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Journal Entries - Part 1

**"The journal is the

book of first entry where all transactions are chronologically recorded."**

What is a Journal?

Definition: A book where business transactions are recorded in chronological order for the first time, before being posted to the ledger.

Origin of Word: From the French word "jour" meaning "day" → Daily record.

Format of Journal Entry

Date | Particulars | L.F. | Debit (₹) | Credit (₹)
-----|------------|------|----------|----------
2024 | Dr. Account Name      Dr.  |  | XXX |
Jan 1|    To Account Name         |  |     | XXX
     | (Narration)                |  |     |

Components:

  1. Date: Date of transaction
  2. Particulars: Account names and explanation
  3. L.F. (Ledger Folio): Page number in ledger (filled during posting)
  4. Debit Amount: Amount debited
  5. Credit Amount: Amount credited
  6. Narration: Brief explanation in brackets

Rules for Writing Journal Entries

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Step-by-Step Process

Step 1: Identify the accounts involved
Step 2: Classify accounts (Personal/Real/Nominal)
Step 3: Apply golden rules
Step 4: Record in journal format

Common Simple Transactions

1. Started Business with Cash

Transaction: Started business with ₹5,00,000 cash.

Analysis:

  • Cash A/c (Real) → Debit (what comes in)
  • Capital A/c (Personal - Owner) → Credit (the giver)

Journal Entry:

Date      | Particulars                    | L.F. | Debit    | Credit
----------|--------------------------------|------|----------|--------
Jan 1     | Cash A/c                   Dr. |      | 5,00,000 |
          |    To Capital A/c              |      |          | 5,00,000
          | (Being capital introduced)     |      |          |

2. Purchased Goods for Cash

Transaction: Purchased goods for ₹1,00,000 cash.

Analysis:

  • Purchases A/c (Nominal - Expense) → Debit
  • Cash A/c (Real) → Credit (what goes out)

Journal Entry:

Purchases A/c                      Dr.    ₹1,00,000
    To Cash A/c                                ₹1,00,000
(Being goods purchased for cash)

3. Purchased Goods on Credit

Transaction: Purchased goods worth ₹50,000 from Ram on credit.

Analysis:

  • Purchases A/c (Nominal) → Debit
  • Ram A/c (Personal - Creditor, the giver) → Credit

Journal Entry:

Purchases A/c                      Dr.    ₹50,000
    To Ram A/c                                 ₹50,000
(Being goods purchased on credit from Ram)

4. Sold Goods for Cash

Transaction: Sold goods for ₹75,000 cash.

Analysis:

  • Cash A/c (Real) → Debit (what comes in)
  • Sales A/c (Nominal - Income) → Credit

Journal Entry:

Cash A/c                           Dr.    ₹75,000
    To Sales A/c                               ₹75,000
(Being goods sold for cash)

5. Sold Goods on Credit

Transaction: Sold goods to Shyam for ₹60,000 on credit.

Analysis:

  • Shyam A/c (Personal - Debtor, the receiver) → Debit
  • Sales A/c (Nominal) → Credit

Journal Entry:

Shyam A/c                          Dr.    ₹60,000
    To Sales A/c                               ₹60,000
(Being goods sold on credit to Shyam)

6. Paid Expenses

Transaction: Paid salary ₹20,000 cash.

Analysis:

  • Salary A/c (Nominal - Expense) → Debit
  • Cash A/c (Real) → Credit

Journal Entry:

Salary A/c                         Dr.    ₹20,000
    To Cash A/c                                ₹20,000
(Being salary paid)

7. Received Income

Transaction: Received rent ₹15,000 cash.

Analysis:

  • Cash A/c (Real) → Debit
  • Rent Received A/c (Nominal - Income) → Credit

Journal Entry:

Cash A/c                           Dr.    ₹15,000
    To Rent Received A/c                       ₹15,000
(Being rent received)

8. Purchased Assets

Transaction: Purchased machinery for ₹2,00,000 cash.

Analysis:

  • Machinery A/c (Real - Asset) → Debit
  • Cash A/c (Real) → Credit

Journal Entry:

Machinery A/c                      Dr.    ₹2,00,000
    To Cash A/c                                ₹2,00,000
(Being machinery purchased)

9. Paid Creditor

Transaction: Paid cash ₹30,000 to creditor Mohan.

Analysis:

  • Mohan A/c (Personal - Creditor, the receiver of payment) → Debit
  • Cash A/c (Real) → Credit

Journal Entry:

Mohan A/c                          Dr.    ₹30,000
    To Cash A/c                                ₹30,000
(Being payment made to Mohan)

10. Received from Debtor

Transaction: Received cash ₹25,000 from debtor Ramesh.

Analysis:

  • Cash A/c (Real) → Debit
  • Ramesh A/c (Personal - Debtor, the giver) → Credit

Journal Entry:

Cash A/c                           Dr.    ₹25,000
    To Ramesh A/c                              ₹25,000
(Being cash received from Ramesh)

11. Drawings by Owner

Transaction: Owner withdrew ₹40,000 cash for personal use.

Analysis:

  • Drawings A/c (Personal - reduces capital) → Debit
  • Cash A/c (Real) → Credit

Journal Entry:

Drawings A/c                       Dr.    ₹40,000
    To Cash A/c                                ₹40,000
(Being cash withdrawn for personal use)

Common Mistakes to Avoid

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Practice Transactions

Try these on your own:

  1. Paid rent ₹10,000 cash.
  2. Purchased furniture for ₹80,000 from ABC Ltd. on credit.
  3. Sold goods to Kavita for ₹45,000 on credit.
  4. Received commission ₹5,000 cash.
  5. Paid electricity bill ₹3,000 cash.

Quiz: Journal Entries - Part 1

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