Journal
Purpose and format
The journal is the book of original entry. Each entry shows the date, particulars (the debit account first, then "To" and the credit account), the ledger folio, the debit amount, the credit amount and a narration beginning with "(Being ...)".
Rules of debit and credit
Traditional classification:
- Personal accounts: debit the receiver, credit the giver.
- Real accounts: debit what comes in, credit what goes out.
- Nominal accounts: debit expenses and losses, credit incomes and gains.
Modern classification: debit increases assets and expenses; credit increases liabilities, capital and incomes.
Kinds of entries: simple (one debit, one credit), compound (one account on one side and several on the other), opening entry (bringing in the previous year's assets, liabilities and capital) and transfer entries such as transferring purchases to the trading account.
Worked example
Sold goods to Ram on credit ₹25,000. Ram is a personal account and receives the benefit of the goods, so debit Ram ₹25,000. Sales is a nominal account representing income, so credit Sales ₹25,000. Entry: Ram's A/c Dr. 25,000; To Sales A/c 25,000; (Being goods sold on credit). Second entry: paid rent ₹8,000 in cash - Rent A/c Dr. 8,000; To Cash A/c 8,000, because rent is an expense and cash is a real account going out.
Traps
Writing "To" against the debit account; omitting the narration; ignoring the L.F. column; treating cash discount allowed as a reduction of sales instead of debiting Discount Allowed A/c; entering a contra transaction (cash deposited into bank) in the journal when it belongs in the cash book.