What is Journal???What is Journal???

Need of JournalNeed of Journal

ConvenientConvenient MaintenanceMaintenance Nature of transactionsNature of transactions Permanent recordPermanent record

Debit and CreditDebit and Credit

To record purchase of office furniture for To record purchase of office furniture for cashcash

DebitDebit : Office furniture : Office furniture

CreditCredit : Cash : Cash

Classification of Classification of AccountsAccounts

ACCOUNTS

PERSONAL IMPERSONAL

NATURAL PERSON’SPERSONALACCOUNT

ARTIFICIAL PERSON’SPERSONAL ACCOUNT

REPRESENTATIVEPERSONALACCOUNT

REALACCOUNT

NOMINALACCOUNT

Rules of Debit and CreditRules of Debit and Credit

1.1. Personal Account :Personal Account :a.a. Debit the receiverDebit the receiver

b.b. Credit the giverCredit the giver

2.2. Nominal Account :Nominal Account :a.a. Debit all expenses and lossesDebit all expenses and losses

b.b. Credit all incomes and gainsCredit all incomes and gains

3.3. Real Account :Real Account :a.a. Debit what comes inDebit what comes in

b.b. Credit what goes outCredit what goes out

Difference b/w cash & trade Difference b/w cash & trade discountdiscount

cash discountcash discount It is allowed when payment is It is allowed when payment is

made before a certain datemade before a certain date It is allowed to encourage early It is allowed to encourage early

cash paymentcash payment It may vary with period within It may vary with period within

which payment is to be madewhich payment is to be made Separate ledger a/c Separate ledger a/c

maintainedmaintained Not deducted from invoiceNot deducted from invoice Offered at the time of getting Offered at the time of getting

quick paymentquick payment

trade discounttrade discount It is allowed on certain quantity It is allowed on certain quantity

being purchasedbeing purchased It is given to promote salesIt is given to promote sales It may vary with quantity of goods It may vary with quantity of goods

purchasedpurchased Not recorded in booksNot recorded in books Deducted from invoiceDeducted from invoice Offered at the time of sale or Offered at the time of sale or

purchasepurchase

Ruling of the JournalRuling of the Journal

DateDate ParticularsParticulars l/fl/f DebitDebit

Rs.Rs.

CreditCredit

Rs.Rs.

Treatment of various transactionsTreatment of various transactions

I.I. Treatment of cash/credit transactionsTreatment of cash/credit transactions

a.a. Purchased goods for Rs 1200 cashPurchased goods for Rs 1200 cash

b.b. Purchased goods for Rs 1200 from SPurchased goods for Rs 1200 from S

c.c. Purchased goods for Rs 1200Purchased goods for Rs 1200

d.d. Purchased goods for Rs 1200 from S Purchased goods for Rs 1200 from S on cashon cash

II.II. Treatment of payment on Treatment of payment on personal/expenses accountpersonal/expenses account

a.a. Paid Rs 500 to V on account.Paid Rs 500 to V on account.

b.b. Paid Rs 500 to V for his salary.Paid Rs 500 to V for his salary.

III.III. Treatment of receipt on Treatment of receipt on personal/income accountpersonal/income account

a.a. Received Rs 800 from A on account.Received Rs 800 from A on account.

b.b. Received Rs 800 from A as Received Rs 800 from A as commission.commission.

IV.IV. Treatment of trade discountTreatment of trade discount

a.a. Sold goods to S Rs 1000, trade discount Sold goods to S Rs 1000, trade discount

10 %.10 %.

V.V. Treatment of cash discount (full Treatment of cash discount (full settlement)settlement)

a.a. Received Rs 1000 from R in full settlement Received Rs 1000 from R in full settlement against amount due from him Rs 1050.against amount due from him Rs 1050.

b.b. Paid Rs 960 to A in full settlement against Paid Rs 960 to A in full settlement against amount due to him Rs 1000amount due to him Rs 1000

VI.VI. Treatment of bad debts and bad debts Treatment of bad debts and bad debts recoveredrecovered

a.a. R who owed Rs 1000 is declared insolvent and R who owed Rs 1000 is declared insolvent and 60% amount is received from her estate.60% amount is received from her estate.

b.b. R remitted Rs 400 against the amount R remitted Rs 400 against the amount previously written off as badpreviously written off as bad

VII.VII. Treatment of personal expenses of Treatment of personal expenses of ownerowner

a.a. Withdrew Rs 350 from bank for private useWithdrew Rs 350 from bank for private use

b.b. Withdrew goods worth Rs 300 for private use.Withdrew goods worth Rs 300 for private use.

