Professional Documents
Culture Documents
Chapter 4 - General Journal
Chapter 4 - General Journal
Principles of Accounting – XI
Sameer Hussain
www.a4accounting.weebly.com
General Journal, General Ledger & Trial Balance
Chapter # 4
Chapter content
Double entry system.
Simple entry.
Compound entry.
General Journal.
Steps to make general entry.
Possible general journal entries.
General ledger.
Trial balance.
Illustrations.
Practice questions.
Multiple Choice Questions (MCQs).
Chapter # 4
GENERAL JOURNAL, GENERAL
LEDGER & TRIAL BALANCE
DOUBLE ENTRY SYSTEM
The system underlying the recording of transactions in which the dollar value of an entry’s
debits must be equal to the dollar value of the entry’s credits.
SIMPLE ENTRY
A journal entry having only two accounts is called a simple journal entry. One of the head of
account is debited and the other account is credited.
COMPOUND ENTRY
A compound journal entry is an accounting entry in which there is more than one debit, more
than one credit, or more than one of both debits and credits.
GENERAL JOURNAL
It is the simplest and the most flexible type of journal. The general journal can be used to record
any kind of transactions. For each transaction, it provides date, name of the accounts included,
the amount of each debit and credit, references, an explanation of transaction and a column to
which each debit and credit was recorded. The debits of a transaction must always equal to the
credits.
Example # 1:
January 1: Mr. Ali started business with cash investment of Rs.100,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Cash Asset Increase Debit
Capital Owner’s equity Increase Credit
Explanation:
Owner invested cash which is asset and investment is known as capital. Cash is increasing and
investment is also increasing. Increase in asset recorded as debit and increase in owner’s equity
recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 1 Cash 100,000
Capital 100,000
(To record the cash invested by owner)
Example # 2:
January 5: Purchased furniture for cash Rs.12,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Furniture Asset Increase Debit
Cash Asset Decrease Credit
Explanation:
Furniture is asset and cash is also asset. Furniture is increasing in the business and cash is
decreasing in the business. Increase in asset (furniture) recorded as debit and decrease in asset
(cash) recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 5 Furniture 12,000
Cash 12,000
(To record the furniture purchased for cash)
Example # 3:
January 8: Purchased equipment on account Rs.20,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Equipment Asset Increase Debit
Accounts Payable Liability Increase Credit
Explanation:
Equipment is an asset and purchased on account which increases liability (accounts payable).
Increase in asset (equipment) recorded as debit and increase in liability (accounts payable)
recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 8 Equipment 20,000
Accounts payable 20,000
(To record the purchase of equipment on credit)
Example # 4:
January 13: Sold merchandise for cash Rs.18,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Cash Asset Increase Debit
Sales Income Increase Credit
Explanation:
Sales of merchandise increases the income of the organization and sales were made on cash
which also increases the cash. Increase in asset (cash) recorded as debit and increase in income
(sales) recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 13 Cash 18,000
Sales 18,000
(To record the goods sold for cash)
Example # 5:
January 20: Purchased merchandise for cash Rs.10,000 and on credit Rs.15,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Purchases Expense Increase Debit
Accounts Payable Liability Increase Credit
Cash Asset Decrease Credit
Explanation:
Purchase of merchandise is an expense for the organization. Purchases was made for cash which
is asset and also on credit which creates liability. Increase in expense (purchases) recorded as
debit with total amount of purchases Rs25,000, increase in liability (accounts payable) recorded
as credit with the amount of liability Rs.15,000 and decrease in asset (cash) recorded as credit
with the amount of cash paid Rs.10,000. An entry with more than one debit or more than one
credit is known as compound entry.
