AFA

CA EKTA JAIN

Exercise
Purchased a Building for Rs.20,000/-.
Paid Cash Rs.1,000/- to Satheesh.

Paid Salary Rs.1000/-.

Received Commission Rs.250/-.

Sold goods for Cash Rs.3500/-.

Journal
Journal is the prime or original book of entry which all transactions are recorded in the form entries. Journalising is an act of recording entering transactions in a Journal in the order date.
Date Particulars LF Debit Amount Credit Amount

in of or of

Journal Entry
Jan 1, 1981 Prakash Started a business Rs. 15,000/Date 1981 Jan 1 Particulars Cash a/c Dr. To Prakashs Capital a/c (Being cash invetsed to business) LF Debit Amount 15,000 15,000 Credit Amount

Definition and Explanation of Journal: 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 named so. A soon as a transaction takes place its debit and credit aspects are analysed and first of all recorded chronologically (in the order of their occurrence) in a book together with its short description. This book is know as journal. Thus we see that the most important function of journal is to show the relationship between the two accounts connected with a transaction. This facilitates writing of ledger. Since transactions are first of all recorded in journal, so it is called book of original entry or prime entry or primary entry or preliminary entry, or first entry.

Entry: Recording a transaction in the appropriate place of the concerned book of account is called entry. Entry may be of the following two types: Journal Entry: Recording a transaction in a journal is called journal entry or journalising. Ledger Entry: Recording a transaction from journal to the concerned account in the ledger is called ledger entry. It is also known as ledger posting. Narration: A short explanation of each transaction is written under each entry which is called narration. The subject matter of the transaction can be ascertained through narration. Besides this, if there be any mistake in determining debit or credit aspect of a transaction, it can be easily detected from narration. "A journal entry is not complete without narration". Characteristics:

Characteristics: Journal has the following features: Journal is the first successful step of the double entry system. A transaction is recorded first of all in the journal. So, journal is called the book of original entry. A transaction is recorded on the same day it takes place. So, journal is also called a day book. Transactions are recorded chronologically. So, journal is called chronological book. For each transaction the names of the two concerned accounts indicating which is debited and which is credited, are clearly written into consecutive lines. This makes ledger posting easy. That is why journal is called "assistant to ledger" or "subsidiary book". Narration is written below each entry. The amount is written in the last two columns - debit amount in debit column and credit amount in credit column.

Advantages of Journal: The following are the advantages of journal: Each transaction is recorded as soon as it takes place. So there is no possibility of any transaction being omitted from the books of account. Since the transactions are kept recorded in journal chronologically with narration, it can be easily ascertained when and why a transaction has taken place. For each and every transaction which of the two concerned accounts will be debited and which account credited, are clearly written in journal. So, there is no possibility of committing any mistake in writing the ledger. Since all the details of transactions are recorded in journal, it is not necessary to repeat them in ledger. As a result ledger is kept tidy and brief. Journal shows the complete story of a transaction in one entry. Any mistake in ledger can be easily.

The various columns of journal are explained in details below: Date: The date of transaction is written in this column in two lines - in the first line, the year and in the second line, first the name of the month and thereafter the actual date. Particulars: In this column the names of the two connected accounts are written in two consecutive lines in the first line the name of account debited and in the second line the name of account credited. While the name of account debited always placed close the the left hand margin line, the name of account credited is commenced a short distance away from the margin line. This arrangement will show clearly which account is debited and which credited. This also shows that credit amount is placed on the right side of debit amount. The world "Dr" is used at the end of the name of account debited. It is not necessary to place the word "Cr." after the name of the credited account, because if one account is Dr. it follows that the other account must be Cr. Below the names of the two accounts, i.e. in the third line narration is written usually within a bracket. According to tradition narration is written starting with a word "being". But modern practice is not to use this word. In most of countries even in Great Britain using the word "To" at the beginning of the name of account credited has become out-dated. So, here it has not been used too. But it is optional for the students. Ledger Folio (L.F): The page numbers of the ledger where the two concerned accounts have been posted, are written in this column against the name of each account. This will help locating easily the two concerned accounts from the ledger. On the other hand, when a transaction is posted to ledger, the concerned folio number of the ledger is written in this column. Thus if a folio number stands written in this column, it will mean that the transaction has already been posted to ledger. Amount: The debit amount is written in the first "amount" column against the name of account debited and the credit amount in the second "amount" column against the name of account credited. Note: Although the above form of journal is used in examination answer book. It is not fully correct. Because in large concerns journal is divided into eight subdivisions for the sake of convenience. Out of them only in one subdivision (i.e. journal proper) the above form is used.

