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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:

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

Rules for Writing Journal Entries

Note

Golden Rules to Remember:

Write the date on the left.
Debit account is written first, followed by "Dr."
Credit account is written below with "To" prefix (slightly indented).
Write the narration in brackets below the entry.
Draw a line after each entry to separate from the next.
Amounts should match (Total Debit = Total Credit).

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

Note

Watch Out For:

Wrong Classification: Mixing up Personal/Real/Nominal accounts.
Forgetting "To": Credit account must have "To" prefix.
Unequal Amounts: Debit total must equal Credit total.
Poor Narration: Be specific (e.g., "Being goods purchased from Ram" not just "Purchases").
Wrong Account Names: "Purchases" vs "Goods" - use correct terminology.

Practice Transactions

Try these on your own:

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

Quiz: Journal Entries - Part 1

Test Your Knowledge

Question 1 of 5

1. When goods are purchased on credit, which account is credited?

Purchases A/c

Creditor's A/c

Cash A/c

Sales A/c