JournalJournalUsually in a business, transactions are Usually in a business, transactions are to be debited and credited are recorded to be debited and credited are recorded carefully in a systematic manner. The carefully in a systematic manner. The book in which the accounts are recorded book in which the accounts are recorded in a systematic manner is called a in a systematic manner is called a JournalJournal..The The JournalJournal is the primary book of is the primary book of accounts which contains transactions accounts which contains transactions recorded in a chronological (day-to-day) recorded in a chronological (day-to-day) order. order. Recording transactions in a Journal is Recording transactions in a Journal is known as known as journalising the transactionsjournalising the transactions. .

Format of a Journal Format of a Journal

Date Particulars L.F Debit (Rs) Credit (Rs)

         

As is clear from the format of a Journal, it As is clear from the format of a Journal, it contains 5 columns . These are explained contains 5 columns . These are explained

belowbelow • The first column is for The first column is for Date,Date, wherein the wherein the

date of the transaction is written. date of the transaction is written. • The second column is for the The second column is for the ParticularsParticulars

of the transaction, wherein the names of of the transaction, wherein the names of the accounts involved in the transactions the accounts involved in the transactions are written in a logical manner.are written in a logical manner.

First the account to be debited is written First the account to be debited is written with the words with the words `Dr.` `Dr.` following it.following it.In the next line, after leaving a little space, In the next line, after leaving a little space, the name of the account to be credited is the name of the account to be credited is written preceded by the word written preceded by the word `To``To`

In the next line, the explanation of the In the next line, the explanation of the entry together with details is written in entry together with details is written in brackets. This is called brackets. This is called NarrationNarration. .

• In the third column, In the third column, L.FL.F means means Ledger Ledger FolioFolio. It is the number of the page in . It is the number of the page in the Ledger where the respective the Ledger where the respective account will be entered.account will be entered.

• The fourth column is named The fourth column is named Debit Debit (Rs.)(Rs.). In this column the amounts to be . In this column the amounts to be debited to various accounts is entered.debited to various accounts is entered.

• The fifth column i.e. The fifth column i.e. Credit (Rs.)Credit (Rs.) is is meant for entering the amounts to be meant for entering the amounts to be credited to various accounts. credited to various accounts.

Example-1Example-1

Jay starts a business with a capital of Jay starts a business with a capital of Rs 50,000 on 1st Jan, 2008. This Rs 50,000 on 1st Jan, 2008. This means that his company has Rs 50,000 means that his company has Rs 50,000 cash, which is cash brought into the cash, which is cash brought into the business. `Cash` is an asset. So Cash business. `Cash` is an asset. So Cash Account is a `Real Account`. The rule Account is a `Real Account`. The rule of of Dr.Dr. and and Cr.Cr. for a Real Account is : for a Real Account is :

Debit what comes in Debit what comes in

Credit what goes outCredit what goes out

Since cash is coming in, it will be Since cash is coming in, it will be debited i.e. Cash Account will be debited i.e. Cash Account will be debited.debited.Now, the second account involved in Now, the second account involved in the example is the `Capital Account` the example is the `Capital Account` (i.e. Jay's Capital Account). Capital (i.e. Jay's Capital Account). Capital account is a Personal account. The account is a Personal account. The rules of rules of Dr.Dr. and and Cr.Cr. for Personal for Personal Accounts are : Accounts are :

Debit the receiver Debit the receiver

Credit the giverCredit the giver

As the business is a separate entity As the business is a separate entity (separate entity concept) and Jay is (separate entity concept) and Jay is investing money in the business, Jay is the investing money in the business, Jay is the giver and the company is the receiver. So, giver and the company is the receiver. So, in order to keep an account of his capital, in order to keep an account of his capital, Jay has to prepare his own account. Also Jay has to prepare his own account. Also that account is called Jay's Capital that account is called Jay's Capital Account or simply Capital Account. Account or simply Capital Account. Capital Account is a personal Account. So Capital Account is a personal Account. So the Capital account is being credited in the Capital account is being credited in accordance to the rule : credit the giver. accordance to the rule : credit the giver. So, the journal entry for this example will So, the journal entry for this example will be: be:

DatDatee

ParticularsParticulars L.L.F.F.NoNo..

Amount Amount (Dr)(Dr)

Amount Amount (CR)(CR)

1Ja1Jan n 20020088

Cash Account DrTo Capital Account(Being the amount invested by Jay in the business as Capital)

50,00050,000

50,00050,000

Example-2 Example-2 The following transactions took place The following transactions took place

in the business on a particular date : in the business on a particular date :

1. A salary of Rs 5000 is paid. 1. A salary of Rs 5000 is paid.

2. Goods of Rs 500 purchased in cash. 2. Goods of Rs 500 purchased in cash.

3. Goods worth Rs 1000 purchased on 3. Goods worth Rs 1000 purchased on credit from Rahul. credit from Rahul.

4. Sold goods to Mohan for Rs 4000. 4. Sold goods to Mohan for Rs 4000.

Journalise the above transactions Journalise the above transactions

Format of LedgerFormat of Ledger

SPECIMEN OF A LEDGER ACCOUNT Cr.

Date Particulars Folio Amount Rs. P

Date Particulars Folio Amount Rs. P