What is Journal - Accounting Journal Entries – Format - Explanation

 Definition of Journal In Accounting

After analyzing transaction, the next step is to record these Transactions in the journal. The process of recording accounting transactions from voucher to Journal is called Journalizing. The Main Function of Journal is to Record Business Transactions taken place between two or more parties from the evidence documents like invoice or voucher chronologically. We will, here, discuss about Accounting Journal Entries, its format and then explain the journal entries with the help of an illustration. If you miss this post then please referred to Transaction Analysis.

Note: Journal is the second step of the Accounting Cycle.

These changes in business transactions are recorded in the Journal or Book of Original Entry and the Process through which these changes are recorded in the book or journal is called Journalizing.

The word Journal is derived from the word “Jour” which means Day, so journal means Daily Book or the Day to Day Book. In Journal, business transactions are recorded chronologically, i.e, date-wise.

Journal is also called “Subsidiary Book”, because it clearly shows which types of accounts are debited and which types of accounts are credited.

Journal Entry

Journal Entry means recording of business transaction in the Journal

Journal Entry Format | Proper Journal Entry Format

There are two types of Entry:

        i.   Simple Entry

      ii.   Compound Entry

(i)  Simple Entry

When one account is debited and other one is credited then it is called simple entry. For Example, Salaried paid to employees involves two accounts, i.e, Salaries account and Cash account. In which one account, (Salaries Account as it is increasing) is debited and second one (Cash account is credited as it is decreasing).

     (ii)   Compound Entry

An entry in which more than one account is debited or credited. It may be possible that there are more than one debit accounts but there is only one credit account. And, also it may also be possible that there is only one debit account but more than one credit account. For Example, We paid salaries, paid rent, paid our electricity bills, etc for Cash, then there is more than one debit account, i.e, salaries, rent and electricity bills accounts and Cash is only the credit account. Similarly, we receive cash from our two customers, debtors, Mr. B and Mr. C, then Cash account is only the debit account but we have two credit accounts, i.e, Mr. B and Mr. C, as our Debtors’ accounts.

Format of Journal

Date	Particulars	L.F	Amount Rs.	Amount Rs.
2014 June 1	Cash A/C Capital A/C (Started Business with Cash Rs.50,000)		50,000	50,000

Explanation

1.   Date

The date on which particular transaction takes place is written in this column under the two lines. In the first line year is written, like 2014 and in the second line, first we write the name of month and then the date on which particular transaction takes place, in our case it is 1st date of the month of June.

2.   Particulars / References / Details

Under this column, in the first line, all the possible debit accounts and in the second line, all the possible credit accounts are recorded under the two consecutive lines. Firstly, we always write the names of all the debits accounts and then all the credit accounts are recorded when no one debit account involved in the transaction is left. Debit accounts are recorded very closely to the left-handed margin while the credit accounts are recorded some distance away from the left-handed margin and write where the name of last debit account is near to end. In this way, debit and credit accounts are recorded separately.

After recording all the possible debit accounts and credit accounts, a narration is written which is actually an explanation of the transactions.

3.   Ledger Folio (L.F)

It is simply the page numbers of the ledger (we will study in our next chapter), where concerned debit and credit accounts are posted against each other. It helps us in finding the concerned accounts in the ledger.

Note:  The name of an account can not come into its own account, the reason being is that we record the accounts in relation to each other. For Example, when we purchase goods from our creditor, we treat our self as purchaser and we record the name of our creditor and maintain his / her account. Similarly, our creditor treats himself / herself as a seller, so he / she records the name of us asa debtor in his / her books of accounts. That is why, our name is come in his / her books of accounts and our creditor’s name come into our books of account.In this way both parties make an accountability of each other.

4.   Amount

There are two columns of amount. First one is for Debit accounts and second one is for credit accounts. In the first column, the amount of debit accounts are written against them and in the second column, the amount of credit accounts are written against them.

