Nowadays, many businesses use computers for maintaining
accounting records and data may be stored on disks rather than in journals and
ledgers. However, an understanding of accounting concepts is most easily
acquired by the study of manual accounting system. For this reason, we shall use standard
written accounting forms, such as journal and ledger, as the model for a study
of basic accounting concepts.
The Journal and its
Nature
The first
book in which the transactions of a business unit are recorded is called a
journal. Here, business transactions are
recorded in chronological order, i.e. in the order in which they occur. Each record in a journal is called an
entry. As a journal is the first book in
which entries are recorded, a journal also known as a book of original entry.
A
journal entry is an analysis of the effects of a transaction on the accounts,
usually accompanied by an explanation (properly called as a narration). Therefore, a journal is a tool for analyzing
and describing the impact of various transactions upon a business unit. Before a journal entry is passed, it is
necessary to decide for each transaction, what are the accounts involved. It is also necessary that the accounts to be
debited or credited are identified.
Ruling of a Journal
In its
usual form, a journal is divided by vertical lines into five columns in which
to enter, in respect of each transaction: (a) Date; (b) Particulars; (c) Ledger
folio; (d) Amount (debit); (e) Amount (credit).
Date
|
Particulars
|
L.F.
|
Dr.
|
Cr.
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
- The date: The year is written at the top of the date column of each page of the journal. Thereafter, on the next line of the date column, the month and day of the first entry are written. Unless the month or year changes or until a new page is begun, neither the month nor the year is repeated on the page.
- Particulars: The particulars columns is the column for account titles and description. The name of the account to be debited is entered at the extreme left of the particulars column next to the date column. The symbol "Dr." is written at the right end of the particulars column on the same line of the account debited. The amount of the account debited is entered in the left hand money column. The name of the account to credited is entered on the next line with a prefix 'To' and is indented to the right of the date column. The amount of the account credited is entered in the right hand money column. A short explanation of the transaction known as narration begins on the column. A short explanation of the transaction known as narration begins on the immediately below the account credited. The narration should be adequate to the explain the transaction and may include and data needed to identify the transaction.
- Ledger folio (L.F.): The ledger folio column to the right of the particulars columns not filled in when transaction are recorded in the journal. When the debits and credits are posted in the ledger accounts, the page number of the ledger in which these accounts are appearing are listed in this column.
- Amount (Debit): The debit amount is recorded in the amount (Dr.) column opposite the title of the account debited. The unit of measurement, i.e. Rs. is recorded at the top of this column on each page and this is not repeated.
- Amount (Credit): The credit amount is recordedi the amount (Cr.) column opposite the title of the account credited. Like the amount (Dr.) column, Rs. is recorded at the top of this column on each page.
Example of a Journal Entry
This can be illustrated by means of an example. We suppose, on 1.1.2006, a trader sells goods for cash $2,000. Here, the accounts involved are, Cash Account and Sales Account, Cash Account is to be debited and the Sales is to be credited.
Again, we suppose that on 2.1.2006 goods worth $500 were purchased for cash. Here, Purchases Account is to debited and Cash Account is to be credited. The entries in the Journal will be as under
Journal
|
|
Date
|
Particulars
|
L.F.
|
Dr.
|
Cr.
|
|
Debit
Account
|
2006 Jan, 1
|
Cash Account Dr.
|
|
2000
|
|
|
Credit
Account
Narration
|
|
To Sales Account
(Being goods sold for cash)
|
|
|
2000
|
|
Month and
year not repeated
|
2
|
Purchases Account Dr.
|
|
500
|
|
|
|
|
To Cash Account
(Being good purchased for cash)
|
|
|
500
|
Simple and Compound Journal Entries
A Journal entry which contains only one debit entry and one credit entry is called as Simple journal entry. Example of simple journal entry is given below:
Journal
|
Date
|
Particulars
|
L.F.
|
Dr.
|
Cr.
|
|
2006 May 5
|
Cash A/c Dr.
|
|
50,000
|
|
|
|
To Capital A/c
(Being cash brought in as capital $50,000)
|
|
|
50,000
|
A journal entry which contains more than one debit entry or more one credit entry or both is called a Compound Journal Entry. It should be noted that total amount debited must be equal to total amount credited. In fact, a compound journal entry is nothing but a combination of two or more simple journal entries.
Example of a compound journal entry is given below
Journal
|
Date
|
Particulars
|
L.F.
|
Dr.
|
Cr.
|
|
2006 May 5
|
Building A/c Dr.
Furniture A/c Dr.
Cash A/c
Dr.
|
|
1,00,000
80,000
20,000
|
|
|
|
To Capital A/c
(Being different assets brought in as capital)
|
|
|
2,00,000
|
Sub-division of Journal
The journal is inadequate as the sole book of the original entry when the transactions are numerous. The nature of operations and the volume of transactions in the particular business determine the number and type of journals needed. A medium size business generally maintains the following types of journals.
1. Cash Book - to record cash transactions.
2. Sales Day Book - to record credit sales;
3. Purchases Day Book - to record credit purchases;
4. Sales Return Day Book - to record sales returns;
5. Purchases Return Day Book - to record purchases returns;
6. Bills Receivable Book - to record bills receivable;
7. Bills Payable Book - to records bills payable;
8. Petty Cash Book - to record petty cash payments; and,
9. Journal Proper - to record residuary transactions. It is also used for rectifying errors.
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