Journal Entry

Meaning of Journal

All the transactions of a business are recorded first, in a book of original entry as and when they take place. Such book of original entry is popularly known as 'Journal'.

Journal Entry
In Journal, all the financial transactions are recorded in chronological order i.e. in the order of dates systematically. Similarly, each transactions is classified into its debit and credit aspects and both aspects are recorded in one entry with a brief explanation of transaction, which is called 'narration'.

Journalizing

The act of recording a transaction in the journal is called Journalizing. Journalizing is a process of identification of the transaction, classification the account and applying the relevant rule of debit and credit.

Objectives of Journal 

The following objectives of the journal are listed as follows

  • To provide systematic and chronological record of all business transaction

  • To ensure the application of double entry book keeping system in recording the transactions

  • To facilitate the preparation of ledgers

  • To use as legal evidence of financial transactions

  • To keep a systematic record of financial transaction

Format of Journal Entry 

The journal entries can be prepared into two form presented as bellows:

  1. Vertical Expansion Journal Entries Format 

    Vertical Format Journal Entry

  2. Horizontal Expansion Journal Entries Format

Horizontal Format of Journal Entry

Rules for Debit and Credit

A transaction affects two accounts simultaneously. One of the them is debited and the other is credited.

Debit: which means 'to owe'. The account which receives the benefits is debited.

Credit: which means 'to believe'. The account providing the benefit is credited.

To record the transactions according to double-entry system, the following two approaches can be applied as the rules for debit and credit.

  1. Traditional Approach: Under this approach, the debit and credit rule are based on three types of nature of accounts include personal account, real account and nominal account.

  2. Modern Approach: Under this approach, the debit and credit rule are based on five types of group nature of accounts that include assets, liabilities, capital, income and expenditure.

    Methods of Journal Entry

    Natures of Journal Transactions and its types

    • Recurring transactions: These transaction are all those transaction which are generally or repeatedly occurring in day to day business. It include various types of transaction related to like: 

      • Purchase

      • Sales

      • Payments

      • Receipts,

      • Discounts, etc.

    • Non-recurring transactions: These transaction are all those transaction which are not generally or repeatedly occurring in day to day business. It include various types of transaction related to like:

      • Investment

      • Appreciation

      • Goods lost

      • Increase in capital

      • Exchange of assets

      • Loss on sale of assets

      • Profit on sale of assets, etc. 

    Conclusion

    All the transactions of a business are recorded first, in a book of original entry as and when they take place. Such book of original entry is popularly known as 'Journal'. In Journal, all the financial transactions are recorded in chronological order i.e. in the order of dates systematically. A transaction affects two accounts simultaneously. One of the them is debited and the other is credited. To record the transactions according to double-entry system, there are two approaches (include traditional and modern approach) can be applied as the rules for debit and credit.

    Come On, Tell Me What You Think!

    Did I miss something?  Come on! Tell me what you think about this post on Journal Entry in the comments section.


    Comments

    1. EdprimeJune 26, 2018 at 4:58 PM

      This post is good and i am hopeful that you will post such informative thing, it help me a lot in understanding this topic original entry

      ReplyDelete
    2. ShivamMarch 13, 2019 at 5:33 PM

      Nice blog
      check out our blogs
      nse finwiz

      ReplyDelete

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