Journal

A business performs a large number of financial transactions daily. It purchases goods from
suppliers and sells to its customers. It returns well to suppliers. It receives goods returned by its
customers. It deposits cash in the bank and withdraws from the customers. It pays for expenses
like salary, rent, stationery, advertisement and insurance premium. It borrows loan and returns it
on maturity. The transactions should be recorded immediately in memorandum books and when
they take place. The memorandum book is also called waste book or rough book. It is treated as a
temporary record of these transactions, which helps to prepare journal. In fact, the journal is the
first step of the accounting process.
Journal is the first book to keep a systematic record of all the business transactions. It is the first
entry of all the financial transactions. It is the original book or primary book in which the
financial transaction is first recorded in order of date and helps to maintain the principal book or
ledger. It is the book of prime entry in which each and every transaction is registered showing
debit and credit aspects with a brief explanation called narration.
The following are the main definition of journal:
"A journal is a book, employed to classify or sort out transactions in a form convenient for their
subsequent entry."-L.C. Cropper
"The journal or daily record as originally used was a book of prime entry in which transactions
was copied in order to date from a memorandum or waste book. The entries as they were copied
were classified into debits and credits, so as to facilitate they're being correctly posted afterwards
in the ledger."-R. N. Carter.
Objectives
The main objectives of journal are given below:
1. To make permanent and systematic record of all the financial transactions.
2. To help to prepare the principal book or ledger.

3. To provide legal evidence of all the financial transactions performed by the business.
4. To present complete information of each transaction.
5. To show debit and credit aspects or accounts involved in each transaction.
Importance of Journal
1. It provides the legal evidence of all the transactions performed by an organization.
2. It provides the foundation for further accounting processes of the transactions.
3. It provides the basis for preparing ledger accounts.
4. It helps to minimize errors in recording and posting due to the involvement of both
aspects of the transactions.
5. It fulfills the further accounting processes of the transactions.
Journaling
The financial transactions are first of all recorded in the journal. The process of recording the
financial transactions in the journal in a systematic way is called journalizing. The record of the
transactions made in the journal is called journal entry. Journalizing is the act of passing journal
entry. The following steps are taken into consideration while journalizing the transactions:
1. Identifying the two aspects of each transaction.
2. Identifying the appropriate accounts of these two aspects of each transaction.
3. Recording each transaction in the journal book involving debit and credit accounts in
chronological order.
4. Identifying the debit and credit accounts of each transaction by applying the rules of debit
and credit.
Rules of Journalizing:
According to the double entry system, every transaction is recorded in the journal involving its
two aspects. One aspect of the transaction is debited in one account and the other aspect is
credited in another account involving the equal amount. The crucial task while journalizing the
transaction is to decide the account to be debited and credited. The system record of a transaction
in the journal book is called journal entry, the process of passing journal entry is called
journalism.The rules are also known as rules of debit and credit.

1. Personal Account: It is the account of a person or organization or debtor or creditor. It is the

record of an individual or organization. Under it, the person receiving the benefit is debited and
the person giving benefit is credited. The rule of journalizing in personal account is as follows:

Debit the receiver

Credit the giver

2. Real Account: It is an impersonal account. It is the account of a real thing or property. It is the
record of assets of the business. Under, it asset coming into the business through its purchase is
debited and the asset going out of the business through its sale is credited. The rule of
journalizing in real account is as follow:

Debit what comes in

Credit what goes out

3. Nominal account: It is another impersonal account. It is the account of expenses, loss,

income, and profit. It has no any physical shape. It does not exist in the business in real form. It
appears only in the books. It is the record of financial sacrifice against the service received and
the record of financial benefit against the service rendered. The rule of journalizing in nominal
account is as follows:

Debit all expenses and losses

Credit all incomes and profits

Journal Entries

Different kind of business transaction is recorded in the journal in sequential order. When the
journal transaction is recorded in the journal it becomes journal entries. Journal entries are the
systematic order record of the financial transaction in the journal. Journal entries consist of the
name of debit and credit involved in the financial transaction with a brief narration. It is the basis
of making ledger. There is example of two transactions and their journal entries:
Baisakh 10 Cash of Rs. 10000 received from ram.
Baisakh 11 Paid for the salary of Rs. 5000 and rent Rs. 5000.
Journal Entries
Date

Particular

Baisakh 10

Cash a/c.............................Dr.

L.F Debit Rs. Credit Rs.

10,000

To Ram's a/c

10,000

(Being cash received from Ram)

Baisakh 11

Salary a/c....................................Dr.

5000

Rent a/c......................................Dr.

