THE JOURNAL

Transactions are initially recorded in chronological order in a journal before being transferred to the accounts. Every company has a journal which contains:
1 Column for dates, 2 account titles and explanations or Particulars, 3 references or Ledger folio (LF), and 4 two amount columns( Debit & Credit).

THE JOURNAL
The journal makes several significant contributions to the recording process: 1 It discloses in one place the complete effect of a transaction. 2 It provides a chronological record of transactions. 3 It helps to prevent or locate errors because the debit and credit amounts for each entry can be readily compared.

Format for Journalizing

The date of the transaction is entered in the date column.

GENERAL JOURNAL
Date 2002 Sept. 1 Account Titles and Explanation Cash A/C Dr. LF Debit 15,000

J1 Credit

To Capital A/C ( Being Invested cash in business) 2 Computer Equipment A/C Dr. To Cash A/C ( Being Purchased equipment for cash) 7,000

15,000

7,000

The debit account title is entered at the extreme left margin of the Account Titles and Explanation column.
The credit account title is indented on the next line.

The amounts for the debits are recorded in the Debit column and the amounts for the credits are recorded in the Credit column.
A brief explanation of the transaction is given.

A space is left between journal entries. The blank space separates individual journal entries and makes the entire journal easier to read.

COMPOUND JOURNAL ENTRY

When three or more accounts are required in one journal entry, the entry is referred to as a compound entry.

GENERAL JOURNAL
Date 2002 July 1 Account Titles and Explanation Equipment A/C Dr. To Cash A /C To Accounts Payable A/C (Purchased Equipment for cash with balance on account) Ref. Debit 14,000

J1 Credit

1 2 3

8,000 6,000

Basic Journal Entries

1.Commenced business with cash 2. Goods Purchased for cash / Cash Purchases Cash A/c Dr. To Capital A/c

Purchase A/c Dr. To Cash A/c

3. Purchased goods on credit / Credit Purchase

Purchase A/c Dr. To Creditors A/c

Basic Journal Entries

4. Cash Sales

Cash A/c Dr. To Sales A/c

5. Credit Sales

Debtors A/c Dr. To Sales A/c

6. Goods Returned to Ram / Purchased Return/ Returns Outward

Rams Dr. To Purchase Return A/c

Basic Journal Entries

7. Sales Return/ Return Outward

Sales Returns A/c Dr. To Shyams A/c

8. Purchase of Assets

Assets A/c Dr. To Cash A/c

9. Sale of Assets

Cash A/c Dr. To Assets A/c

Basic Journal Entries

10. Payment of Expenses

Expenses A/c Dr. To Cash A/c

11. Receipt of Income

Cash A/c Dr. To Income A/c

12. Sale of Assets

Cash A/c Dr. To Assets A/c

Basic Journal Entries

16. Outstanding Expenses

Expense A/c Dr. To Outstanding Expense A/c

17. Prepaid Expense

Prepaid Expense A/c Dr. To Expense A/c

18. Interest on Capital

Interest on capital A/c To Capital A/c

Dr.

Basic Journal Entries

19. Withdrawal of cash for personal Use.

Drawing A/c Dr. To Cash A/c

20.Withdrawn goods for personal use.

Drawing A/c Dr. To Purchase A/c

21. Goods given as charity

Charity A/c Dr. To Purchase A/c

22.Loss of goods by fire.

Loss by fire A/c Dr. To Purchase A/c

23. Loss by theft.

Los by theft A/c Dr. To Purchase A/c

Basic Journal Entries

13. Collection from Ram in full settlement/ Discount allowed

Cash A/c Dr. - 800 Discount A/c Dr. - 200 To Ram -------- 1000

14. Payment to Shyam in full settlement/ Discount Received

Shyam

Dr.---1000 To Cash A/c----------------- 800 To Discount Received A/c-- 200

15. Depreciation on Assets

Depreciation A/c Dr. To Assets A/c

Basic Journal Entries

24. Mohan became bankrupt (insolvent). A first and the final composition of 40 paise in a rupee is received from him out of the loan of Rs 2000.

Cash A/c Dr.- 800 Baddebt A/c Dr-1200 To Mohan -2000

25.The amount previously written off as bad debts is now recovered from Mohan, the old debtor for Rs. 800.

