Tags
Accounts in Journal, Banking Transactions, Format of Journal, Impersonal Accounts, Journal, Journalizing, Nominal Accounts, Original Entry Book, Personal Accounts, Prime Entry Book, Real Accounts, Rules of Debit and Credit, Steps in Journalizing
INTRODUCTION TO JOURNAL
First step in bookkeeping is recording of transactions and this is recorded in a JOURNAL (Book of Prime Entry or Book of Original Entry).
The process of recording is called Journalizing.
FORMAT OF A JOURNAL
- Date: Date on which transaction was made
- Particulars: Details of the transactions are entered
- PR or LF: LF means Ledger Folio which is the Ledger Number to which the transactions are posted
- Debit / Credit: Amount is entered
STEPS IN JOURNALIZING
- Analyze the transaction and find out the two accounts involved in the transaction
- Determine the type of account the two transactions belong to
- Apply the rules of debit or credit as per the accounts
PROCESS OF JOURNAL ENTRY
- Date of transaction is written
- Account to be debited is written first and in the next line the account to be credited is written
- Brief description of the transaction is written under particulars column
- LF is written to locate the page number of the ledger book
TYPES OF ACCOUNTS FOLLOWED IN JOURNAL
There are two types of accounts
- Personal Accounts
- Impersonal Accounts – Further classified into Real and Nominal Account
Personal Account: It includes the accounts of persons with whom the business deals directly. There are three types of personal accounts
- Natural Personal Accounts: They are the accounts of persons or human beings (Ex: Ram’s Account)
- Artificial Personal Accounts: They are the accounts of corporate bodies and other institutions which are recognized as persons in business dealings (Ex: LIC Account)
- Representative Personal Accounts: They are the accounts of certain persons (Ex: Landlord Account, Salary Account)
Real Account: They are classified into two types
- Tangible Real Account: They are the accounts of such things that can be touched, felt and measured (Ex: Cash, Land)
- Intangible Account: They are the accounts of such things that cannot be touched but can be measured only in terms of money (Ex: Goodwill, Trademark, Patents)
Nominal Account: These accounts explain the nature of transactions and they do not exist in reality.
RULES OF DEBIT AND CREDIT IN JOURNAL FOR DIFFERENT ACCOUNTS
JOURNAL ENTRIES FOR BANKING TRANSACTIONS
Particulars | What to Debit | What to Credit |
When cash is deposited in the bank | Bank A/c | Cash A/c |
When cash is withdrawn for business purpose | Cash A/c | Bank A/c |
When cheque is issued to a person on account | Person’s A/c | Bank A/c |
When cheque is received from a person on account | Cash A/c | Person’s A/c |
When cheque is received from a person and is deposited in the bank for collection | Bank A/c | Cash A/c |
When a person directly remits the cash to the bank | Bank A/c | Person’s A/c |
When the bank allows interest on deposit balance | Bank A/c | Bank Interest A/c |
When the bank charges expenses against the deposit account | Bank Charges A/c | Bank A/c |
When a cheque is received from a person and deposited in the bank and is dishonored | Person’s A/c | Bank A/c |