Solve these journal entries based on your Solve these journal entries based on your understanding…understanding…

1.1. Started business with cash 10,000; paid into Started business with cash 10,000; paid into bank 5000.bank 5000.

2.2. Bought furniture Rs 900Bought furniture Rs 900

3.3. Purchased machinery from S Rs. 35000 cashPurchased machinery from S Rs. 35000 cash

4.4. Sold goods worth Rs 2000 to S.Sold goods worth Rs 2000 to S.

5.5. Paid telephone rent Rs 150 by cheque.Paid telephone rent Rs 150 by cheque.

6.6. Purchased goods of list price 2000 at trade Purchased goods of list price 2000 at trade disc 10% and cash disc 2%.half the amount disc 10% and cash disc 2%.half the amount paid in cashpaid in cash

7.7. Received cash from S Rs 1500 in full Received cash from S Rs 1500 in full settlement of his account.settlement of his account.

8.8. A who has to pay Rs 1000 became insolvent.A who has to pay Rs 1000 became insolvent.

9.9. Amount earlier written off as bad is now Amount earlier written off as bad is now recovered from A .recovered from A .

a.a. Paid cartage on behalf of our customer APaid cartage on behalf of our customer A

Rs 50Rs 50

b.b. Received interest Rs 70 on behalf of ZReceived interest Rs 70 on behalf of Z

VIII.VIII. Treatment of payment/receipt on Treatment of payment/receipt on behalf of customer/supplierbehalf of customer/supplier

IX.IX. Treatment of exchange of new asset Treatment of exchange of new asset with old onewith old one

a.a. Exchanged old furniture for new; the value of Exchanged old furniture for new; the value of old furniture was Rs 350 while the value of old furniture was Rs 350 while the value of new furniture was Rs 900 balance paid in new furniture was Rs 900 balance paid in cash.cash.

X.X. Treatment of goods given as Treatment of goods given as charity/advertisementcharity/advertisement

a.a. Given away as charity goods costing Rs 100 Given away as charity goods costing Rs 100 and cash Rs 51.and cash Rs 51.

XI.XI. Treatment of goods lost in accidentTreatment of goods lost in accident

a.a. Goods worth Rs 4000 were destroyed in fire. Goods worth Rs 4000 were destroyed in fire. Stock of goods was incurred to extent of Stock of goods was incurred to extent of 80%.Insurance Co. paid claim in cash80%.Insurance Co. paid claim in cash

XII.XII. Treatment of depreciation charged on Treatment of depreciation charged on fixed assetsfixed assets

a.a. Plant purchased for Rs 70,000.Provide dep @ Plant purchased for Rs 70,000.Provide dep @ 10% p.a for full year on original cost10% p.a for full year on original cost

XIII.XIII. Treatment of receipt/payment of Treatment of receipt/payment of representative personal accountrepresentative personal account

a.a. Salary due in Dec 1994 was paid in January Salary due in Dec 1994 was paid in January 1995, 50001995, 5000

b.b. Rent accrued due in Dec 1994, amounting Rent accrued due in Dec 1994, amounting 5000 received in Jan 1995.5000 received in Jan 1995.

Solve the journal entries given below!!Solve the journal entries given below!!

