What is Journal? Process, Example

What is Journal?

A journal refers to a primary book of accounts in which all transactions of a business are recorded. A journal can also be defined as a chronological record of the business transactions. The process of recording a transaction in a journal is known as journalising.

Format of Journal

The format of a journal is shown in Table:

Date	Particulars	L.F.	Debit Amount(₹)	CreditAmount(₹)
Name of the debited account Dr. To Name of the credited account (Narration)

The following is a brief description of the columns used in the preceding journal:

• Date: It records the date when a transaction is made.
  
  
• Particulars: It records the names of the debit and credit accounts affected by a transaction. The debit account is written at the left side of the Particulars column (Dr. is written at the right side) and the credit account is written in the next line with a prefix To. Narration is a brief description of the transaction.
  
  
• Ledger Folio (L.F.): It records the page number of the ledger on which the debit and credit accounts are posted.
  
  
• Debit Amount: It records the debited amount.
  
  
• Credit Amount: It records the credited amount.

Consider the following transactions:

• July 5- Purchased furniture for cash ₹60000.
• July 5- Sold goods for ₹130000 on cash.
• July 5- Sold goods for ₹150000 to Yash on credit.
• July 9- Cash payment of ₹80000 to Raj.
• July 11- Cash received from Yash ₹100000.
• July 11- Purchased goods for cash ₹75000.
• July 15- Purchased goods on credit for ₹50000 from Rajesh.
• July 15- Sold Goods for Cash ₹126000.
• July 21- Sold goods for ₹70000 to Mohan on credit.
• July 23- Purchased machinery for cash ₹80000.
• July 23- Cash withdraw for personal use ₹25000.
• July 27- Rent paid in cash ₹4000.
• July 31- Wages paid in cash ₹4500.
• July 31- Salary paid in cash ₹12000.
• July 31- Commission received in cash ₹2000.

Table shows the journal entries corresponding to the above mentioned transactions:

Date	Particulars	L.F	Debit Amount(₹)	Credit Amount(₹)
July 5	Furniture A/c To Cash A/c (Being the furniture purchased for cash)	Dr.	60,000	60,000
	Cash A/c To Sales A/c (Being goods sold for cash)	Dr.	1,30,000	1,30,000
	Yash To Sales A/c (Being goods sold to Yash on credit)	Dr.	1,50,000	1,50,000
	Raj To Cash A/c (Being cash paid to Raj)	Dr.	80,000	80,000
	Cash A/c To Yash (Being cash received from Yash)	Dr.	1,00,000	1,00,000
	Purchase A/c To Cash A/c (Being goods purchased on cash)	Dr.	75,000	75,000
	Purchase A/c To Rajesh (Being goods purchased from Rajesh on credit)	Dr.	50,000	50,000
	Cash A/c To Sales A/c (Being goods sold for cash)	Dr.	1,26,000	1,26,000
	Mohan To Sales A/c (Being goods sold to Mohan on credit)	Dr.	70,000	70,000
	Machinery A/c To Cash A/c (Being machinery purchased for cash)	Dr.	80,000	80,000
	Drawings A/c To Cash A/c (Being cash withdrew for personal use)	Dr.	25,000	25,000
	Rent A/c To Cash A/c (Being rent paid)	Dr.	4,000	4,000
	Wages A/c To Cash A/c (Being wages paid)	Dr.	4,500	4,500
	Salary A/c To Cash A/c (Being Salary paid)	Dr.	12,000	12,000
	Cash A/c To Commission A/c (Being commission received)	Dr.	2,000	2,000
	Grand Total		17,88,500	17,88,500

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Process of Journalising

We have mentioned that a journal entry is the basic record of business transactions. It becomes very easy to journalise business transactions when you understand the rules of debit and credit. When we journalise a transaction, one account receives the benefits and another account gives the benefits.

The following steps are performed to enter a transaction in the journal:

• Ascertaining that the accounts are affected by the transaction.
  
  
• Ascertaining the nature of the account which is affected.
  
  
• Ascertaining the account to be debited and the account to be credited by applying the rules of debit and credit.
  
  
• Ascertaining the amount by which the accounts are to be debited and credited.
  
  
• Recording the date and month of the transaction in the date column and the year at the top.
  
  
• Recording in the particular column the name of the account to be debited. Along with the name of the account, the abbreviation “Dr.” also should be written in the same line against the name of the account. Write the amount to be debited in the debit amount column.
  
  
• Recording in the “Particular” column the name of the account to be credited. The name of the account to be credited should be written in the next line preceded by the word “To”. The word
  “To” is written towards the right after leaving a few spaces. Write the amount to be credited in the credit amount column.
  
  
• Recording a brief description of the transaction starting from the next line in the “Particulars” column. This brief description of the transaction is termed as narration.
  
  
• Drawing a line across the “Particulars” column to separate one journal entry from the other.

Illustration

Let us look at the following illustrations:

Transaction number 1

A new firm issues 1,000 shares of common stock and receives ₹7,50,000 cash.

The journal entry steps are as follows:

• Step 1: The firm raises capital by issuing shares of its stock on January 6, 2013.
  
  Accounts Affected:
  
  Assets – Cash is increased.
  
  Share capital – Common stock is increased.
  
  
• Step 2: The journal entry would be as follows:
  
  Cash ₹7, 50,000
  
  Common Stock ₹7, 50,000

Date	Particulars	L.F.	Debit Amount(₹)	Credit Amount(₹)
Jan 6, 2013	Cash To Common Stock	Dr. 1		7, 50,000

Transaction number 2

The firm pays salaries of ₹1, 00,000 to its employees on January 31, 2013.

The journal entry steps are as follows:

• Step 1: Salaries represent an expense of the accounting period. The matching concept requires expenses to be recorded in the period they are incurred to generate revenue.
  
  Accounts Affected:
  
  Share Capital – Expense is increased
  
  Assets – Cash is decreased
  
  
• Step 2: The journal entry would be as follows:
  
  Salaries Expense ₹1, 00,000
  
  Cash ₹1, 00,000

Date	Particulars	L.F.	Debit Amount(₹)	Credit Amount(₹)
Jan31,2013	Salary A/c To Cash A/c (Being paid salary)	Dr. 2	1, 00,000	1, 00,000

Therefore, each journal entry follows a two-step process of balancing every transaction for its debit and credit effect on financial position of an organisation.