FINANCIAL ACCOUNTING

ACCOUNTING JOURNAL ENTRIES

SUBMITTED TO: MR. AJAY MISHRA

SUBMITTED BY: DIVYA MULANI

ACCOUNTING CYCLE

Recording: First, all transactions should be recorded in the journal or books of original entry known as subsidiary books as and when they take place. Classifying: All entries in the journal of books of original entry should be posted to the appropriate ledger accounts to find out at a glance the total effect of all such transactions in a particular account.

Summarising: Last stage is to prepare the trial balance and final accounts with a view to ascertaining the profit or loss made during a trading period and the financial position of the business of a particular date.

Graphical representation of accounting cycle

Journalising
Definition The word "journal" has been derived from the French word "jour". Jour means day. So journal means daily. Transactions are recorded daily in journal and hence it has been named so. It is a book of original entry to record chronologically (i.e. in order of date) and in detail the various transactions of a trader.

Form of Journal:
Date (1) Particulars (2) L.F. (3) Dr. Amount Cr. Amount

Column (1) Column (2)

It is meant for writing the date of the transaction. It is used for recording the names of the two accounts affected by transactions.

Column (3)

It is meant for noting the number of the page of the ledger on which the particular account appears in that book.

Column (4) Column (5)

It shows the amount to be debited to the account named. It shows the amount to be credited to the account stated.

Rules of Journalising:
Use two separate lines for writing the names of the two accounts concerned in each transaction. Write the name of the debtor or account to be debited in the first line and the name of the creditor or the account to be credited in the next line Write the name of the account to be debited close to the line starting the particulars column and that of the account to be credited at a short distance from this line. Use "Dr" after each debit item and "To" before each credit. The term "Cr." after a credit item is unnecessary, as if one account is debtor, the other must be creditor. To separate one entry from another a line is drawn below every entry to cover particulars column only. The line does not extend to amount column.

Example

On first January, 2010 A started business with capital of $20,000 and his transactions of the month were as follows:
Jan.2 Jan.8 Jan.15 Jan.20 Jan.22 Jan.25 Jan.31 Jan.31 Purchased building for cash Purchased goods from C Sold goods for cash Goods returned to C Sold goods to R R returned goods Salaries paid for the month Rent paid for the month 8,000 1,000 500 100 400 25 200 150

Date Jan. 1

Particulars Cash Account To Capital Account (Capital introduced) Building Account To Cash Account (Building purchased for cash) ...Dr.

L.F

Debit 20,000

Credit 20,000

Jan 2.

...Dr.

8,000 8,000

Jan. 8

Purchases Account . To C (Goods purchased on credit form C) Cash Account To Sales Account (Goods sold for cash) C To purchases Returns Account (Goods returned to C) R To Sales Account (Goods sold on credit) Sales returns Account To R (Goods returned by him)

..Dr.

1,000 1,000

Jan. 15

...Dr.

500 500

Jan. 20

...Dr.

100 100

Jan. 22

...Dr.

400 400

Jan. 25

..Dr.

25 25

Jan. 31

Salaries Account To Cash Account (Salaries paid)

...Dr.

200 200

Jan. 31

Rent Account To Cash Account

...Dr.

150 150

Opening Entries

In case of running business, the assets and liabilities appearing in the previous years balance sheet will have to be brought forwards to the current year. This is done by means of a journal entry which is termed as opening entry. All assets accounts are debited while all liabilities accounts are credited. The excess of assets over liabilities is the proprietors capital and credited to his capital account.

Example of Opening Entries

Pass the opening entry on January 1, 2010on the basis of the following information taken from the business of Mr. ABC:
6,000 4,000 5,000 10,000 10,000

Cash in hand 2,000 Sundry Debtors Stock of Goods Plant Land and buildings Sundry Creditors

Solution:
Date 1 Jan 1998 Particulars Cash ...Dr. Account L.F Debit 2,000 Credit

Sundry Debtors Stock A/c Plant A/c Land and Building A/c

....Dr. ....Dr. ....Dr. ....Dr.

6,000 4,000 5,000 10,000 10,000 17,000 27,000 27,000

To Sundry Creditors To Capital A/c (Balancing Figure)