Journal - The Book of Original Entry:

According to double entry system of bookkeeping, transactions are recorded in the books of accounts in two stages:

• First stage - Journal
• Second stage - Ledger

The flow of accounting information from the time a transaction takes place to its recording in the ledger may be illustrated as follows:

The initial record of each transaction is evidenced by a business document such as invoice, cash, voucher etc. Transactions are first recorded in journal and there after posted to two or three concerned accounts in the ledger.

Contents:

• Definition and explanation
• Entry
• Narration
• Characteristics
• Advantages
• Format
• Rules for journalizing
• Simple entry and compound entry
• Personal books
• Cash discount
• Example

Definition and Explanation of Journal:

The word journal has been derived from the French word "Jour" Jour means day. So, journal means daily. Transactions are recorded daily in journal and hence it has named so. As soon as a transaction takes place its debit and credit aspects are analyzed and first of all recorded chronologically (in the order of their occurrence) in a book together with its short description. This book is known as journal. Thus we see that the most important function of journal is to show the relationship between the two accounts connected with a transaction. This facilitates writing of ledger. Since transactions are first of all recorded in journal, so it is called book of original entry or prime entry or primary entry or preliminary entry, or first entry.

Entry:

Recording a transaction in the appropriate place of the concerned book of account is called entry. Entry may be of the following two types:

Journal Entry:

Recording a transaction in a journal is called journal entry or journalizing.

Ledger Entry:

Recording a transaction from journal to the concerned account in the ledger is called ledger entry. It is also known as ledger posting.

Narration:

A short explanation of each transaction is written under each entry which is called narration. The subject matter of the transaction can be ascertained through narration. Besides this, if there be any mistake in determining debit or credit aspect of a transaction, it can be easily detected from narration. "A journal entry is not complete without narration".

Characteristics:

Journal has the following features:

1. Journal is the first successful step of the double entry system. A transaction is recorded first of all in the journal. So, journal is called the book of original entry.
2. A transaction is recorded on the same day it takes place. So, journal is also called a day book.
3. Transactions are recorded chronologically. So, journal is called chronological book.
4. For each transaction the names of the two concerned accounts indicating which is debited and which is credited, are clearly written into consecutive lines. This makes ledger - posting easy. That is why journal is called "assistant to ledger" or "subsidiary book".
5. Narration is written below each entry.
6. The amount is written in the last two columns - debit amount in debit column and credit amount in credit column.

Advantages of Journal:

The following are the advantages of journal:

1. Each transaction is recorded as soon as it takes place. So there is no possibility of any transaction being omitted from the books of account.
2. Since the transactions are kept recorded in journal chronologically with narration, it can be easily ascertained when and why a transaction has taken place.
3. For each and every transaction which of the two concerned accounts will be debited and which account credited, are clearly written in journal. So, there is no possibility of committing any mistake in writing the ledger.
4. Since all the details of transactions are recorded in journal, it is not necessary to repeat them in ledger. As a result ledger is kept tidy and brief.
5. Journal shows the complete story of a transaction in one entry.
6. Any mistake in ledger can be easily detected with the help of journal.

Format of Journal:

Rules for Journalizing:

How a transaction is recorded in journal, is discussed below:

Suppose the transaction is:

Purchased furniture from M. A on 10.01.05 for $16,000.

Here furniture accounting is debited and M A account is credited.

The various columns of journal are explained in details below:

Date:

This column is used to write the date of the business transaction. Different date formats are used in different countries. Different formats of date are: 15.03.1981, 03.15.1981, 15 March 1981 etc.

Particulars or Details Column:

In this column the names of the two connected accounts are written in two consecutive lines - in the first line the name of account debited and in the second line the name of account credited. While the name of account debited always placed close the the left hand margin line, the name of account credited is commenced a short distance away from the margin line. This arrangement will show clearly which account is debited and which credited. This also shows that credit amount is placed on the right side of debit amount. The world "Dr" is used at the end of the name of account debited. It is not necessary to place the word "Cr." after the name of the credited account, because if one account is Dr. it follows that the other account must be Cr. Below the names of the two accounts, i.e. in the third line narration is written usually within a bracket. According to tradition, narration is written starting with a word "being". But modern practice is not to use this word. In most of countries even in Great Britain using the word "To" at the beginning of the name of account credited has become out-dated. So, here it has not been used too. But it is optional for the students.

Ledger Folio (L.F):

The page numbers of the ledger where the two concerned accounts have been posted, are written in this column against the name of each account. This will help locating easily the two concerned accounts from the ledger. On the other hand, when a transaction is posted to ledger, the concerned folio number of the ledger is written in this column. Thus if a folio number stands written in this column, it will mean that the transaction has already been posted to ledger.

Amount:

The debit amount is written in the first "amount" column against the name of account debited and the credit amount in the second "amount" column against the name of account credited.

Note: Although the above form of journal is used in examination answer book. It is not fully correct. Because in large concerns journal is divided into eight subdivisions for the sake of convenience. Out of them only in one subdivision (i.e. journal proper) the above form is used. In the remaining seven subdivisions the form of journal is different.

Simple Entry and Compound Entry:

Every transaction effects two accounts - one is debited and another is account is credited. Thus in recording a transaction in a journal one account is debited and another account is credited. This type of entry is called simple entry.

The entry in which more than one account is debited or more than one account is credited, is known as compound entry. Three or more accounts are connected with a compound entry.

Example of Simple Entry:

For example, on 10.04.05 we bought furniture from S. The entry is:

Example Compound Entry:

For example on 16.05.05 we paid $ 1,000 on account of salaries and $600 on account of rent. For this the entry will be:

Here tow accounts have been debited and the entry involves three accounts. Hence, it is a compound entry.

Personal Books and Business Books:

It should be noted here that no private transactions of the proprietor can be recorded in the books of business. On the other hand, no transactions of the business can be recorded in the books of its proprietor. But the transactions in between proprietor and business must be recorded in the books of both the proprietor and business. If these rules are not strictly followed, the books of account will fail to disclose the true result of business.

We are concerned with the books of business, not with the private books of proprietor. Transactions between the business and its proprietor are recorded in the following two accounts:

1. Capital Account: The money with which proprietor starts his business is called capital. When proprietor brings capital in the business, it is recorded in capital A/C. Capital account is in fact the personal account of the proprietor. So, it is a personal account. The proprietor has given the benefit to the business through introduction of capital. So proprietor's account A/C, i.e. capital account will be credited. From the view point of bookkeeping the introduction of capital to the business by proprietor means that the proprietor lends the money to his business and the business becomes indebted to him. The proprietor is regarded as a special or internal creditor to the business.
   
   Example: Mr. R started a business with $20,000
    

   Date	Particulars	L.F	Amount	Amount
   16.05.05	Cash A/C .............................Dr.      Capital A/C (Being capital brought in)		20,000	20,000

    

2. Drawings: If the proprietor draws any money or takes goods from his business for his personal use, it will be recorded in drawings A/C. Drawings A/C is the personal account of the proprietor, so it is classified as the personal account. Proprietor receives benefit, when he withdraws money or goods from business. So the proprietor's account i.e. drawing is debited.
   
   Example:
    

   Date	Particulars	L.F	Amount	Amount
   16.05.05	Drawings A/C .............................Dr.      Cash A/C (Being amount withdrawn by proprietor)		2,000	2,000

Cash Discount:

The manufacturers and whole sellers frequently grant cash discount to their debtors who will pay their debts before due date for goods purchased by them on credit. The seller regards it a "cash discount" or "sale discount" or "discount allowed". The buyer calls the discount as "purchase discount" or "discount received". The use of sales discount not only stimulate prompt collection but also tend to the possibilities of losses resulting from "bad debts

Example of Journal:

Journalise the following transactions:

Solution:

Journal

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