What is Journal Entry?
The word Journal has been derived from the French word ‘Jour’ which means a ‘day’. A journal entry is the first step in the accounting cycle. Journal is a book of original entries where transactions are recorded chronologically from the source documents like bills, receipts, and vouchers on a day-to-day basis. A Journal entry is the process of recording the daily transaction of a business in a journal (or a daybook).
Structure of Journal Entry
The structure of journal entry is as follows:
- A header line may include a journal entry number and a company name.
- The first column includes the date.
- The second column consists of Particulars of the business transactions.
- The third column consists of Ledger Folio: The meaning of LF is ledger folio number. Traditionally, folios are used for reference or to divide books into several parts. This term may also refer to the number of pages in a book or document.
- In the next 2 columns, the debit and credit amounts are to be entered.
- A footer line may also include a brief description of the reason for the entry.
Format of Journal Entries
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| (Dr.) | (Cr.) | |||
| Date | Particulars | Ledger Folio | Amount (Rs.) | Amount (Rs.) | Debit A/c ..........................Dr. To Credit a/c (Being ................................................) |
Examples
On 1st January 2020, Gopal commenced a business with cash of Rs.5000.
Here Gopal brings cash into the business, cash a/c is the real account. Debit what comes in (here cash comes in) therefore debit the cash a/c.
Gopal had brought in the cash in the form of capital to the business. Capital a/c is a personal account i.e capital invested by the owner of the business. This capital that was brought into the business is the liability to the business because the owner and the business are two separate entities and the business is bound to pay back the money to the owner. According
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 01-01-2020 | Cash a/c Dr To Capital a/c (Being Gopal commenced the business with cash) | 5000 | 5000 |
On 3rd January 2020, paid into Bank or Money deposited into the bank. (Rs.1000)
Here cash is the Real account, cash goes out of the business, therefore Cr what goes out, we have to credit cash a/c.
Bank a/c is the Artificial personal account, Debit the receiver of the benefit.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 03-01-2020 | Bank a/c Dr To Cash a/c (Being amount deposited into bank) | 1000 | 1000 |
On 4th January 2020, bought goods for cash of Rs.1000.
When goods are purchased, cash goes out of the business. Cash a/c is a real account. Therefore, Credit what goes out of the business, Credit cash a/c
Purchase a/c is Nominal Account. Purchase is an expense. Debit all the expenses and losses. Therefore, Purchases a/c has to be debited.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 04-01-2020 | Purchases a/c Dr To Cash a/c (Being goods purchased for cash) | 1000 | 1000 |
On 5th January 2020, bought furniture for cash of Rs.500.
Furniture purchased for cash means furniture a/c is the Real a/c. Furniture comes into the business, Therefore, Debit what comes in, Debit- Furniture a/c.
When furniture purchased cash goes out of the business, Cash a/c is the Real a/c, Therefore, credit what goes out of the business. So, credit -Cash a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 05-01-2020 | Furniture a/c Dr To Cash a/c (Being furniture bought for cash) | 500 | 500 |
On 6th January 2020, Sold goods for cash Rs.600
Cash a/c is a Real account, when you sell goods cash comes into the business, therefore debit what comes in. Debit- cash a/c.
Sales a/c is a nominal account. Sales is an income to the business, Therefore, Credit all incomes and gains. (Credit- sales a/c)
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 06-01-2020 | Cash a/c Dr To Sales a/c (Being goods sold for cash) | 600 | 600 |
On 7th January 2020, Sold goods to Maruthi on credit Rs.400
Credit sales mean the amount is due and will be paid at a later date.
Here you don’t receive the cash during delivery.
In this transaction, the personal account involved is Marathi’s account. The personal account of Maruthi receives the benefit of the transaction i.e., Goods, Therefore, Debit the receiver of the benefit, ‘Debit – Marathi’s account’.
Sales a/c is a nominal account. Sales is an income to the business, Therefore, Credit all incomes and gains.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 07-01-2020 | Marathi's a/c Dr To Sales a/c (Being goods sold to Maruthi on credit) | 400 | 400 |
On 8th January 2020, Bought goods from Narayan on credit of Rs.500.
Purchases a/c is a nominal a/c, Purchases is an expense to the business, Therefore, Debit all the expenses and losses.
Narayan’s a/c is a personal account, Here Narayan is the giver of benefit (i.e., goods), Therefore credit Narayan’s a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 08-01-2020 | Purchases a/c Dr To Narayan's a/c (Being goods purchased from Narayan on credit) | 500 | 500 |
On 10th Jan 2020, Paid rent to the landlord Rs.300
Here cash goes out of the business in the form of rent, Cash a/c is the Real a/c, Credit what goes out of the business; ‘Therefore, cash a/c must be credited’.
