2.2 JOURNAL
The Journal is divided into five columns. The first column is used for writing the date of the . transaction. It is customary to write the year at the top of the column only once and then in
the next line the month and date are written.
The second column called 'Particulars' column, The names of the two accounts affected by
the transaction are to be recorded in this'column. The name of the account to be debited is .
written first. The abbreviation 'Dr,' for debit is also written against the name of the account
to be debited. It is written on the same line very close to the L. F. column. In the next line,
the name of the account to be credited is written. It is always preceded by the word 'To'. It
is not necessary to write 'Cr.' against the name of the account to be credited. In the next
line, a brief description of the transaction is also given within brackets. It is called 'Narration'. After writing the narration a line is drawn in the particulars column to separate one
entry from the other.
The third column L. F. (Ledger Folio) is meant for writing the page number of the ledger
where the concerned account appears. This column is filled at the time of posting into the
ledger. The fourth and the fifth columns are meant for recording the amounts with which the
two accounts have been affected, The amount to be debited is entered in the debit amount
column against the name of the account debited, and the amount to be credited is entered in
the credit amount column against the name of the account credited. Both the amounts will
always be equal.
Let us take a transaction and see how it will be recorded in the Journal.
Purchased Machinery for Rs.10,000 on May 1,1988 ' In this transaction, the two accounts affected are Machinery Account and Cash Account. You know both are real accounts. According to rules relating to real accounts, the
Machinery Account is to be debited and the Cash Account is to be credited. The entry will be made in the Journal as follows.
2.2.1 Transactions Relating to Goods
The term goods refer to articles which are traded by the firm i.e., articles bought for resale.
For example, for a book-seller books are goods, for an electrical store fans and other
electrical items are goods, for a furniture dealer table and chairs are goods. Articles bought for using them in business are not to be treated as goods. They may be fixed assets or
consumables and are to be treated as such in books of account.
The transactions relating to goods include purchases, sales, purchases returns and sales
returns. Normally, as per rules, when gaods are bought you will debit the Goods Account
and when they are sold you will credit the Goods Account. Similarly, when goods are
returned by your customer you will debit the Goods Account and when you return goods to
the suppliers, you yill credit the Goods Account. In other words, for all transaction relating
to goods you will maiotain only one account viz., Goods Account. But, in practice, five
separate account are maintained, as shown below:
i) Purchases Account-for recording all purchases of goods
ii) Sales Account-for recording all sales of goods
iii) Keturns Onwards Accourii or Purchases Returns Account-for recording goods returned to suppliers.
iv) Returns Inwards Account or Sales Returns Account-For recording goods returned by customers.
v) Stock Account-for goods in stock (unsold goods) as at the end of the year.
Thus, when goods are purchased you will debit the Purchases Account and when they are
sold y~u will credit the Sales Account. Similarly, when goods are returned by your
customers you will debit the Returns Inwards Account (or Sales Returns Account) and when
you return goods to the suppliers you will credit Returns Outwards Acwunt (or Purchases
Returns Account). There will be no Goods Account at all. This helps in ascertaining the
amount of purchases and sales more quickly and correctly.
2.2.2 Receipts and Payments by Cheque
You must be aware that most of the.payments in business are made by cheques these days.
This involves the bank where the firm has opened its account. Hence, when payment is
made by cheque, you will credit the Bank Account because bank is the giver. Similarljl,
when payment is received by cheque, the amount will be debited to the Bank Account
because cheque is deposited in the bank who is the receiver.
2.2.3 Transactions with the Proprietor
You have learnt that the business and its proprietor are treated as separate entities. This
implies that separate accounts must be maintained in the ledger for recording transactions
between the proprietor and the business. Usually, two accounts viz., Capital Account and
Drawings Account are maintained for this purpose. Whatever the proprietor brings into the
business is treated as his capital and credited to his Capital Account. Similarly, when he
withdraws cash from the business for his personal use, he is to be debited with the amount
withdrawn by him. Such a debit is given to his Drawings Account. Drawings Account is also
debited when the proprietor takes goods from business for domestic use. Note that the
proprietor can be charged only by the cost of goods taken and not its selling price. In
pr'actice, the cost of such goods are credited to the Purchases Account because it is assumed
that it was purchased for him and should therefore be excluded from the purchases for the
business.