Simple Entry and Compound Entry: Every transaction effects two accounts - one is debited and another is account is credited. Thus in recording a transaction in a journal one account is debited and another account is credited. This type of entry is called simple entry. The entry in which more than one account is debited or more than one account is credited, is known as compound entry. Three or more accounts are connected with a compound entry. Example of Simple Entry: For example, on 10.04.05 we bought furniture from Salman Bros. The entry is: Date Particulars L.F Amount Amount 10.04.05 Furniture A/C .............................Dr. 10000 To Salman Bros A/C 10000 (Being furniture purchased on credit)

Example Compound Entry: For example on 16.05.05 we paid $ 1,000 on account o salaries and $ 600 on account of rent. For this the entry will be: Date Particulars L.F Amount Amount 16.05.05 Salary A/C .............................Dr. 1000 Rent A/C .Dr. 600 To Cash A/C 1600 (Being salaries and rent)

Journalise the following transactions: 2005 Feb. 3 X commenced business with a capital of $15,000 05 Purchased good $6,000 07 Purchased goods on credit from Sarwar & Co. $3,000 10 Purchased furniture $2,400 11 Sold goods $3,900 15 Sold goods on credit to Dilawar Bros. $2,250 20 Paid salaries $960 25 Received commission $75 26 Returned goods to Sarwar & Co. $600. 27 Returned goods to Dilawar Bros. $450 28 Received from Dilawar Bros. $1,500 Paid to Sarwar & Co. $1,800 X withdrew from business $900 Charged depreciation on $240 Borrowed from Shafiq $1,500

Date Particular L.F Amount Amount 2005 Feb. 3 Cash A/C .....................................................Dr. Capital (Being capital brought in) 15,000 15,000 5 Purchases A/C...............................................Dr. Cash A/C (Being goods purchased for cash) 6,000 6,000 7 Purchases A/C...............................................Dr. Sarwar & Co. A/C (Being goods purchased form Sarwar & Co on credit) 3,000 3,000 10 Furniture A/C.................................................Dr. Cash A/C (Being furniture purchased for cash) 2,400 2,400 11 Cash A/C......................................................Dr. Sales A/C (Being goods sold for cash) 3,900 3,900 15 Dilawar Bros. A/C...........................................Dr. Sales A/C (Being goods sold on credit to Dilawar) 2,250 2,250 20 Salaries A/C..................................................Dr. Cash A/C (Being salaries paid) 960 960 25 Cash A/C......................................................Dr. Commission A/C (Being commission received) 75 75

26 Sarwar & Co. A/C............................................Dr. Purchases A/C Return (Being goods returned to Sarwar & co.) 600 600 27 Sales Returns A/C..........................................Dr. Dilawar Bros. A/C (Being goods returned by Dilawar Bros.) 450 450 28 Cash A/C......................................................Dr. Dilawar Bros. A/C (Being amount received from Dilawar Bros.) 1,500 1,500 " Sarwar & Co. A/C...........................................Dr. Cash A/C (Being amount paid to Sarwar & Co.) 1,800 1,800 " Drawings A/C................................................Dr. Cash A/C (Being amount paid to Sarwar & Co.) 900 900 " Depreciation A/C...........................................Dr. Furniture A/C (Being depreciation charged on furniture) 240 240 " Cash A/C......................................................Dr. Shafiq A/C (Being amount borrowed from Shafiq) 1,500 1,500

Journalise following transactions :

i. Cash sale of goods ii. Credit sale of goods iii. Cash Purchase of goods iv. Credit purchase of goods v. Office supplies purchased on credit vi. Payment to creditors for goods vii. Collection from customers viii. Payment of wages ix. Outstanding wages SOLUTION Rs. 2,00,000 Rs. 9,00,000 Rs. 3,00,000 Rs. 4,00,000 Rs. 50,000 Rs. 3,00,000 Rs. 8,00,000 Rs. 2,00,000 Rs. 20,000