On the other hand, Rent is the nominal a/c. It is an expense, Debit all the expenses and losses, ‘Therefore, debit- Rent a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 10-01-2020 | Rent a/c Dr To Cash a/c (Being rent paid to landlord in cash) | 300 | 300 |
On 12th Jan 2020, Paid salary to Manager Rs.5000
Here cash goes out of the business in the form of salary, Cash a/c is the Real a/c, Credit what goes out of the business; ‘Therefore, cash a/c must be credited’.
On the other hand, Salary is a nominal a/c. It is an expense, Debit all the expenses and losses, ‘Therefore, debit- Salary a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 12-01-2020 | Salary a/c Dr To Cash a/c (Being salary paid to Manager in cash) | 5000 | 5000 |
On 15th January 2020, Sold furniture for cash Rs.200
Cash a/c is a Real a/c, Cash comes in when you sell the furniture, Debit what comes in. ‘Therefore, debit – cash a/c’.
Furniture a/c is also a real a/c, here when you sell it, it goes out of the business. Therefore, credit what goes out. ‘Furniture a/c must be credited’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 15-01-2020 | Cash a/c Dr To Furniture a/c (Being furniture sold for cash) | 200 | 200 |
On 16-01-2020, Received a commission from Suresh Rs.200
Here commission is received, therefore cash comes into the business, cash is a Real a/c, Debit what comes in, ‘Therefore, debit- cash a/c’.
On the other hand commission, a/c is a nominal account. Commission received is an income, Therefore, Credit all the incomes and gains. Here Commission a/c has to be credited.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 16-01-2020 | Cash a/c Dr To Commission received a/c (Being commission received from Suresh) | 200 | 200 |
On 22nd Jan 2020, Sold goods to Shreya for Rs.300.
(Here it is not clearly mentioned whether it is a cash or credit transaction Since the name is given assume it as a credit transaction.)
Shreya’s a/c is a personal account, Here Shreya is the receiver of the benefit (i.e Goods), ‘Therefore, debit – Shreya’s account’.
Sales a/c is a nominal account. Sales is an income to a business. Credit all the income and gain, ‘Therefore, credit- Sales a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 22-01-2020 | Shreya's a/c Dr To Sales a/c (Being goods sold to Shreya on credit) | 300 | 300 |
On 25th Jan 2020: Paid carriage Rs.50
Carriage a/c is a nominal account, the carriage is an expense, Therefore, Debit all expenses and losses. ‘Debit – Carriage a/c’.
When you pay for carriage, cash goes out of the business. Cash is a real a/c. ‘Therefore, credit – cash a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 25-01-2020 | Carriage a/c Dr To Cash a/c (Being cash paid for carriage) | 50 | 50 |
On 31st January 2020, withdrew cash from office for personal use Rs.200
Cash withdrawn for personal use is a drawing to the business.
Drawing’s account is a capital a/c, Drawing’s a/c must be debited because withdrawals represent a reduction of the owner’s equity in the business.
Every journal entry requires both a debit and a credit. Because a cash withdrawal requires credit to the cash account, an entry that debits the drawing account will have an offsetting credit to the cash account for the same amount.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 31-01-2020 | Drawing's a/c Dr To Cash a/c (Being amount withdrawn by owners for cash) | 200 | 200 |
On 2-02-2020, Paid Salary Rs.5000
Paid rent Rs.3000
Paid electric charges Rs.600
These are the compound entries i.e combination of 2 or more journal entries.
Here salary, rent, and electric charges are nominal accounts and they are all expenses. ‘Debit all the Expenses and Losses’.
Cash a/c is a Real a/c, cash goes out of the business. ‘Therefore, credit cash a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 02-02-2020 | Salary a/c Dr Rent a/c Dr Electricity charges a/c Dr To Cash a/c (Being the expenses paid) | 5000 3000 600 | 8600 |
Ganesh returned goods worth Rs200 on 4th Feb 2020
Goods returned to the business is sales return (or return inward a/c)
When the sale is made, sales a/c must be credited, whereas when the sales are returned Sales returns a/c must be debited.
Likewise, when the goods are sold for credit Ganesh’s a/c must be debited, and when the sold goods are returned Ganesh’s a/c must be credited.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 04-02-2020 | Sales Returns a/c Dr To Ganesh's a/c (Being Ganesh returned the goods to the business) | 200 | 200 |
Goods purchased from Ramesh returned on 5th Feb 2020, Rs 500
This particular transaction is nothing but purchase returns / Return outwards.