General Journal
Date Particulars P/R Debit Credit
January 13 Purchases 25,000
Accounts payable 15,000
Cash 10,000
(To record the purchase of goods for cash and on
credit)
Example # 6:
January 25: Cash paid to supplier Rs.10,000.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Accounts Payable Liability Decrease Debit
Cash Asset Decrease Credit
Explanation:
Payment made to supplier decreases the liability of the organization and also decreases the
cash. Decrease in liability (accounts payable) recorded as debit and decrease in asset (cash)
recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 25 Accounts payable 10,000
Cash 10,000
(To record the cash paid to supplier)
Example # 7:
January 28: Deposited cash into bank Rs.5,000
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Bank Asset Increase Debit
Cash Asset Decrease Credit
Explanation:
Deposit in bank account increases the bank account of the organization and decreases the cash
in the office. Cash and bank both are assets. Increase in asset (bank) recorded as debit and
decrease in asset (cash) recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 28 Bank 5,000
Cash 5,000
(To record the cash deposited into bank)
Example # 8:
January 31: Salaries paid to the employees Rs.8,000 by cheque.
Solution:
Step # 1 Step # 2 Step # 3 Step # 4
Salaries Expense Expense Increase Debit
Bank Asset Decrease Credit
Explanation:
Salaries are expense for the organization which are paid through bank. Payment of salaries
increases the expense and decrease the bank account. Increase in expense (salaries expense)
recorded as debit and decrease in asset (bank) recorded as credit.
General Journal
Date Particulars P/R Debit Credit
January 31 Salaries expense 8,000
Bank 8,000
(To record the payment of salaries expense)
Explanation:
Merchandise sold for cash increases the cash. Sales of merchandise increases the revenue
of the organization. Increase in asset (cash) is recorded as debit and increase in revenue
(sales) recorded as credit.
Explanation:
Salaries are expense which are paid through cheque. Increase in expense (salaries
expense) is recorded as debit and decrease in asset (bank) is recorded as credit.
19. Cash sales of which certain amount was deposited into bank:
Cash Debit (with the amount of cash left on hand)
Bank Debit (with the amount of cash deposited into bank)
Sales Credit (with the amount of total sales)
Explanation:
Cash sales increases the cash and revenue. Certain part of cash deposited into bank will
increase the bank account. Both cash and bank account are increasing and revenue is also
increasing. Increase in assets (cash and bank) are recorded as debit and increase in
revenue (sales) is recorded as credit.
21. Paid to supplier by cheque full settlement of his account (availed discount):
Accounts payable Debit (with the amount of decrease in liability)
Bank Credit (with the amount of cheque issued)
Purchase discount Credit (with the amount of discount availed)
Explanation:
Amount paid to supplier less than the actual amount decrease the liability and bank
account and result in purchase discount. Decrease in liability (accounts payable) is
recorded as debit, decrease in asset (bank) is recorded as credit and decrease in expense
or contra expense (purchase discount) is recorded as credit.
Solution # 1:
MR. MAAZ
GENERAL JOURNAL
FOR THE MONTH OF _______
Date Particulars P/R Debit Credit
a) Cash 500,000
Capital 500,000
(To record the investment by owner in the business)
b) Prepaid shop rent 36,000
Cash 36,000
(To record the rent paid in advance for shop)
c) Shop furniture 64,000
Cash 64,000
(To record the furniture purchased for cash)
d) Purchases 200,000
Cash 200,000
(To record the merchandise purchased for cash)
e) Cash 200,000
Sales 200,000
(To record the merchandise sold for cash)
f) Purchases 150,000
Accounts payable (Mr. Zaid) 150,000
(To record the goods purchased on account)
g) Accounts receivable (Mr. Obaid) 150,000
Sales 150,000
(To record the goods sold on credit)
h) Accounts payable (Mr. Zaid) 100,000
Cash 100,000
(To record the cash paid to supplier)
i) Cash 120,000
Accounts receivable (Mr. Obaid) 120,000
(To record the cash received from customer)
j) Salaries expense 10,000
Cash 10,000
(To record the salaries paid)
k) Drawings 22,000
Cash 15,000
Purchases 7,000
(To record the cash and goods withdrew by owner for
personal use)
GENERAL LEDGER
Ledger accounts are maintained to get the latest or accurate balance of each and every account
because ledger account is prepared on individual basis; we post all transactions from general
journal to general ledger account. There are two sides of ledger account. Left side is used for
debit and right for credit amount of that particular account. After the completion of posting, we
just calculate the balance of every account.
