Odisha Public Service Commission, Cuttack Viva Voce Test Wednesday, October 28, 2015 “Lecture on Journal Entries” By – Anil Kumar Soni (M. Com, M. Phil, NET/JRF) Before the Interview Board Odisha Public Service Commission, Cuttack

An Overview / Outlines Part 1: Introduction of Journal. The Lecture divided in 5 parts – Part 1: Introduction of Journal. Part 2: Steps involved in Journal Entry. Part 3: Types of Accounts. Part 4: Golden Rules of Journal Entry. Part 5: Summary.

Introduction of Journal (Part – 1) When the business transactions take place, the first step is to record the same in the books of original entry or day books or books of prime or journal. Thus journal is a simple book of accounts in which all the business transactions are originally recorded in chronological order. Wherever money is involved, accounting is required to account for it and Journal is the foundation of accounting. The accounting record known as a journal is used to list all the necessary information about a transaction in one place.

Format of Journal The Journal has five columns – (1) Date. (2) Particulars. (3) Ledger Folio. (4) Amount (Debit). (5) Amount (Credit). (Narration as footnote in Particulars Colum to indicate the transaction)

Steps involved in Journal Entries (Part -2) The Steps Involved for Preparation of Journal – Analyze the Transaction (Source of Information). Selection of Two Affected Accounts. Selection the Types of Accounts. Apply the Rules of Journal Entries. Finally Entry in the Book. The process of recording transactions in the journal is known as journalizing, or recording journal entries. Business transactions are first entered in the records in the form of journal. As per the double entry system of accounting we have to classify the accounts and apply the double accounting rule accordingly.

Types of Accounts (Part – 3) The object of book-keeping is to keep a complete record of all the transactions that place in the business. To achieve this object, business transactions have been classified into three categories – (i) Transactions relating to persons. (ii) Transactions relating to properties and assets. (iii) Transactions relating to incomes and expenses. The accounts falling under the first heading are known as ‘Personal Accounts’. The accounts falling under the second heading are known as ‘Real Accounts’, The accounts falling under the third heading are called ‘Nominal Accounts’. The accounts can also be classified as personal and impersonal.

Chart of Accounts

The Above chart shows the types of account – (A) Personal Accounts – Accounts recording transactions with a person or group of persons are known as personal accounts. Personal accounts are of the following types – Natural person’s – An account recording transactions with an individual human being is termed as a natural person’s personal account. (Ram, Sita and Ravan). Artificial or legal person’s – An account recording financial transactions with an artificial person created by law or otherwise is termed as an artificial person’s personal account. (Bank, Club and College). Representative personal – An account indirectly representing a person or persons is known as representative personal account. (Capital, Drawing , Prepaid Rent and Unpaid Salary).

(B) Real Accounts – (C) Nominal Accounts – Accounts relating to properties or assets are known as ‘Real Accounts’, A separate account is maintained for each asset. Real accounts can be further classified into tangible and intangible – Tangible Real Accounts – These accounts represent assets and properties which can be seen, touched, felt, measured, purchased and sold. (Machinery, Cash, Furniture and Stock) Intangible Real Accounts – These accounts represent assets and properties which cannot be seen, touched or felt but they can be measured in terms of money. (Goodwill, Patents and Trademarks) (C) Nominal Accounts – Accounts relating to income, revenue, gain expenses and losses are termed as nominal accounts. These accounts are also known as fictitious accounts as they do not represent any tangible asset. (Wages, Rent and Commission)

Golden Rules of Journal Entries (Part – 4) Double Entry – It this system every business transaction is having a two fold effect of benefits giving and benefit receiving aspects. The recording is made on the basis of both these aspects. Double Entry is an accounting system that records the effects of transactions and other events in at least two accounts with equal debits and credits. Meaning of Debit and Credit – The term ‘debit’ is supposed to have derived from ‘debit’ and the term ‘credit’ from ‘creditable’. For convenience ‘Dr.’ is used for debit and ‘Cr.’ is used for credit. Recording of transactions require a thorough understanding of the rules of debit and credit relating to accounts. Both debit and credit may represent either increase or decrease, depending upon the nature of account.

The debits must always equal the credits. Debit and Credit Tools used for recording transactions – Debit (Dr.) Credit (Cr.) Dr. refers to the LEFT and Cr. to the RIGHT side of the Account. The debits must always equal the credits. Debits = Credits

Rules For Journal Entry The rule for Personal Accounts – Debit the Receiver Credit the Giver The rule for Real Accounts – Debit what Comes in Credit what Goes out The rule for Nominal Accounts – Debit all Expenses and Losses Credit all Incomes and Gains

Credits are simply entries on the right. Summary (Part – 5) In an actual accounting system, transactions are initially recorded in the Journal. Journal is known as the book of original record or entry. Remember: Debits are simply entries on the left. Credits are simply entries on the right.

End of Lecture Thank You