JOURNAL & LEDGER POSTING

PRESENTED BY : Chander Mohan

GUIDED BY

:
Alka Rani Sharma (Teacher Trainer)

JOURNAL
Journal may be describe as a book in which the transaction are recorded in the order of occurrence i.e. in chronological order. It is called a book of prime entry because all business transactions are entered first in the book. The process of writing the a transaction in journal is known as journalising and the transaction written in journal is known as journal entry.

LEDGER
Ledger is principal book of accounts. It is most important book in accounting system. It contain all the accounts (assets, Liabilities, capital, revenue and expenses.) to which the transaction recorded in the book of original entry are transferred. Ledger is ultimate destination of all the transaction. It is also called book of final entry. In ledger, the information is classified by nature and relevance. It may be maintain as bound book or loose leaf sheet or in floppy disk.

Need of journal
Journal is needed and is useful in the following respects : Convenient recording of the transactions;  Maintaining and preserving the identity the transactions;  Ascertaining the true nature of transaction with the help of narrations;  Maintaining permanent record of information.

…contd.
 To find out readily and without trouble – how much

due to us and how much is payable by us to suppliers;  The net effect of all the transaction taken place during a particular period to one account only known at a glance;  The difference between debits and credits gives us the net result of the transaction relating to one person, one asset, one expenditure head or one source of income.

Types of Account
It may be classified as under : Personal Account
Natural Personal Account Artificial Personal Account Representative Personal Account
 Impersonal Accounts Real Accounts Tangible Real Accounts Intangible Real Accounts  Nominal Accounts

Rules of debit and credit (classification based)
 Personal Accounts :
Debit the Receiver, and Credit the giver (supplier);

 Real Accounts :
Debit what comes in, and Credit what goes out;

 Nominal Accounts :
Debit expenses and losses, and Credit income and gains.

Steps of Journalising
 Ascertain what accounts are involved in a transaction.  Ascertain what is nature of accounts involved.  Ascertain which rule of debit and credit is applicable for each of the      

accounts involved. Ascertain which account is to be debited and which is to be credited. Record the date of transaction in the ‘date column’. Write the name of the account to be debited very close to the left hand side alongwith the abbreviation ‘Dr’. Write the name of the account to be credited in the next line preceded by the word ‘To’ at a few spaces towards right in the ‘particular column’. Write ‘narration’ within brackets in the next line in ‘particulars column’. Draw a line across the entire ‘ particulars column’ to separate one Journal Entry from the other.

Characteristics of Journal
      

It is a book of original entry because transaction is recorded at first stage in this book. It is the first step in the recording process of double entry system of bookkeeping. It is also known as day book or diary because transactions are recorded in it on day to day basis as and when they take place. It is chronological record of all transactions taking place according to the order of occurrence. Every entry in journal is accompanied with narration which describes briefly the true nature and context of the transaction. Amount of the transaction is recorded in both debit and credit column- side by side. It helps in maintaining arithmetical accuracy of the books. Journal and ledger are inter linked because next step after journal is the ledger.

Rules of Debit
1.Personal Account is Debited when :
(I) A person owes us for receiving the benefit e.g., credit sales by the business. (II) Obligation of the business is discharged or reduced e.g. payment to a creditor. (III) A person becomes liable to business for performance in the future e.g. prepaid expense.

2. Real Account is debited when :
(I) Some asset is purchased. (II) Value of the asset increases.

3.Nominal Account is Debited when :
(I) Expenditure is incurred e.g. payment of salary, rent etc. (II) Loss is suffered due to some reason like fire theft, etc.

Rules of Credit
1.Personal Account is Credited when :
(1) Business owes to someone for benefit received e.g. goods purchased) on credit. (2)Obligation towards business is discharged or reduced by a person e.g. receipt from debtor. (3)Liability of the business towards someone increases for getting some service or benefit e.g. salaries /wages outstanding.