Balancing refers to the difference between the totals on the debit side,
and the totals on the credit side of the account. The account balance
always belongs to the greater side. The account balance is entered on
the lesser side at the end of the month as a balance carried down. This
may be written as ‘balance c/d’. When the account is reopened the first
Balancing:
day of the following month the same balance is entered on the
opposite side as a balance brought down. This may be written as
“balance b/d.’ If the debit side exceeds the credit side, the account is
said to have a ‘debit balance’. If the credit side exceeds the debit side,
the account is said to have a ‘credit balance.’
Explanation:
Following is an illustrated example of General Journal entries made by a business:
GENERAL JOURNAL
FOR THE MONTH OF _______
Date Particulars P/R Debit Credit
a) Cash 200,000
Capital 200,000
(To record the investment by owner in the business)
b) Shop furniture 50,000
Accounts payable 50,000
(To record the furniture purchased on account)
c) Accounts payable 10,000
Cash 10,000
(To record the cash paid to supplier)
From the above General Journal entries, General Ledger is prepared as under:
Cash
(a) Capital 200,000 (c) Accounts payable 10,000
Balance c/d 190,000
200,000 200,000
Balance b/d 190,000
Capital
(a) Cash 200,000
Balance c/d 200,000
200,000 200,000
Balance b/d 200,000
Shop Furniture
(b) Accounts payable 50,000
Balance c/d 50,000
50,000 50,000
Balance b/d 50,000
Accounts Payable
(c) Cash 10,000 (b) Shop furniture 50,000
Balance c/d 40,000
50,000 50,000
Balance b/d 40,000
From the above entries, four ledger accounts are prepared (1) cash (2) capital (3) furniture (4)
accounts payable. Left hand side of an account is debit and right side is credit.
In the first entry, cash is debited so Rs.200,000 is posted on the left hand side of cash
account and capital is credited so Rs.200,000 is posted on the right hand side of capital
account.
In the second entry, furniture is debited so posted on the left hand side of furniture
account with Rs.50,000 and accounts payable is credited so posted on right hand side of
accounts payable account as Rs.50,000.
In the third entry, accounts payable is debited so posted on the left hand side of payable
account with Rs.10,000 and cash is credited and posted on the right side of cash account
with Rs.10,000.
This step is known as posting means transferring data from journal to ledger.
After posting, accounts totaled are required. Cash account is debited with Rs.200,000
and credited with Rs.10,000 so debited side is more than credit side. Debit total is
recorded on both side (debit and credit side). Similarly capital has only credit posting so
credit amount is posted on both sides. This step is known as footing.
Difference between debit and credit is recorded on the deficit side of account like cash
accounts has a low balance on credit side 190,000. This balance is called c/d balance and
transferred this balance to the next period on the other side i.e debit side known as b/d
balance. This step is known as balancing.
TRIAL BALANCE
A Trial Balance is a statement of ledger account balances within a ledger, at particular instance.
Its main purpose is to check mathematical/arithmetic accuracy of accounting. It is not an
account. After the closing process of footing and balancing of each and every account, and all the
ledger accounts are summarized into a statement known as trial balance. Since equal amounts
of debit and credit are recorded in the ledger accounts of each transaction, therefore, the sum of
debit and credit must be equal, if the balances had been extracted correctly.
