Journal

The Journal: The Book of Original Entry

The journal is the first place where every business transaction is recorded. It is called the book of original entry because the transaction enters the accounting system here for the first time. Every transaction is recorded in chronological order — that is, in the order in which it happens, day by day. Later, these entries are posted (transferred) to the individual accounts in the ledger.

Before writing any entry, you must decide which account will be debited and which will be credited. Each transaction is recorded separately, with its own journal entry.

Format of the Journal

The journal has five columns:

Date column — the date on which the transaction took place.

Particulars column — this is where the account names and the narration are written. The account to be debited is written on the first line, starting from the left margin, and the word Dr. is written at the end of that line. The account to be credited is written on the second line, indented (leaving a margin on the left), and is prefixed with the word To. Below both account names, a brief description of the transaction is written — this is called the narration. After the narration, a line is drawn across the Particulars column to show that the entry is complete.

L.F. (Ledger Folio) column — this records the page number of the ledger book where the account appears. This column is filled at the time of posting, not when the journal entry is made.

Debit Amount column — the amount against the account being debited.

Credit Amount column — the amount against the account being credited.

Simple Journal Entry

When a transaction involves only two accounts — one debit and one credit — it is called a simple journal entry.

Example: Goods purchased on credit for ₹30,000 from M/s Govind Traders on December 24, 2017.

Notice an important point: although the transaction increases the stock of goods, the account debited is Purchases, not Goods. In accounting, the goods account is split into five separate accounts: Purchases, Sales, Purchases Returns, Sales Returns, and Stock. Each serves a different purpose.

Compound Journal Entry

When a transaction involves more than two accounts — either multiple debits or multiple credits (or both) — the entry is called a compound journal entry.

Example: Office furniture is purchased from Modern Furniture on July 4, 2017 for ₹25,000. ₹5,000 is paid immediately in cash, and the balance of ₹20,000 is still payable.

Here, one asset (Furniture) increases by ₹25,000, another asset (Cash) decreases by ₹5,000, and a liability (amount payable to Modern Furniture) increases by ₹20,000.

Key Rules for Journalising

From the worked examples in the textbook, these are the essential rules to remember:

• Cash transactions: When cash is received, debit Cash; when cash is paid, credit Cash.
• Credit purchases: Debit Purchases A/c, credit the supplier's personal account.
• Credit sales: Debit the customer's personal account, credit Sales A/c.
• Payment to a creditor: Debit the creditor's account, credit Cash/Bank.
• Receipt from a debtor: Debit Cash/Bank, credit the debtor's account.
• Expenses paid: Debit the expense account, credit Cash/Bank.
• Income received: Debit Cash/Bank, credit the income account.
• Drawings (proprietor's personal use): Debit Drawings A/c, credit Cash/Bank.
• Goods given as charity: Debit Charity A/c, credit Purchases A/c (since goods are taken out of purchases).
• Outstanding expenses: Debit the expense account, credit Outstanding Expense A/c (a liability).

Accounting for Goods and Services Tax (GST)

When transactions occur within the same state, both CGST (Central GST) and SGST (State GST) apply. When transactions occur between different states, IGST (Integrated GST) applies.

Key points for GST entries:

• Input GST — GST paid on purchases. It is debited to separate Input GST accounts (Input CGST, Input SGST, or Input IGST).
• Output GST — GST collected on sales. It is credited to separate Output GST accounts.
• At the end of the period, Output GST is set off against Input GST. The net amount (if any) is paid to the government.

Example (within Delhi, CGST 5% + SGST 5%):

Goods bought on credit for ₹1,00,000:

Goods sold on credit for ₹1,35,000:

Set-off entry (net payment):

Example (inter-state transactions, CGST 9% + SGST 9%):

Goods bought from Jharkhand (outside Bihar) for ₹3,50,000 — IGST applies: