Journal Entries

Meaning of Journal

Journal is the book of original entry or prime entry where transactions are recorded first in a chronological order (date-wise) from source documents.

The process of recording transactions in the Journal is called Journalizing.

Golden Rules of Accounting

The traditional approach for recording transactions.

Account Type	Rule	Example
Personal Account	Debit the Receiver, Credit the Giver	Ram, Bank, Capital, Outstanding Exp
Real Account	Debit what comes in, Credit what goes out	Cash, Furniture, Machinery
Nominal Account	Debit all Expenses/Losses, Credit all Incomes/Gains	Salary, Rent, Sales, Discount

Modern Approach (CLEAR)

Based on the Accounting Equation (Assets = Liabilities + Capital).

Increase = Debit, Decrease = Credit for:

Assets (Cash, Stock, Debtors)
Expenses (Wages, Rent)

Increase = Credit, Decrease = Debit for:

Liabilities (Creditors, Loans)
Capital (Owner's Equity)
Revenue (Sales, Income)

Special Journal Entries

1. Trade Discount vs Cash Discount

Trade Discount: Allowed on list price. NOT recorded in books. Net amount is entered.
Cash Discount: Allowed for timely payment. RECORDED in books (Nominal Account).

2. Compound Journal Entry

When two or more transactions happen on the same day and involve the same account, a combined entry is passed.

3. Drawings

Cash or goods withdrawn by the owner for personal use.
Entry: Drawings A/c Dr. To Cash/Purchases A/c

4. Charity/Free Samples

Goods given away.
Entry: Charity/Advt A/c Dr. To Purchases A/c

5. Bad Debts

Amount likely to be irrecoverable.
Entry: Bad Debts A/c Dr. To Debtor's A/c

6. Bad Debts Recovered

Amount previously written off as bad debt is now received.
Entry: Cash A/c Dr. To Bad Debts Recovered A/c (Gain)

Format of Journal

Date	Particulars	L.F.	Debit (₹)	Credit (₹)
Data	Account Name ... Dr. To Account Name (Narration)	Ref	Amount	Amount

L.F. (Ledger Folio): Page number of the ledger where this account is posted.

Practicals & PYQs - Journal

Part A: Journal Entries (10 Questions)

Q1. Started business with Cash ₹1,00,000.

Cash A/c .................. Dr. 1,00,000
To Capital A/c .......................... 1,00,000
(Being business started with cash)

Q2. Purchased goods from Ram ₹10,000 on credit.

Purchases A/c ............. Dr. 10,000
To Ram's A/c ............................. 10,000
(Being goods purchased on credit)

Q3. Paid to Ram ₹9,500 in full settlement of his account of ₹10,000.

Ram's A/c ................. Dr. 10,000
To Cash A/c .............................. 9,500
To Discount Received A/c ................. 500
(Being cash paid and discount received)

Q4. Withdrew goods for personal use ₹2,000.

Drawings A/c .............. Dr. 2,000
To Purchases A/c ......................... 2,000
(Being goods withdrawn for personal use)

Q5. Received commission ₹500.

Cash A/c .................. Dr. 500
To Commission A/c ........................ 500
(Being commission received)

Q6. Goods destroyed by fire ₹5,000 (No insurance).

Loss by Fire A/c .......... Dr. 5,000
To Purchases A/c ......................... 5,000
(Being goods destroyed by fire)

Q7. Purchased Machinery for cash ₹50,000 and paid installation charges ₹2,000.

Machinery A/c ............. Dr. 52,000
To Cash A/c .............................. 52,000
(Being machinery purchased and installed)

Q8. Sold goods to Amit (List Price ₹10,000) at 10% Trade Discount.

Amit's A/c ................ Dr. 9,000
To Sales A/c ............................. 9,000
(Being goods sold at 10% Trade Discount [10k - 1k])

Q9. Depreciation charged on Machinery ₹5,000.

Depreciation A/c .......... Dr. 5,000
To Machinery A/c ......................... 5,000
(Being depreciation charged)

Q10. Salary due to Staff ₹10,000 (Outstanding).

Salary A/c ................ Dr. 10,000
To Outstanding Salary A/c ................ 10,000
(Being salary due but not paid)

Part B: Previous Year Questions (PYQs) (10 Questions)

Q11. Purchase of machinery for cash differs from purchase of goods for cash because:

Machinery is debited to Machinery A/c, whereas Goods are debited to Purchases A/c.

Q12. Withdrawal of cash from business by the proprietor is credited to:

Cash Account (Debited to Drawings A/c).

Q13. Nominal Accounts relate to:

Expenses, Losses, Incomes, and Gains.

Q14. The Narration in a Journal Entry:

Is a brief explanation of the transaction.

Q15. Goods distributed as free samples should be credited to:

Purchases Account.

Q16. Cash Discount is allowed on:

Prompt/Early Payment.

Q17. Which account is debited for payment of Life Insurance Premium of the proprietor?

Drawings Account.

Q18. Ledger Folio (L.F.) column in Journal records:

Page number of the ledger account.

Q19. Decrease in Liabilities is:

Debited.

Q20. Journal is also known as:

Book of Prime Entry / Original Entry.

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