Solution # 2:
ASLAM
GENERAL JOURNAL
FOR THE MONTH OF FEBRUARY 1991
Date Particulars P/R Debit Credit
1.Feb Cash 100,000
Capital 100,000
(To record the investment by owner)
3.Feb Purchases 25,000
Accounts payable (Esajee) 25,000
(To record the goods purchased on account)
5.Feb Sales equipment 20,000
Accounts payable (Babar & Co.) 20,000
(To record the sales equipment purchased on
account)
15.Feb Cash 10,000
Accounts receivable 15,000
Sales 25,000
(To record the goods sold for cash and on account)
20.Feb Accounts payable (Esajee) 15,000
Cash 15,000
(To record the cash paid to supplier)
ASLAM
GENERAL LEDGER
Cash
1.Feb Capital 100,000 20.Feb A/P (Esajee) 15,000
15.Feb Sales 10,000 28.Feb Salaries expense 3,000
25.Feb Accounts receivable 10,000 28.Feb c/d balance 102,000
120,000 120,000
1.Mar b/d balance 102,000
Accounts Receivable
15.Feb Sales 15,000 25.Feb Cash 10,000
28.Feb c/d balance 5,000
15,000 15,000
1.Mar b/d balance 5,000
Sales Equipment
5.Feb Cash 20,000
28.Feb c/d balance 20,000
20,000 20,000
1.Mar b/d balance 20,000
Accounts Payable
20.Feb Cash 15,000 3.Feb Purchases 25,000
28.Feb c/d balance 30,000 5.Feb Sale equipment 20,000
45,000 45,000
1.Mar b/d balance 30,000
Capital
1.Feb Cash 100,000
28.Feb c/d balance 100,000
100,000 100,000
1.Mar b/d balance 100,000
Purchases
3.Feb A/P (Esajee) 25,000
28.Feb c/d balance 25,000
25,000 25,000
1.mar b/d balance 25,000
Sales
15.Feb Cash/A/R 25,000
28.Feb c/d balance 25,000
25,000 25,000
1.Mar b/d balance 25,000
Salaries Expense
28.Feb Cash 3,000
28.Feb c/d balance 3,000
3,000 3,000
1.Mar b/d balance 3,000
ASLAM
TRIAL BALANCE
FOR THE MONTH OF 28 FEBRUARY 1991
NO. PARTICULARS P/R DEBIT CREDIT
1 Cash 102,000
2 Accounts receivable 5,000
3 Sales equipment 20,000
4 Accounts payable 30,000
5 Capital 100,000
6 Purchases 25,000
7 Sales 25,000
8 Shop rent expense 3,000
Total 155,000 155,000
Explanation of Solution # 2:
Trial balance shows the balances of every account in active use. Cash ledger account
showed a brought down balance on debit side Rs.102,000. This balance is posted in trial
balance on debit side. Brought down balances of every account are recorded in trial
balance. Similarly brought down balances of others accounts are recorded in trial
balance. After recording all balances of ledger accounts in trial balance, the total balance
of debit equals to the total balance of credits (Rs.155,000).
Solution # 3:
MR. JAMIL
GENERAL JOURNAL
FOR THE MONTH OF MARCH 2001
Date Particulars P/R Debit Credit
1.Mar Cash 25,000
Capital 25,000
(To record the investment by owner)
2.Mar Supplies 6,000
Cash 6,000
(To record the purchase of supplies for cash)
3.Mar Prepaid rent 5,000
Cash 5,000
(To record the rent paid for the month of March)
5.Mar Equipment 12,000
Cash 12,000
(To record the purchase of equipment for cash)
16.Mar Cash 8,250
Service income 8,250
(To record the service income received)
30.Mar Salaries expense 3,600
Cash 3,00
(To record the cash paid to office assistant)
31.Mar Cash 9,300
Service income 9,300
(To record the cash received against service)
31.Mar Drawings 8,500
Cash 8,000
Supplies 500
(To record the cash and supplies withdrew by
owner for personal use)
Solution # 4:
SHAH LATIF & CO.