2.Real Account is Credited when :
(1) Asset is sold. (2) Asset value decreases due to depreciation.

3. Nominal Account is Credited when :
(I) Business earns income by way of interest, dividend, commission etc. (II) Business gains e.g. bad debts recovered etc.

Hints for Journalising
1.Treatment of cash/ credit transaction
(1) Purchased goods for Rs.1200 cash Purchases Account ……………Dr. 1200 To Cash Account …………………….. 1200 (2)Purchased goods for Rs. 1200on credit/ from Arun Purchases Account ……………Dr. 1200 To Arun Account …………………….. 1200

2. Treatment of payment on personal / expenses account
(1) Paid Rs. 500 to Varun on account
Varun Account ……………Dr. 500 To Cash Account ………………….. 500 (2)Paid Salary to Aman Rs.1000 Salary Account ……………Dr. 1000 To Cash Account ……………….. 1000

3. Treatment of Receipt on Personal/ Income Account
(1) Received Rs. 500 from Tarun on account Cash Account ……………Dr. 500 To Tarun Account …………………….. 500 (2) Received Rs. 500 from Tarun as Commission Cash Account ……………Dr. 500 To Commission Account ………………500

4.Treatment Of Trade Discount
Trade discount as such is not recorded in the books. The transaction is recorded with only the net amount. Sold goods to Raman of the list price Rs. 1000, Trade discount 10% Raman Account ……………Dr. 900 To Sales Account ………………….. 900

5.Treatment of Cash Discount
(1)Received Rs. 1000 from Arun in full settlement against the amount due Rs. 1050. Cash Account ……………Dr. 1000 Discount A/C …………….Dr. 50 To Arun Account …………………….. 1050 (2) Paid Rs. 960 to Varun in full settlement of Rs. 1000. Varun Account ……………Dr. 1000 To Cash Account ………………….. 960 To Discount Account ………………… 40

6.Treatment of Bad Debts.

Sarkar who owed us Rs. 1000 is declared insolvent and 60 paise in a rupee is received Cash Account ……………Dr. 600 Bad Debts A/C …………….Dr. 400 To Sarkar Account …………….. 1000

7. Treatment of Bad Debts Recovered
It is evident the above entry that whenever irrecoverable amount is written off, the personal account is credited. Sarkar remitted Rs. 400 against the amount previously written off as bad. Cash Account ……………Dr. 400 To Bad Debts Recovered Account.. 400

8.Treatment of Personal Expenses of the owner
X withdrawl cash for personal use Drawing Account ……………Dr. 600 To Cash Account ………………….. 600 X withdrawl goods for domestic use Drawing Account ……………Dr. 600 To Purchases Account …………….. 600

9.Treatment of Payment / Receipt on the behalf of Customer or supplier
Paid cartage on the behalf of our customer Mr. Y Rs. 100 Y Account ……………Dr. 100 To Cash Account ……………..100 Supplier Mr. Z paid cartage Rs. 100 on our behalf Cash Account ……………Dr. 100 To Z Account …………………….. 100

10.Treatment of Exchange of new asset with old one
 The value of old furniture was Rs. 350 while the

value of new furniture was Rs.900, balance paid in cash. Furniture (new) Account ……… Dr. 900 To Furniture(old) A/C ……………… 350 To Cash Account ……………….. 550

11.Treatment of goods given as Charity /Advertisement
 Gave away as charity goods costing Rs. 100

and cash Rs.50. Charity Account ……………Dr. 150 To Purchases A/C ………………. 100 To Cash Account …………….. 50

12.Treatment of goods lost in Accident/ Fire
 Goods worth Rs. 4000 were destroyed in a fire.

Insurance company paid 80% of the loss. Cash Account …………… Dr. 3200 Loss by fire A/C …………….Dr. 800 To Purchases Account …………….. 4000

13. Treatment of Depreciation on Fixed Assets
 Plant purchased for Rs. 7000. Provide

Deprecation @10% P.A. for full year. Deprecation Account ……………Dr. 700 To Plant Account …………………….. 700

14. Expenses Outstanding

 Salary of staff Rs. 30000 is outstanding.