Cash A/c Dr.-800 To Bad/Debt Rec-800

Recording Banking Transaction

A) Opened Current Account with the bank.
Or Amount paid into Bank. Or Amount deposited into the Bank.
Journal Entry:Bank A/c Dr. ----- 12000 To Cash A/c ------ 12000 Rs. 12000

B) Amount withdrawn from Bank. Or Cheque withdrew for office use. Rs. 3000
Journal Entry:Cash A/c Dr. ----- 3000 To Bank A/c ------ 3000

Recording Banking Transaction

C) Amount withdrawn from Bank. Or Cheque withdrew for office use. Rs. 3000 Journal Entry:Cash A/c Dr. ----- 3000 To Bank A/c ------ 3000

D) Cheque received from Mohan Rs. 3000

Journal Entry:Cash A/c Dr. ----- 3000 To Mohan A/c ------ 3000

Recording Banking Transaction

E) Cheque received from Mohan & deposited into bank the same day. Rs. 7000 Journal Entry:Bank A/c Dr. ----- 7000 To Mohan A/c ------ 3000 F) Interest allowed or credited to Bank Rs. 300 Journal Entry:Bank A/c Dr. ----- 300 To Interest A/c ------ 300

Recording Banking Transaction

G) Interest charged or debited by Bank Rs. 300 Journal Entry:Interest A/c Dr. ----- 3000 To Bank A/c ------ 3000

H) Bank charges or collection charges Rs. 300

Journal Entry:Bank charges A/c Dr. ----- 3000 To Bank A/c ------ 3000

THE LEDGER
The entire group of accounts maintained by a company is called the ledger. A general ledger contains all the assets, liabilities, and owners equity accounts.
LEDGER

Silent features of Ledger Account

It is the book of final entry. The information from the journal is transferred to the ledger in the posting process. Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.

THE GENERAL LEDGER

Individual Assets

Individual Liabilities

Individual Owners Equity

Equipment Land Supplies Cash

Interest Payable Salaries Payable Accounts Payable

J. Lind, Drawing
J. Lind, Capital

LEDGER
In its simplest form, an account consists of 1 the title of the account, 2 a left or debit side, and 3 a right or credit side. The alignment of these parts resembles the letter T, and therefore the account form is called a T account.

Name of the Account

DR DATE PARTICULARS J.F AMOUNT DATE (RS) PARTICULARS J.F CR AMOUNT RS.

Posting Of journal to Ledger

JOURNAL ENTRY
Date Oct. 1 Account Titles and Explanation Cash A/c Dr. To Capital A/c (Invested cash in business) Ref. 101 301 Debit Credit 10,000 10,000

Cash A/c
Debit Side Credit Side

Capital A/c
10000 Oct 1 By Cash A/c 10000

Oct 1 To Capital A/c

Posting Of journal to Ledger

JOURNAL ENTRY
Date Oct. 1 Account Titles and Explanation Purchase A/c Dr. To Cash (Invested cash in business) LF. Debit Credit 10,000 10,000

Purchase A/c
Debit Side Credit Side

Cash A/c
Oct 1 By Purchase A/c 10000

Oct 1 To Cash A/c

10000

Question :
Record the following transaction into Ledger.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Sunil commenced business with cash. Purchased furniture . Purchased goods from Sushil. Cash Sales. Sold goods to Rajesh. Cash Sales. Received cash from Rajesh. Purchased Stationery. Paid to Sushil. Cash Purchases. Purchased goods from Vinod. Paid to Vinod. Received discount. 15000 500 1500 500 1000 400 700 40 1000 400 1050 1025 25

THE TRIAL BALANCE

A trial balance is a list of accounts and their balances at a given time. The primary purpose of a trial balance is to prove (check) that the debits equal the credits after posting. If the debits and credits do not agree, the trial balance can be used to uncover errors in journalizing and posting. The procedures for preparing a trial balance consist of: 1 List the account titles and their balances. 2 Total the debit and credit columns. 3 Prove the equality of the two columns.

LIMITATIONS OF A TRIAL BALANCE

A trial balance does not prove that all transactions have been recorded or that the ledger is correct. Numerous errors may exist even though the trial balance columns agree. The trial balance may balance even when: 1 a transaction is not journalized, 2 a correct journal entry is not posted, 3 a journal entry is posted twice, 4 incorrect accounts are used in journalizing or posting 5 offsetting errors are made in recording the amount of the transaction.