Books of original entry

Introduction

In a real business environment, we cannot record the transactions directly in the accounts. For the purpose of recording transactions for the first time, a Journal or book of original entry is used. While recording the transactions in a journal, the source document is required. The process by which different transactions are recorded in a journal is called Journalizing. After journalizing, the transactions are transferred to individual accounts, which is called posting. These individual accounts are called ledger accounts which are also known as the principal book of entry.

Journal

In a journal book, transactions are recorded as and when they occur, in a chronological order. Each transaction is individually and separately recorded and the respective accounts are debited and credited accordingly. The specimen of a journal is given as under-

Date

Particulars

L.F.                              

Debit Amount (Rs.)

Credit Amount (Rs.)

 

 

 

 

 

 

 

 

 

 

After posting each transaction, a narration is given which briefly describes the transaction. There is a column of ledger folio in which the respective page number of ledger book is written. The journal entry may be simple or compound. When a transaction involves only two accounts then a simple journal entry is posted.  For example, Dev introduced capital for Rs. 1,000,000 on 1st April 2018. This entry involves only two accounts namely capital A/c and Dev's A/c. this transaction is recorded in the journal as given under-

 

Date

Particulars

L.F.

Debit Amount (Rs.)

Credit Amount (Rs.)

1.4.18

Cash A/c                              Dr.

     To capital A/c

(Started business with cash)

 

 

1,000,000

 

1,000,000

 

 

When a transaction involves more than two accounts, such that more than one account is debited or credited, the entry made for recording is known as a compound journal entry. For example- on 4th April 2018, purchased furniture from Emporio furniture for Rs. 70,000; such that half paid in cash immediately and the balance at a later date. The journal entry for the same is given as under-

Date

Particulars

L.F.

Debit Amount (Rs.)

Credit Amount (Rs.)

4.4.18

Furniture A/c                       Dr.

     To Cash A/c

      To Emporio Furniture A/c

(Purchase of office furniture from Emporio Funiture)

 

 

70,000

35,000

35,000

 

Illustration 1- Journalize the following transactions in the books of Dev Enterprises for the month of December 2018

  • 1.12.18. Started business with cash Rs. 500,000.

  • 1.12.18. Goods purchased from ABC enterprises for Rs. 32,000.

  • 3.12.18. Purchase stationery for cash Rs. 5,000.

  • 4.12.18. Goods sold to Modern Art Papers for Rs. 44,500.

  • 10.12.18. Received cheque from Modern Art Papers.

  • 11.12.18. Purchased goods from Friend Ltd. for Rs. 84,000 and paid by cash.

  • 12.12.18. Cheque paid for insurance Rs. 2,100.

  • 15.12.18. Purchase office furniture for Rs. 12,000 from Furniture Mart, and paid $7,000 by cheque and remaining to be paid next month.

  • 17.12.18. Paid rent Rs. 8,500

  • 21.12.18. Cash withdrawn for personal use Rs. 6,400.

  • 26.12.18. Paid electricity bill Rs. 800, water bill Rs. 1,150 by cheque.

  • 31.12.18. Paid salaries in cash Rs. 10,000.

 

Books of Dev Enterprise- Journal

Date

Particulars

L.F.

Debit Amount (Rs.)

Credit Amount (Rs.)

1.12.18

Cash A/c                               Dr.

     To capital A/c

(Started business with cash)

 

5,00,000

 

5,00,000

1.12.18

Purchases A/c                       Dr.

     To ABC Enterprises A/c

(Goods purchased from ABC enterprises on credit)

32,000

 

32,000

3.12.18

Stationery A/c                       Dr.

     To cash A/c

(Purchased stationery for cash)

 

5,000

 

5, 000

4.12.18

Modern Art Paper’s A/c       Dr.

     To sales A/c

(Goods sold to Modern Art Papers on credit)

44,500

 

44,500

10.12.18

Bank A/c                               Dr.

     To Modern Art Paper’s A/c        

(Cheque received from Modern Art Paper for goods sold)

44,500

 

44,500

11.12.18

Purchases A/c                       Dr.

     To cash A/c

(Purchased goods for cash)

84,000

 

84,000

12.12.18

Insurance A/c                        Dr.

     To bank A/c

(paid cheque for insurance)

2,100

 

2,100

15.12.18

Furniture A/c                        Dr.

      To bank A/c

      To Furniture Mart’s A/C

(purchased furniture from Furniture Mart)

12,000

 

7,000

5,000

17.12.18

Rent A/c                                Dr.

     To cash A/c

(Paid rent with cash)

8,500

 

8,500

21.12.18

Drawings A/c                        Dr.

     To cash A/c

(Withdrawn cash for personal use)

6,400

 

6,400

26.12.18

Electricity A/c                      Dr.

Water Bill A/c                      Dr.

     To bank A/c

(paid for electricity and water bill by cheque)

800

1,150

 

 

1,950

31.12.18

Salaries A/c                          Dr.

     To cash A/c

(paid for salaries with cash)

10,000

 

10,000

 

Total c/f

 

750,950

750,950

 

Ledger

A Ledger contains different accounts such that the transactions related to a particular account are recorded in one place. Different transactions are posted from journals to the respective ledger using the three golden rules of debit and credit as discussed above. The ledger is a useful book of record as it helps to determine the net result of all transactions that offer Pacific accounts on different dates. For instance, the ledger of a particular customer will determine the amount due to them for a particular month. The specimen of a ledger is shown as under:

Account Name

                                                              Dr.                                                                                   Cr.

Date

Particulars

JF

Amount (Rs.)

Date

Particulars

JF

Amount (Rs.)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Journal Folio (JF) in the ledger represents the page number in the journal for the particular transaction.

Posting from journal

Posting transactions from journal to ledger is done periodically using the following steps-

  1. Take the transaction in the journal and locate the respective ledger account

  2. On the debit/credit side of that ledger account entered the date of the transaction in the date column, depending upon whether the debit or credit transaction is posted

  3. On the debit side itself in the particular column, write the name of the account through which it is debited in the journal.

  4. Fill the folio column in the book the journal and ledger

  5. Enter the amount of the transaction in the amount column in the debit/credit side of the ledger, as the case may be.

 

Illustration 2: take the above example and post the transactions to respective ledger accounts:

Cash A/c

Dr.                                                                                                                                                 Cr.

Date

Particulars

JF

Amount (Rs.)

Date

Particulars

JF

Amount (Rs.)

1.12.

Capital A/c

 

500,000

3.12.

Stationery A/c



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