Chapter 2 Journal

Learning Objectives After studying this chapter, you should be able to: Students are able to understand the concept of Journal. Students are able to understand the Rules of Debit and Credit. Students are able to understand the Simple entry and Compound Entry.

The Accounting System to record transactions Click me!

Journal Definition: “Journal is a book of original entry in which business transactions are recorded chronologically” (I.e. time & date wise). The word “Journal” has been derived from the French word “Jour” which means day. So Journal means daily. Transactions are recorded on daily basis in Journal.

Journal SOME OTHER NAMES OF JOURNAL: Journal is also known as: Day Book Chronological Book Book of original entry Book of first entry Primary book

Advantages of Journal It show all information about a transaction as it takes place and also provide an explanation of the transaction. It helps in locating errors. There is no possibility of transactions as each transaction is recorded immediately. It provide a chronological record of all transactions which is helpful to locate a transaction relating to a particular date.

SUB DIVISION OF JOURNAL: In large business where transactions are numerous, it is very difficult to record all transactions in one journal. So journal is sub divided into several books. Each separate book is known as subsidiary book or special journal. The nature of operations and size of business transactions in a particular business determine the number and types of journals needed. However the followings are the types of journals usually maintained by a medium size business concern.

For Liabilities Account Rules of Debit & Credit Types of Account Rules for Debit Rules for Credit For Assets Account Increase Decrease For Liabilities Account For Capital Account For Revenue Account For Expenses Account

Remember: Just ask! Debit Credit + A = Assets - L = Liabilities I = Income* C = Capital E = Expenses * Really, this is revenues, but “r” just doesn’t fit in!

= + Normal Balances Liabilities Equity Assets + - - + - + Normal Debit Credit + - Debit Credit - + Debit Credit - + Normal Balance Normal Balance Normal Balance

Rules of Debit and Credit Owner’s Equity Debit Credit - + Assets Debit Credit + - Libilities Debit Credit - + Expenses Debit Credit + - Revenues - + Debit Credit

Format of General Journal Transaction Date Accounts Affected Journal L.F Page 1 Date Description Debit Credit Jul 1

Rules of Debit and Credit ENTRY: Record of each business transaction in concerned book of accounts is called an entry. SIMPLE JOURNAL ENTRY: An entry in which only one account is debited and only one account is credited is known as simple journal entry.  

EXAMPLE SIMPLE JOURNAL ENTRY Transaction # 01: Owner Mr. Farooq invested the cash in Business Rs.10, 000 on Jan.1, 2009. Analysis: In this transaction two accounts involved. 1) Cash 2) Capital Increase in cash Rs: 10,000 (Increase in Asset Debit) Increase in Capital Rs: 10,000 (Increase in Capital Credit)

General Journal Transaction Date Accounts Affected Date Jul 1 Journal Ref Page 1 Date Description Debit Credit Jul 1 Cash 10,000 Capital Investment from owner Explanation of transaction Dollar amount of debits and credits

Journal COMPOUND JOURNAL ENTRY: An entry in which more than one accounts are debited or more than one accounts are credited is called compound journal entry.

Journal Transaction # 02: On July 10, 2009 purchase Land for Rs.25,000 paying cash Rs.5,000 & remaining amount is payable after 60 days. Analysis: In this transaction three accounts involved. 1) Land 2) Cash 3) Accounts payable

General Journal Transaction Date Accounts Affected Date Jul 10 Journal Ref Page 1 Date Description Debit Credit Jul 10 Land 25,000 Cash 5,000 Accounts payable 20,000 Investment from owner Explanation of transaction Dollar amount of debits and credits

Exercise 2-5 Cash 4000 Paid Rent for cash Paid Rent for Rs. 4000: Cash is decreasing Expenses is Increase Decrease an asset with a credit GENERAL JOURNAL DATE DESCRIPTION REF DEBIT CREDIT Cash 4000 Paid Rent for cash Jun 2 Rent Expense 4,000

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