GENERAL LEDGER
Cash
1.Apr.11 Balance 20,000 5.Apr.11 Salaries payable 15,000
6.Apr.11 Accounts receivable 25,000 10.Apr.11 Accounts payable 10,000
7.Apr.11 Sales 20,000 30.Apr.11 c/d balance 40,000
65,000 65,000
1.May.11 b/d balance 40,000
Bank
14.Apr.11 Capital 25,000
30.Apr.11 c/d balance 25,000
25,000 25,000
1.May.11 b/d balance 25,000
Accounts Receivable
1.Apr.11 Balance 50,000 6.Apr.11 Cash 25,000
7.Apr.11 Sales 30,000 30.Apr.11 c/d balance 55,000
80,000 80,000
1.May.11 b/d balance 55,000
Merchandise Inventory
1.Apr.11 Balance 60,000
30.Apr.11 c/d balance 60,000
60,000 60,000
1.May.11 b/d balance 60,000
Equipment
1.Apr.11 Balance 40,000
30.Apr.11 c/d balance 40,000
40,000 40,000
1.May.11 b/d balance 40,000
Accounts Payable
10.Apr.11 Cash 10,000 1.Apr.11 Balance 30,000
30.Apr.11 c/d balance 20,000
30,000 30,000
1.May.11 b/d balance 20,000
Salaries Payable
5.Apr.11 Cash 15,000 1.Apr.11 Balance 15,000
15,000 15,000
Bank Loan
1.Apr.11 Balance 25,000
30.Apr.11 c/d balance 25,000
25,000 25,000
1.May.11 b/d balance 25,000
Capital
1.Apr.11 Balance 100,000
30.Apr.11 c/d balance 125,000 14.Apr.11 Bank 25,000
125,000 125,000
1.May.11 b/d balance 125,000
Sales
7.Apr.11 Cash/Acc. receivable 50,000
30.Apr.11 c/d balance 50,000
50,000 50,000
1.May.11 b/d balance 50,000
Explanation of Solution # 4:
For preparing cash ledger account, beginning balance is posted on debit side
Rs.20,000 on April 1. After posting balances, the transactions related to cash are
posted in cash ledger account. On April 5, cash paid for salaries and recorded as
credit by Rs.15,000. On April 6, Rs.25,000 collected and recorded as debit. On
April 7, cash received for sale of goods recorded as debit Rs.20,000. On April 10,
Rs.10,000 paid to supplier and recorded as credit. After posting all transactions
in cash account, it showed a balance of Rs.40,000.
Bank account did not have any balance at beginning. On April 14, bank accounts
is debited by Rs.25,000 for additional investment. No further transactions are
recorded in bank account. Hence, the ending balance is Rs.25,000 as per bank
ledger account.
Merchandise inventory showed a beginning balance of Rs.60,000 and no
transactions were performed regarding merchandise. Therefore, ending balance
remains same Rs.60,000.
Remaining accounts were prepared in the same manner.
PRACTICE QUESTIONS
Question # 1: 1990 Regular & Private – BIEK
Transactions of Nasir & Company are listed below:
a) Nasir the proprietor invested into the business cash Rs.10,000 and Furniture valued at
Rs.6,000.
b) Purchased merchandise for cash Rs.6,000.
c) Purchased merchandise on credit from Khalid Rs.2,000.
d) Sold merchandise for cash Rs.8,000.
e) Sold merchandise on credit to Rashid Rs.4,000.
f) Returned merchandise to Khalid Rs.300.
g) Merchandise returned by Rashid Rs.200.
h) Paid shop rent Rs.150 in cash.
i) Opened current account with the bank with Rs.10,000.
j) Withdrew from the bank Rs.4,000 for private expenses of the proprietor.
REQUIRED
a) Entries in the General Journal to record the above transactions.
b) T-accounts in the ledger complete with all postings.
c) Trial Balance after all the postings has been done.
(d) Oct.10: He paid rent for three months from October 2009 to December 2009 of
workshop @ Rs.3,000 per month.
(e) Oct.31: He paid salaries to employees Rs.10,000.
