Journal Entries

Journal entries are the systematic order record of financial transaction in the journal. Journal entries consist of the name of debit and credit involved in the financial transaction with a brief narration. It is the basis of making ledger. This note has information about journal entries and journalizing different types of account.

Summary

Things to Remember

A business organization performs a number of financial transactions on regular basis.
The goods are the items on which the business deals.
The business returns goods to its supplier if the goods are found defective, damaged, and inferior in quality or if they are not as per order.
Journal entries are the systematic order record of financial transaction in the journal.

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Journal Entries

There are different types of business transactions which are recorded in a sequential order in the journal book. When those transactions are recorded in the journal, it becomes a journal entry. Journal entries are the systematic and sequential record of the transactions occurred in the business. It consists both the debit and credit party included in the transaction with its brief narration. It helps in making the ledger account. There is example of two transactions and their journal entries:

Magh 10 Cash of Rs.10000 received from Aman.

Magh 11 Paid for the salary of Rs.5000 and rent 5000.

Journal Entries

Date	Particular	LF	Debit Rs.	Credit Rs.
Magh 10	Cash a/c.............................Dr.		10,000
	To Aman's a/c			10,000
	(Being cash received from Aman)
Magh 11	Salary a/c....................................Dr.		5000
	Rent a/c......................................Dr.		5000
	To Cash a/c			10,000
	(Being paid for salary and rent)

Journalizing different Types of Accounts

The number of business transaction is performed in the business organisation on a regular basis. All the transactions performed are different in nature from one another. Some of the types of financial transactions that takes place frequently in the business are as follows:

Investment of Capital

At the beginning of the business, cash comes in the business organisation which is debited as cash account is the real account whereas the capital is a personal account so, the capital account is credited. Similarly, if the business owner starts the business with goods, furniture and bank balance, those assets are debited and the capital account is credited.

For Example:

Jestha 1 Mahesh started the business with cash of Rs.1,00,000.

Jestha 5 Mahesh deposited cash of Rs.20,000 in the bank as his additional capital.

Jestha 14 Mahesh brought a computer into the business of Rs.50,000.

Journal entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
Jestha 1	Cash a/c ……………………………Dr.		1,00,000
	To capital a/c			1,00,000
	(Being business started with cash.)
Jestha 5	Bank a/c ……………………………………Dr.		20,000
	To capital a/c			20,000
	(Being cash deposited in the bank as additional capital.)
Jestha 14	Computer a/c ……………………………….Dr.		50,000
	To capital a/c			50,000
	(Being computer brought into the business as additional capital.)

Drawing

Drawing is the amount withdrawn by the owner for his/ her personal use from the business. At the time of amount withdrawal, the owner becomes receiver so, the amount of drawing is debited as drawing account and cash being the real account is credited as cash account. If the owner withdraws goods from the business, his drawing accounting is debited and goods or purchase account is credited.

For Example:

Shrawan 10 Mahesh withdrew cash of Rs.10,000 from the business for his personal use.

Shrawan 16 Mahesh withdrew cash of Rs.5,000 from the bank for his personal use.

Shrawan 27 Mahesh withdrew goods of Rs.2,000 from the business for his personal use.

Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
Shrawan 10	Drawing a/c……………………………….Dr.		10,000
	To cash a/c			10,000
	(Being cash withdrew from business for personal use.)
Shrawan 16	Drawing a/c……………………………….Dr.		5,000
	To Bank a/c			5,000
	(Being cash withdrew from bank for personal use.)
Shrawan 27	Drawing a/c ……………………………….Dr.		2,000
	To purchase a/c			2,000
	(Being goods withdrew from business for personal use.)

Purchase

During the purchase of the goods, there are two different conditions. When the goods are purchased on cash, the purchase account is debited being an expense of the nominal account whereas the cash account being a real account is credited as the cash goes out. If the goods are purchased on credit, purchase account is debited as the goods comes in the business and the supplier’s account is credited as the supplier becomes the giver of the goods.

For Example:

a). Goods purchased for cash Rs.5,000.

b). Goods purchased from Dhiraj on credit for Rs.3,000.

Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
a)	Purchase a/c ……………………………….Dr.		5,000
	To cash a/c			5,000
	(Being goods purchased on cash.)
b)	Purchase a/c……………………………….Dr.		3,000
	To Dhiraj’s a/c			3,000
	(Being goods purchased form Dhiraj on credit.)

Purchase Return

When the goods are found defective, damaged, and inferior in quality or if they are not as per order, the goods purchased may be returned to the suppliers. When the goods are returned to the supplier, supplier’s account is debited as the supplier becomes the receiver whereas the purchases return account is credited being the contra purchase account. It reduces the amount of purchase.

For Example:

a). Purchased goods from Megha Centre for Rs.10,000.

b). Returned goods to Megha Centre of Rs.2,000 being defective.

Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
a)	Purchase a/c……………………………….Dr.		10,000
	To Megha Centre’s a/c			10,000
	(Being goods purchased from Megha Centre on credit.)
b)	Megha Centre’s a/c……………………………….Dr.		2,000
	To purchase return a/c			2,000
	(Being goods returned to Megha Centre.)

Sales

There are two conditions during the sales of the goods. When the business sells goods on cash, cash comes in and hence cash account is debited whereas sales account is credited being income as per the rules of nominal account. In case of the credit sales of the goods, customer’s account is debited as the customer becomes the receiver of the goods and sales account is credited.

For Example:

a). Goods sales made of Rs.15,000.

b). Goods sold to Naren on credit for Rs.6,000.

Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
a)	Cash a/c ……………………………….Dr.		15,000
	To sales a/c			15,000
	(Being goods sold for cash.)
b)	Naren’s a/c……………………………….Dr.		6,000
	To sales a/c			6,000
	(Being goods sold to Naram on credit.)

Sales Return

When the sold goods are returned by the customer, sales return account is debited being contra sales account whereas the customer’s account is credited as he/ she becomes the giver of the goods. It reduces the amount of sales.

For Example:

a). Sold goods to Barsha Centre for Rs.10,000

b). Returned goods by Barsha Centre for Rs.4,000 being damaged.

Journal Entries

Date	Particulars	LF	Debit Rs.	Credit Rs.
a)	Barsha Centre’s a/c ……………………………….Dr.		10,000
	To sales a/c			10,000
	(Being goods sold to Barsha Centre on credit.)
b)	Sales return a/c……………………………….Dr.		4,000
	To Barsha Centre’s a/c			4,000
	(Being goods returned by Barsha Centre.)

Lesson

Journal

Subject

Accountancy

Grade

Grade 8

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