Journal and Journalising Process

Every business organization carries various transactions throughout the day. Some transactions are similar, many are different. Hence, it is not possible to keep all the journalising process in mind without recording it. All these transactions are important and therefore can’t be avoided or omitted. So, to avoid any mistake or omission, all these transactions are recorded in books. Journalising is the traditional form of keeping track of happenings in the organization.

Meaning of Journal

Journal is the book of prime entry also called the book of original entry. That is, transactions are first entered here and is the most important book of accounts. The transactions are recorded systemically and in chronological order.

They are entered to show which accounts should be debited or credited. Recording of transactions in “Journal” is called as “Journalising the entries”

“Journal” is derived from the Latin word ‘Jour’, which means ‘a day’. The transactions are first entered here and it is then subsequently posted to another account book called as “Ledger”.

Browse more Topics under Basic Accounting Procedures

• Double Entry System
• Traditional Approach
• Modern Approach of Classification

Importance of Journal

• Information recorded in the journal which certainly serves as a proof or evidence in the court of law.
• It provides the base for ledger posting and also for cross-checking of entries posted.
• It maintains the detailed record of transactions in the form of narration, written immediately after passing the entry hence is provides a highlight of the transaction done.
• Because the transactions are recorded in chronological order it is useful for easy reference in the future.

Journalising Process

Journalising refers to recording business transactions systematically and in a summarised form in the journal. It means a process of entering the twofold effects of transactions in the form of debt and credit in the journal.

Learn more about Recording Transactions here in detail.

Specimen form of Journal

In the Journal of M/s______________

Date	Particulars	L.F	Debit (Rs.)	Credit(Rs.)
YYYY DD/MM	_____________ A/c               ……… Dr.      To________________ A/c (Being _______________________) (Narration)		XXXX	XXXX

Significance and explanation of columns in the Journal

• Date Column: In the first column the date of the transaction is entered, the year is most probably written on the top of the column than to repeat it every day.
• Particulars Column: Here the accounting entry is written in a summarised form of debit and credit. The names of the accounts involved in the transaction are written in the journal entry.
  On the first line, the account is debited, the word “Dr.” is written at the right end of the same line of account debited.
  On the second line, the account credited is written with a prefix “To” after leaving a little space towards the start.
  Immediately below the entry, a small explanation of the transaction called ‘narration’ is written. The narration begins with the word “Being”.
• Ledger Folio No. Column (L.F.): In this column, the page number of the Ledger in which the journal entry is posted, is recorded. This also helps is easy cross verification and reference in the future.
• Debit Amount Column: The amounts to be debited to the accounts concerned or involved are written.
• Credit Amount Column: The amounts to be credited to the accounts concerned or involved are written.

Rules for Journalising Transactions: (Golden rules of Accountancy)

Personal Account: It relates to persons(natural or legal) with whom a business keeps dealings.

Rule: Debit the receiver and Credit the giver.

E.g. Goods worth Rs. 5000/- sold to Komal. Here, because Komal is the receiver of goods so it is to be debited.

 Real Account: It relates to property or goods which may come or go from the business.

Rule: Debit what comes in and Credit what goes out.

E.g. Goods worth Rs. 7000/- sold on cash. Here, cash a/c is to be debited because cash flows out.

Nominal Account: It relates to business expenses, losses, incomes, and gains.

Rule: Debit all the expenses or losses and Credit all the incomes, gains or profits.

E.g. Paid Rs. 2000/- as commission to the agent. Here, commission a/c is debited because it is a business expense.

Steps in Journalising Transactions

The following steps are to be considered while journalizing entries for business transactions:

• First of all, read and understand the transaction because it may be either in a cash transaction or credit transaction.
• Journal entries can be single entry i.e. one debit and one credit or can be a compound entry (one or more debits and one or more credits)
• A transaction not including any person’s name is considered as a cash transaction. So, if a person’s name is given along with certain words like ‘Cash’, ‘Bank’, ‘Received’, ‘Earned’, ‘Paid’, ‘Spent’, ‘Deposited’, ‘Withdrawn’, ‘Borrowed’, etc. then the transaction is considered as “Cash Transaction”.
• In a credit transaction, out of the two accounts in the transaction, certainly, one account is Personal Account and the second account is Real Account.
• As per the nature and types of accounts, apply the rules of journalisation to give debit or credit effects.
• Record the date of the transaction in the first column which is the date column.
• In the particulars column, account to be debited on the first line with the abbreviation ‘Dr.’ on the right side of the same line.

Further Steps

• While the account to be credited on the second line, with ‘To’ preceding the name of account credited. Also, draft a narration starting with ‘Being’ in simple words.
• Finally, enter the amount of business transaction debit column and credit column with regards to the deals done.
• If the journal entries are recorded on several pages then both the amount column of each page should be totaled. The balance should be written at the end of that page.
• Also, the same total is to be carried forward at the beginning of the next page.
• At the bottom of one page, the totals are written as “Carried Forward” and the totals of respective columns on the next page is started with words “Brought Forward”. 

Furthermore, there are few transactions which are similar in nature and occur on the same date, hence such transactions can be combined while journalising. It is called composite journal entry. 

Solved Example for You 

Question: Journalise the following transactions in the Journal of Mr. Kiran for the year 2018

• January 1 – Paid rent Rs. 4000/-
• January 2 – Sold goods to Harsh for Rs. 10,000/-

Answer:

In the Journal of Mr. Kiran

Date	Particulars	Debit Amount	Credit Amount
2018 01/01	Rent A/c ………………. Dr. To Cash A/c (Being rent paid)	4000	4000
02/01	Harsh A/c     ……….. Dr.  To Goods A/c (Being goods sold to Harsh on credit)	10,000	10,000
Total		14,000	14,000

 

Here, Rent A/c is a nominal a/c and is debited because rent is an expense. Cash A/c is the real a/c and is credited because there is an outflow of cash. Here, Harsh A/c is a personal a/c and is debited because he is the receiver of goods. Goods A/c is the real a/c and is credited because there is an outflow of goods.