REQUIRED
(i) Post the above transaction in the ledger accounts in skeleton T form.
(ii) Prepare Trial Balance on October 31, 2009 after footing and balancing.
REQUIRED
Record the effects shown in above ledgers (postings) in standard form of General Journal.
2) Transactions that affect the accounting equation are initially recorded in which of
the following?
a) Trial balance b) T – account c) Journal d) Ledger
3) The process of transferring information from the journal to the ledger, in order to
update the ledger, is called which of the following?
a) Posting b) Recording c) Journalizing d) Accounting
9) A journal entry in which two or more accounts are debited or credited is referred
as:
a) Journal entry b) Single entry c) Additional entry d) Compound entry
10) The term 2/10, n/30 implies that ______ % discount will be given if the payment is
made within _____ days or full amount is receivable within 30 days:
a) 2, 10 b) 10, 2 c) 10, 30 d) 3, 15
12) Which of the following will be debited if a business purchases goods on credit?
a) Cash b) Debtor c) Creditor d) Purchases
13) The standard format of journal does not include which of the following?
a) Assets column b) Date column
c) Description column d) Amount column
15) Which of the following accounts will be credited if a company purchases building
for cash?
a) Capital account b) Fixed asset account
c) Building account d) Cash account
16) A chart of account generally starts with which of the following types of accounts?
a) Assets account b) Liability account
c) Revenue account d) Expense account
17) A brief explanation recorded below every entry in general journal is commonly
known as:
a) Narration b) Summary c) Other information d) None of these
22) The account will be credited when a typewriter is sold that has been used in the
office is:
a) Office equipment account b) Cash account
c) Sales account d) Purchase account
23) The process of equalizing the two sides of an account is called as:
a) Balancing b) Posting c) Journalizing d) None of these
25) Which account should be debited for recording advance payment of rent?
a) Rent expense account b) Rent payable account
c) Prepaid rent account d) Unearned rent account
33) An entry with more than one debit or more than one credit is called:
a) Double entry b) Contra entry c) Single entry d) Compound entry
34) List of balances of accounts having debit and credit columns is called:
a) Special journal b) Trial balance
c) Schedule of accounts receivable d) General journal
37) The following comments each relate to the recording of journal entries. Which
statement is true?
a) For any given journal entry, debit must exceed credits
b) It is customary to record credits on the left and debits on the right
c) The chart of accounts reveals the amount to debit and credit to the affected accounts
d) Journalisation is the process of converting transactions and events into debit/credit
format
39) Which item will appear as a debit balance in the ledger accounts?
a) Capital b) Bank overdraft c) Accounts payable d) Inventory
40) The basic sequence in the accounting process can best be described as:
a) Transaction, journal entry, source document, ledger account, trial balance
b) Source document, transaction, ledger account, journal entry, trial balance
c) Transaction, source document, journal entry, trial balance, ledger account
d) Transaction, source document, journal entry, ledger account, trial balance
42) Which of the following is the correct posting to record a cash purchase of Rs.300
from supplier?
a) Debit purchases Rs.300; credit accounts payable Rs.300
b) Debit accounts payable Rs.300; credit purchases Rs.300
c) Debit purchases Rs.300; credit cash Rs.300
d) Debit cash Rs.300; credit purchases Rs.300
43) The following are the year end balances in Sam’s ledgers:
Sales Rs.43,000 Purchases Rs.16,000
Equipment Rs.22,000 Overdraft Rs.8,000
Inventory Rs.19,000 Capital Rs.6,000
What is the trial balance total?
a) Rs.43,000 b) Rs.57,000 c) Rs.63,000 d) Rs.114,000
44) Rs.500 cash taken from office and deposited into bank is entered as:
a) Debit cash Rs.500; credit bank Rs.500 b) Debit bank Rs.500; credit cash Rs.500
c) Debit expense Rs.500; credit cash Rs.500 d) Debit payable Rs.500; credit bank Rs.500