5000

To Cash a/c

10,000

(Being paid for salary and rent)

Total

20,000

20,000

Simple and compound journal entry

Simple journal entry is composed of one debit and another credit account. The journal entry of
Baisakh 10 shown above is the simple journal entry.
Compound journal entry is the combination of two or more than two simple journal entries. It
contains two or more than two accounts either in debit or in credit. In fact, two or more simple
entries can be combined and passed one compound entry if the data and an account of these
entries are common.The journal entry of Baisakh 11shown above is the compound journal entry.
Journaling simple transactions

Example 1
Chaitra 1: Hari started a business with cash of Rs. 55,000.
Chaitra 5: Hari deposited cash of Rs. 45000 in the bank as his additional capital.
Chaitra 7: Hari withdrew cash of Rs. 2000 from the business as his additional capital.
Chaitra 8: Hari withdrew cash of Rs 3000 from the bank for his personal use
Chaitra 9: Hari Withdrew goods of Rs.4000 from the business for his personal use.
Journal Entries
Date

Particular

Chaitra
Cash a/c.............................Dr.
1

L. Debit
F Rs.
55,000

Credit
Rs.

To Capital a/c

55,000

(Being business started with cash)

Chaitra
Bank a/c....................................Dr.
5

45000

To Capital a/c

45000

(Being the owner deposited cash in the bank as his

additional capital)
Chaitra
Drawing a/c................................Dr.
7

2000

To Cash a/c

2000

(Being cash withdrew from business for personal use)

Chaitra
Drawing a/c...................................Dr.
8

3000

To Bank a/c

3000

(Being cash sales)

Chaitra
Drawing a/c...................................Dr.
9
To Purchase a/c

4000
4000

(Being goods withdrew from the business for personal

use)
Total

Example 2:
a. Goods purchased for cash Rs. 2500
b. Cash sales made for Rs. 1500
c. Goods purchased from Krishna on credit for Rs. 6000
d. Purchased goods from MeghaCenter for rs. 8000
e. Returned goods to Megha Center of rs 500 being defective

1,090 1,0900
00
0

f.

Sold goods to Barsha Centre for rs 6000

g. Returned goods by Barsha Center of Rs. 300 being damaged.

Date Particular
a

Purchase a/c.............................Dr.

L.F Debit Rs. Credit Rs.

2500

To Cash a/c

2500

(Beinggoods purchase for cash)

b

Cash a/c....................................Dr.

15000

To Sales a/c

15000

(Being goods sold for cash)

c

Purchase a/c................................Dr.

6000

To Krishna a/c

6000

(Being goods purchased from krishna on credit)

d

Purchase a/c...................................Dr.

8000

To Megha center a/c

8000

(Being good purchased from Megha center on

credit)
e

Megha Center a/c...................................Dr.

500

To Purchase a/c

500

(Being goods returned to Megha Center)

f.

Barsha Center a/c...................................Dr.

6000

To Sales a/c

6000

(Being goods sold Barsha Center on Credit)

g

Sales return a/c............................Dr.

To Barsha Center a/c
(Being goods return by Barsha Center)

300
300

Total

37,300 37,300

Example 3:
Pass journal entries of the following transaction:
1. Purchased furniture for cash Rs. 10,000
2. Purchased a machine from Mahakali Stationary Ltd. for Rs. 75000
3. Sold an old computer for rs. 5000

Journal Entries
Date Particular
1.

Furniture a/c.............................Dr.

L.F

Debit
Rs.

Credit
Rs.

10,000

To Siddhi's a/c

10,000

(Being purchased furniture)

2.

Machinery a/c....................................Dr.

75000

To Mahakali Stationary Ltd a/c

75000

(Being machine purchased from Mahakali Stationary

Ltd.)
3.

Cash a/c................................Dr.
To office equipment a/c

5000
5000

(Being cash paid to siddhi)

Total

90,000 90,000

Journaling compound transactions

Transaction of same data having a common account in one aspect are compound transactions. A
single entry is passed for such compound transaction, which is known as compounded journal
entry.
Example 1:
1. Received cash of Rs. 950 from Mikal and allowed discount of Rs.50

2. Paid cash of Rs.750 to Anuradha and received discount of Rs.50

3. Received cash of Rs.950 from Tritha in full settlement of his account Rs. 1000
4. Paid cash of Rs. 95 to Usha in full settlement of her account Rs.1000

Journal Entries
Date Particular
1

L.F

Debit
Rs.

Cash a/c.......................................Dr.

950

Discount allowed a/c.......................Dr.

50

To Mikal's a/c

Credit Rs.

1000

(Being cash received from Mikal and allowed

discount)
2

Anuradha's a/c....................................Dr.

800

To Discount received a/c

50

To Cash a/c

750

(Being cash paid to Anuradha and received discount)

3

Cash a/c........................................................Dr.

950

Discount allowed a/c........................................Dr

50

To Tirtha's a/c

1000

(Being cash received from Tritha and allowed

discount)
4

Usha's a/c...................................Dr.

1000

To Discount received a/c

50

To Cash a/c

950

(Being cash paid to usha and received discount)

Total