refer to the
expenses, which have become due for payment during the accounting period, but
have not been paid yet. Entry will be-
Expense A/c Dr.
To Expense Outstanding A/c
2.
Prepaid Expenses- Prepaid expenses refer to the expenses
which have been paid in advance. Entry will be-
Prepaid Expense A/c Dr.
To Expense A/c
3.
Accrued Income- Accrued income refers to an income, which
has been earned during the accounting period, but has not yet received. Entry
will be-
Accrued Income A/c Dr.
To Income A/c
4.
Unearned Income- Unearned
income refers to an income, which has been received in advance. Entry will be-
Income A/c Dr.
To Unearned Income A/c
5.
Depreciation- Depreciation is the fall in the value of
fixed assets due to normal wear and tear, passage of time or expected
obsolescence or any other reason. Entry will be-
Depreciation A/c Dr.
To Fixed Assets A/c
6.
Interest on Capital- As business is considered to be a distinct
entity from its owners, it is usual for the business to pay interest on the
capital invested by the owner. Entry will be-
Interest on Capital A/c Dr.
To Capital A/c
7.
Interest on Drawings- If the business allows interest on
capital, it should also charge interest on drawings made by the owner from his
capital.
Drawings A/c Dr.
To Interest on Drawings A/c
8.
Income Tax Paid- For sole proprietorship and partnership
business, payment of income tax is treated as drawings of owner/partner. Entry
will be-
Drawings A/c Dr.
To Cash/Bank A/c
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