When we record the purchase entry, we debit Purchases a/c and when the purchased goods are returned, we must credit the Purchase Returns a/c.
In case of credit purchase, credit the creditors a/c, whereas while returning the purchased goods we must debit the Creditor’s a/c.
And debit and credit entries get canceled.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 05-02-2020 | Ramesh's a/c Dr To Purchase Return a/c (Being goods purchased returned) | 500 | 500 |
Withdrawn cash worth Rs.600 and Stock worth Rs.400 for personal use on 7th Feb 2020
Drawing’s account is a capital a/c, Drawing’s a/c must be debited because withdrawals represent a reduction of the owner’s equity in the business.
Credit – cash and stock a/c
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 07-02-2020 | Drawing's a/c Dr To Cash a/c To Stock a/c (Being cash and goods withdrawn by the owners for personal use.) | 1000 | 600 400 |
Introduced cash of Rs.50,000 and Building of Rs.3,00,000 into the business on 8th Feb 2020
Here cash and building are real a/c, they get into the business, Debit what comes in, ‘Therefore, debit cash and building a/c’.
Capital a/c is a personal account i.e., capital invested by the owner of the business. This capital that was brought into the business is the liability to the business because the owner and the business are two separate entities and the business is bound to pay back the money to the owner.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 08-02-2020 | Cash a/c Dr Building a/c Dr To Capital a/c (Being capital introduced into the business.) | 50,000 3,00,000 | 3,50,000 |
Contra entries (it includes depositing and withdrawing cash)
On 10th Feb 2020, Cash is deposited into Syndicate bank Rs.1000.
Cash is a real a/c and it goes out of the business, Therefore Credit what goes out, Credit the cash a/c.
Bank a/c is the Artificial personal account, Debit the receiver of the benefit. Debit the Bank a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 10-02-2020 | Bank a/c Dr To Cash a/c (Being cash deposited into Syndicate Bank) | 1000 | 1000 |
Amount is withdrawn from the bank for office use Rs.2000 on 15th Feb 2020.
Cash is a real a/c and it comes into the business. Therefore, debit what comes in. Debit cash a/c.
Bank a/c is the artificial personal account, Credit the giver of the benefit (i.e., cash), Here the giver is a bank. ‘Therefore, credit the bank a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 15-02-2020 | Cash a/c Dr To Bank a/c (Being amount withdrawn from bank for office use) | 2000 | 2000 |
On 16-02-2020, Rs.1000 was transferred from Canara bank to Syndicate Bank.
Both Canara Bank and Syndicate Bank are artificial personal accounts.
The rule is:
Debit, the receiver of the benefit
Credit, the giver of the benefit
Therefore, here receiver is Syndicate Bank, ‘debit- Syndicate Bank’.
And Giver is Canara Bank, ‘Credit- Canara Bank’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 16-02-2020 | Syndicate Bank a/c Dr To Canara Bank a/c (Being transferred cash from Canara Bank to Syndicate Bank.) | 1000 | 1000 |
Repaid Suresh’s loan of Rs.8000 along with the interest of Rs.100 on 20th Feb 2020.
Suresh’s loan account is a Representative personal account, Suresh is the receiver of the benefit (i.e., through cash), Therefore debit Suresh’s loan a/c.
Interest on a loan is a liability. Debit the increase in the expenses.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 20-02-2020 | Suresh's loan a/c Dr Interest on loan a/c Dr To Bank a/c (Being settled Suresh's loan with interest by cheque) | 8000 100 | 8,100 |
Depreciation charged on furniture Rs.300 on 1st March 2020.
Depreciation is one type of expense; expenses are always debited which is based on debit and credit golden rules.
Furniture a/c is a real a/c. Therefore, Furniture A/c Credit because of the furniture account decreases the value, and any types of assets decrease the value is credit, based on the Debit and Credit Rules.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 01-03-2020 | Depreciation a/c Dr To Furniture a/c (Being Depreciation charged on furniture) | 300 | 300 |
On 2nd March Goods worth, Rs.500 is given as charity. Charity a/c is the Artificial Personal a/c, Debit the receiver of the benefit. Here charity a/c is the receiver of benefit (i.e., goods), Therefore Debt Charity a/c.