1.1. Goods stolen by store-keeper Rs 200Goods stolen by store-keeper Rs 200

2.2. A borrowed from B and from C Rs 10,000 A borrowed from B and from C Rs 10,000 each.each.

3.3. Purchased goods worth Rs 20,000 out of Purchased goods worth Rs 20,000 out of which 12000 on credit from Awhich 12000 on credit from A

4.4. Organization purchased goods from R on Organization purchased goods from R on credit 24000.A week later it returned goods to credit 24000.A week later it returned goods to extent of 3000extent of 3000

5.5. Prepaid insurance comes to Rs 250Prepaid insurance comes to Rs 250

6.6. S purchased goods from organisation on credit S purchased goods from organisation on credit Rs 65000. 2 days later she returned goods to Rs 65000. 2 days later she returned goods to the extent of 48000the extent of 48000

7.7. Closing stock worth Rs 5000 was destroyed by Closing stock worth Rs 5000 was destroyed by fire and GIC admitted claim of Rs 4500.fire and GIC admitted claim of Rs 4500.

8.8. Paid wages for installing a machinery Rs 3000Paid wages for installing a machinery Rs 3000

Characteristics of JournalCharacteristics of Journal

Book of original entryBook of original entry First step in recording processFirst step in recording process Day bookDay book Chronological recordChronological record Transactions accompanied with narrationsTransactions accompanied with narrations Both debit and credit aspects recordedBoth debit and credit aspects recorded Inter-relation of journal and ledgerInter-relation of journal and ledger

Advantages of JournalAdvantages of Journal

Transaction recorded date wiseTransaction recorded date wise Process of classification at convinienceProcess of classification at convinience Ensures that double entry rules hav been Ensures that double entry rules hav been

followedfollowed Reliable evidenceReliable evidence Sub division enables division of labourSub division enables division of labour Detection of arithmetical errorsDetection of arithmetical errors Provides primary source dataProvides primary source data

Double Entry AccountingDouble Entry Accounting

Accounting system uses double entryAccounting system uses double entry Transactions always recorded using 2 Transactions always recorded using 2

sidessides Debit : left hand side , Credit : right hand Debit : left hand side , Credit : right hand

sideside Sum of debit and credit amounts must be Sum of debit and credit amounts must be

equalequal Balanced journal entryBalanced journal entry

Special JournalsSpecial Journals

Sales JournalSales Journal Purchases JournalPurchases Journal Cash Receipt JournalCash Receipt Journal Cash Disbursements JournalCash Disbursements Journal

Compound Journal EntriesCompound Journal Entries

An entry containing more than one debits or An entry containing more than one debits or credits..credits..

CONDITIONSCONDITIONS• Transactions take place on same dayTransactions take place on same day• One aspect of these transactions is One aspect of these transactions is

commoncommon• Number of a/cs involved are more than 2.Number of a/cs involved are more than 2.

Example of compound journal Example of compound journal entriesentries

Paid wages Rs 500, salary Rs 2000 and Paid wages Rs 500, salary Rs 2000 and insurance premium on building Rs 500.insurance premium on building Rs 500.

D purchased furniture worth Rs 6000, D purchased furniture worth Rs 6000, tools and implements worth Rs 4000tools and implements worth Rs 4000

From Journal Entry to Ledger PostingFrom Journal Entry to Ledger PostingOnce the Once the source documentsource document is generated is generated

and the appropriate journal entry is made, and the appropriate journal entry is made, the next step in the accounting cycle is to the next step in the accounting cycle is to post the entry to the general ledger.post the entry to the general ledger.

OPENING ENTRTYOPENING ENTRTY In the case of continuing business we are In the case of continuing business we are

required to pass an entry in the journal for required to pass an entry in the journal for bringing in the new books all assets and bringing in the new books all assets and liabilities as appearing in the books on the last liabilities as appearing in the books on the last day of the previous year. This entry is known as day of the previous year. This entry is known as 'opening entry'. Rule of passing opening entry is 'opening entry'. Rule of passing opening entry is to debit each asset account; credit each liability to debit each asset account; credit each liability account ; excess of debits over credits account ; excess of debits over credits represents capital balance. Thus if in a question represents capital balance. Thus if in a question capital balance is not given it can be ascertained capital balance is not given it can be ascertained as follows:as follows:

Total debits - Total credits = CapitalTotal debits - Total credits = Capital