Salaries Account ……………Dr. 30000 To Salaries outstanding A/c…….30000

15. Interest on Capital
 Interest on Capital @ 10% on capital of Rs.

500000 Interest on Capital Account ……Dr.5000 To Capital Account …………….. 5000

16. Interest on Drawing

 Interest on drawing is charged from owner Rs. 500

Drawing Account ……………Dr. 500 To Interest on Drawing A/c ……….. 500

17. Purchase and sale of Investment or other assets
 A machine is purchased for rs. 50000.

Transportation expenses Rs. 2000 and Installation charges Rs. 3000 on this machine. Machine A/C …………….Dr. 55000 To Cash Account ……………………. 55000

Compound Journal Entries
 Actually, when more than one entry is

combined it becomes a compound Entry.  Compound entries may assume anyone of the following fotms;
  

Debit one account and crediting two or more accounts. Debiting two or more accounts and crediting one account. Debiting several accounts and crediting several accounts.

Opening Journal Entry
 In the case of a continuing business, we

are required to pass an entry in the journal for bringing in the new books all assets and liabilities as appearing in the books on the last day of the previous year. Rule of passing opening entry is to debit each asset account; credit each liability account; excess of debits over credit represents capital balance. Total Debits – Total Credits = Capital

Advantages of Journal:(1)All business transactions are entered in journal in chorological order with narration. (2)Transaction are recorded in the journal as and when these take place at the convenience of the entity. (3)It is ensures that double entry rules have been followed. (4)Transactions taking place and recording are at the same time, therefore, chance of cooking or manipulating the facts are minimized. (5) In case the total of amount column debit and credit do not tally, it is sure and quick indication that some error has been committed. (6) The information contained in the journal is primary source of financial statistics of the business.

Limitation of Journal :(1)The journal will be long and unveildy, if the business has too many transactions. (2)It is not possible to ascertain daily cash balance from journal. Separate book is to be maintained for this purpose. (3)It is difficult and time consuming to locate a transaction in the journal if date of transaction is forgotten. (4)It is time consuming to post each and every transaction from the journal to ledger.

Difference Between Journal and Ledger
 Journal

1.It is the book of prime entry. 2.As soon as the transaction originates, it is recorded in journal. 3.Transactions are recorded in order of occurrence i.e. strictly in order of dates. 4. Narration is written for each entry. 5.Accuraracy of the books can not be tested. 6.Journal is not balanced.

 Ledger

1.It is the book of final entry. 2.Transactions are posted after recorded in the journal. 3.Transactions are classified according to the nature and are grouped in the concerned accounts. 4. Narration is not required. 5.Accuracy of the books is tested by means of list of balances. 6.Every account in the ledger is balanced at appropriate time.

Step involved in Ledger Posting

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Transactions relating to one account, over a period, are identified from the journal in the chronological order. Transactions, identified, are recorded at one place called account. This gives rise to summarized and classified information relating to each particular account at one place. Each account is divided into two parts i.e. debit and credit. Whenever desired, two sides are totaled and difference between two totals (known as balance) is ascertained. Such balance provides us the ready information regarding the particular account on a

Format of Ledger AccountDATE PARTICULAR F AMT DATE PARTICULAR F AMT

Advantages of ledger

Transaction relating to a particular person, item or head of expenditure

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or income are grouped in the concerned account at one place. When each account is periodically balanced, it reflects the net position of that account. Ledger is the stepping stone for preparing Trial balancewhich tests the arithmetical accuracy of the accounting books. Since the entries recorded in the journal are referenced into ledger, the possibility of errors or defalcations are reduced to the minimum. Ledger is the destination of all entries made in journal or subjournals. Ledger is the store house of all information which subsequently is used for preparing final accounts and financial statements.