On the other hand, a stock goes out of the business, therefore credit stock a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 02-03-2020 | Charity a/c Dr To Stock a/c (Being goods given as charity) | 500 | 500 |
Mr. Naveen has not paid the debt to the business up to the end of the financial year-Rs.5000, Therefore this receivables amount has to be converted to Bad debts. (in other words) Bad Debts are written off Rs.5000.
Bad debts are an expense to the business, therefore debit Bad debts a/c.
Mr. Naveen is the debtor, Debtors a/c is a Personal account, and according to the rule, we must credit the debtor’s a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 03-03-2020 | Bad Debts a/c Dr To Mr. Naveen's a/c (Being bad debts written off/ Amount due from Mr. Naveen became bad debts as he is declared as insolvent) | 5000 | 5000 |
On 5th March 2020, the Amount received from Mr. Naresh was Rs.7500/- and allowed him the discount of Rs.300.
These are the compound entries i.e., a combination of 2 or more journal entries.
The business receives cash from Naresh Rs.7200 (i.e., 7500 – discount Rs.300.) Cash a/c is a real a/c, Debit what comes in, Therefore, debit cash a/c.
Along with the cash received, the business allows a discount of Rs.300 to Mr. Naresh. Discount allowed is the expense to the business. Hence it is debited.
Mr. Naresh’s a/c is a personal account, He is the giver of the benefit (I.e., cash), Therefore credit Mr. Naresh’s a/c.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 05-03-2020 | Cash a/c Dr Discount Allowed a/c Dr To Mr. Naresh's a/c (Being cash recieved from Naresh and discount allowed) | 7200 300 | 7500 |
On 7th March 2020, the amount paid to Mr. Ramesh was Rs.14000, and the discount received out of it Rs.500.
The business paid money to Mr. Ramesh, Therefore, cash goes out of the business. Cash is a Real a/c, Credit what goes out, ‘Therefore, credit – cash a/c’.
Discount received by the business is the income to the business, Therefore, credit it.
Mr. Ramesh’s a/c is the personal a/c, He is the receiver of the benefit (i.e., cash from the business), ‘Therefore, Debit Mr. Ramesh’s a/c’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 07-03-2020 | Mr. Ramesh's a/c Dr To Cash a/c To Discount Recieved a/c (Being paid to Mr. Ramesh and discount recieved.) | 14,000 | 13,500 500 |
Note: If any amount is paid or received through cheque, then consider Bank a/c, as money enters into the banking system.
On 20th March 2020, Goods costing Rs.8000 were sold to Mr. Varma. A part of the amount is received in cash Rs.4800 and remaining on credit.
Here part of the cash is received in cash, cash a/c is a real a/c, therefore, Debit what comes in, Debit -cash a/c.
In this transaction, the personal account involved is Mr. Varma’s account. The personal account of Mr. Varma receives the benefit of the transaction i.e., Goods, Therefore, Debit the receiver of the benefit, ‘Debit – Mr. Varma’s account’.
Sales a/c is a nominal account. Sales is an income to the business, Therefore, Credit all incomes and gains.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 20-03-2020 | Cash a/c Dr Mr. Varma a/c Dr To Sales a/c (Being goods sold to Mr. Varma partly for cash and partly on credit.) | 4800 3200 | 8000 |
Loan received from Canara Bank Rs.20,000 on 26th March 2020.
When loan amount is received, cash comes in the business, cash a/c is the real a/c, therefore, as per the rule ‘Debit the Bank a/c’. (Here Bank a/c is taken into consideration because it is assumed that amount is received in cheque form.)
Canara Bank Loan a/c is a Artificial personal a/c, Credit the giver of the benefit, Here Canara bank gives the benefit (i.e., loan amount), ‘Therefore debit its account’.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 26-03-2020 | Bank a/c Dr To Canara Bank loan a/c (Being loan received from Bank) | 20,000 | 20,000 |
On 28th March 2020, Settled Canara Bank’s loan of Rs.20,000 along with the Interest of Rs.500.
Paid amount to Bank, Therefore Bank a/c must be credited because amount goes out of the business.
Canara Bank’s Loan a/c is an expense to the business and Canara bank is a receiver of the benefit in the form of loan + interest., Therefore Debit Canara Bank’s loan a/c.
Interest on a loan is an expense, Therefore Debit it.
| Journal Entries in the books of XYZ Co. | ||||
|---|---|---|---|---|
| Date | Particulars | L.f. | Debit (Rs.) | Credit (Rs.) | 28-03-2020 | Canara Bank's loan a/c Dr Interest on loan a/c Dr To Bank a/c (Being settled Canara Bank's loan amount with interest by cheque) | 20,000 500 | 20,500 |