Look at Illustration 1 and study how various transactions are recorded in the Journal.
Illustration 1
Journalise the following transactions in the journal of Krishna.
Note: The following explanations with regard to some transactions will help you to
understand their journal entries,
Jnn, I: The credit has been given to Capital Account because Krishna, the
proprietor of the business, brought cash into the business.
Jan. 2: Cash deposited in Canata Rank implies that a bank accounl has been opened
for the business. Any money deposited in the bank is debited to Bank Account and
any withdrawal frotn the bank is to be credited to Bank Account.
Jan. 4: When goods are purchased you would normally debit Goods Account as
goods come in. But as explained, purchases of goods are debited lo Purchases
Account since no Goods Account is to be maintained.
Jan. 5: Furniture is not goods for this business. It is a fixed asset and hedce debited
to Furniture Account and not the Purchases Account. Since the payment has been
tilade by cheque which leads to withdrawal from the bank, the anlount has been
credited to Bank Account.
Jan, 10: When goods are sold you would nonllally credit the Goods Account as
goods go out. But, as explained earlier, sales of goods are credited to Sales Account
since no Boods Account is to be maintained.
Jan. 29: Any amount withdrawn by the proprietor for personal use is treated as
drawings by the proprietor and hence debited to Drawings Account.
2.2.4 Transactions Relating to Cash Discount
There ate two types of discout~ts allowed to customers: (i) trade discount, and (ii) cash
di~cbunt, Trade discount is a reduction in selling price allowed at the time of sale. nie
buyer pays only the net price and the recording in books is made for the net amount only.
No entry is made in books for the trade discount. Cash discount, on the other hand, is a
reduction in the net amount due. It is allowed only if the customer makes payment before
the due date. Cash discount must be recorded in the books of account. This is because when
goods were sold to the customer his account was debited with the net amount due. Later,
when he makes the payment and is allowed some cash discount, it must be adjusted in his
personal account so that his account stands cleared.
2.2.5 Compound Journal Entry
Sometimes, two or more transactiuns of the same nature may occur on the same day. In such 2)
a situation instead of passing a separate entry forteach transaction we may pass a single
journal entry, known as Compound Journal Entry. For example, on May 5, 1988 you sold
goods on credit to Ram for Rs. 600 and to Shyam for Rs. 800. Both of these transactions
took place on the same day (May 5, 1988) and are of the same nature (credit sale of goods).
You can ppss compound entry for both the transactions as follows:
A compound Journal entry can also be passed for a transaction which involves more than
two accounts. For example, paid cash to Rarnesh Rs, 950 and he allowed Rs. 50 as discount,
This transaction involves three accounts : (i) Ramesh's Account, (ii) Cash Account, and (iii)
Discount Received Account. As per rules, Ramesh's Account is to be debited with Rs. 1,000
(Rs. 950 for cash and Rs. 50 for discount), Cash Account is to be credited with Rs. 950, and
Discount Received Account is to be credited with Rs. 50. You can pass the following
compound journal entry for this transaction :
i) one account is to be debited and two or more accounts are to be credited, or
ii) two or more accounts are to be debited and one account is to be credited, or
iii) two or more accounts are to be debited and two or more accounts are to be credited.
2.2.6 Transactions Relating to Bad Debts
When a debtor becomes insolvent, the business shall not be able to realise the full amount
due from him. A parf. of it remains unrealized. The unrealised amount is called 'bad debts'.
For example, Rs, 2,000 was due from Kaushal for the goods sold to him on credit. I-Ie
became insolvent and only Rs. 1,200 could be realised from him. The remaining amount of
Rs. 800 will be treated as bad debts. It is a loss to the business and so debited to Bad Debts
Account and credited to the personal account of the debtor. The journal entry for the above
transaction will be:
Look at illustration 2 and note how journal entries for transaciions of February 18,25,27
and 29 have been made.
IIlustration 2
Note: In this illustration you will notice that
a) Instead of writing full word '~ccount' its abbreviation 'A/cl has been used
againgt the names of the accounts debited and credited. This is a common
practice. In fact the latest trend is not to write anything, just the name of the
account is enough.
b) The word Account or its abbreviation 'Alc' has not been written against
personal names. This again is a common practice. Writing 'A/cl is confined to
the real and nominal account\ only.
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