Accounting Journal Entries

Understanding of The Journal Through an Illustration

Or

How To journalize Transactions

Mr. A is the owner of the jewelry business. He started his business on 1^stjune, 2014. Following are the transactions taken place during the month:

2014                           Transactions                                                   Amount

                                                                                                                 Rs.

June, 1 Commencement of Business with Cash                                  150,000

June, 6 Purchase goods from Mr. B                                                      50,000

June, 9 Sold goods to Mr. C                                                                  30,000

June, 15 Paid Cash to Mr. B                                                                  49,000

June, 15 Mr. B allows Cash Discount                                                     1,000

June, 20 Received From Mr. C in full settlement of his discount          29,200

Solution

Firstly, we have to make our journal, then we record our business transactions in the journal.

  

Date	Particulars	L.F	Amount Rs.	Amount Rs.
2014 June 1	Cash A/C               Capital A/C (Started Business with Cash Rs.50,000)		150,000	150,000
June 6	Purchases A/C                  Mr. B (Purchase Goods on Credit)		50,000	50,000
June 9	Sales A/C         Mr. C (Sold Goods on Credit)		30,000	30,000
June 15	Mr. A A/C         Cash A/C (Cash Paid to Mr. A)		49,000	49,000
June 15	Mr. A A/C         Discount Received A/C        (Purchase Goods on Credit)		1,000	1,000
June 20	Cash A/C  Discount Allowed A/C                               Mr. C A/C        (Purchase Goods on Credit)		29,200 800	30,000

Explanation of the Illustration

1.   In the first transaction, Mr. A, owner of the business started his business with cash. We know anything invested in the business whether with cash, goods or other things is the capital of the owner that he / she brings into the business and gives the business to start it, to run it smoothly. Cash is bringing into the business, so we debit it and capital also increases, so we credit it.

2.   This is the transaction of purchasing the goods. We know anything which is purchase for resalable purpose is called purchases other such things becomes the assets of the business that provide probable future benefits to the business. Purchases are direct expenses and debit the expense when it increases. Cash is going out of the business, as we purchase the goods. We Purchase our goods on credit, so Mr. B is our creditor and we create a creditor as a current liability.

3.   Now, the time to sell these goods to our customers in the market so that we get reasonable profit after meeting our expenses. So, we sold our goods to Mr. C, one of the customer, on credit. Sales is increasing as we are selling our products, so it is credit. We are creating Mr. C as our debtor which is a current asset. As it is increases because we have to receive payments against the sales so we debit it.

4.   In this transaction, We are making payments to Mr. B our supplier or creditor for the goods purchased by us. As we give cash and it is going out of the business so we credit it as it is decreasing. By making payments to our creditor we are decreasing our current liability (creditor) so we debit liability account and credit the cash account.

5.   When we make payments to our creditor before the due date then the creditor usually grants us discount for the prompt payment. This discount is an expense for the creditor but income for the purchaser (debtor). So, this is our income. As it is increasing so we credit it and debit our creditor as we receive from him / her.

Note: As the transaction incurs on the same date, so we may pass compound entry so if we

pass the compound entry then the entry no. 4 can also be passed as:

Date	Particulars	L.F	Amount Rs.	Amount Rs.
June 15	Mr. A A/C Cash A/C        Discount Received A/C (Cash Paid to Mr. A and Discount Received)		50,000	49,000 1,000

But we can also pass the single entry but the results in both cases are same. It is just the just way of presentation.

6.   In this transaction, we receive discount from our creditor as an income, so we credit it and debit our creditor as we receive from our creditor.

7.   In the last transaction, we receive Cash from our customer, Mr. C for the goods sold by us to him / her, so we debit the cash account as it is increasing. Also we receive our receipt before due date we allow our customer a discount for the prompt payment. This discount is expense for us and an income for our customer, so we record this discount as an expense in our journal. As expenses are increasing, so we debit it and credit our debtor as we receive from it.

We discuss about accounting journal entries its format and explain it with the help of Illustration. Hopefully you understand it properly. From the above we can say the Journal is the called the Book of Original Entry.