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Journal Entry Example

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Now You have learned What is a Jouranl, Types of Journals,What is journalising, to find out the Debit & credit aspects of a transaction. Let’s Do some Journal entry examples in this chapter.

What is journalising?

The process of recording of transactions in the books of accounts is called “Journalising”Journal is called primary books of  accounting.Journal records all daily transactions of a business in the order in which they occur. The recorded transaction in a journal book is called Journal entry.
Rules for recording journals ,we have learned in our early lesson Types of accounts.
Let’s do the recording of transactions in to journal books. assume that all transactions are happened from 01.01.2009 to 16.01.2009 one transaction per day
J.K enterprises

Journalise the the following transactions

  1. Mr. John Invested  200000 as capital
  2. Purchased land for  105000.00
  3. Purchased Goods from S.K creation on credit  200000.00
  4. Stationery purchased for  1000.00
  5. Goods sold to Indian cotton for Credit  45000.00
  6. Rent paid to building owner  1500.00
  7. Cash withdrawn for personal use  5000.00
  8. Tea expenses incurred for staff  100.00
  9. Computer purchased from computer solutions  30000.00
  10. Paid commission  500.00
  11. Deposit cash in to SBI 15000.00
  12. cash sales  25000.00
  13. Cheque Received from Indian cotton 25000.00
  14. Goods returned by Indian cotton  2500.00
  15. Cash withdrawn from SBI 10000.00
  16. Goods returned to S.K creation  5000.00
Below is the format of typical journal book. All column heads are self explanatory Except LF, LF means Ledger folio number, in computerized accounting this Is not important. ie,When you post this journal in to a ledger book , the folio number of the ledger should be entered for future reference LF useful is when you are using manual accounting.
We have already find out the two aspects of above transactions in lesson 2 ,here we are just recording the transactions in journal book. entering debit aspect in to debit column & credit aspects in credit column Apart from this a brief description of each transaction should be entered in journal book. Dr denotes debit aspects of a transaction & To Denotes the credit aspects of transaction

Analysis of Transaction on decide debit and credit

Before analyzing and decide, and creating journal entry, Consider the following Golden rules of accounting for debit and credit.

  1. When an asset is affected – Real account rule apply –Debit what comes in credit what goes out.
  2. When a person’s or company’s  account is affected- Personal account rule apply- Debit the receiver and credit the giver.
  3. When any expense or Income affected -Nominal account rule apply –Debit all expenses and losses  credit all Incomes and gains.

recommend reading: Types of accounts

Apart From from the above the below table of debit and credit will help you to journalise transactions quickly.

ANY ASSET ACCOUNT
Debit Credit
Debit Increase in an asset Credit when assets are decreased
ANY LIABILITY ACCOUNT
DebitCredit
Debit when Liability decreasesCredit When Liability Increases
ANY EXPENSE ACCOUNT
DebitCredit
Debit When expense IncreasesCredit When Expenses Decreases
ANY INCOME ACCOUNT
Debit Credit
Debit when Income decreasesIncrease in income are Credited
  • Mr. John Invested  200000 as capital

Debit- cash  A/c-cash is an asset ,as per real account rule debit.

Credit- Mr John Capital A/c – Increase Liability of the business

  • Purchased land for  105000.00

Debit – Land A/c – Asset Increases- or debit what  comes in.

Credit – Cash A/c – Asset decreases- cash goes out.

  • Purchased Goods from S.K creation on credit  200000.00

Debit- Purchase A/c – Expense Increases – Debit all expenses and losses.

Credit- SK Creation – Liability Increases – or  Credit the giver

  • Stationery purchased for  1000.00

Debit – Printing & Stationery A/c – Expense Increases or Debit all expenses and losses.

Credit – Cash A/c  – Asset decreases- cash goes out.

  • Goods sold to Indian cotton for Credit  45000.00

Debit Indian Cotton A/c – Debit the receiver – Asset ( Debtor ) Increases.

Credit- Sales A/c -Credit all Incomes & Gains.

  • Rent paid to building owner  1500.00

Debit- Rent A/c Expense Increases or Debit all expenses and losses.

Credit-Cash A/c -Cash A/c – Asset decreases- cash goes out.

  • Cash withdrawn for personal use  5000.00

Mr John Capital A/c –  Liability Decreases as capital is the liability to the business.

Credit-Cash A/c -Cash A/c – Asset decreases- cash goes out.

  • Tea expenses incurred for staff  100.00

Debit- Tea Expenses A/c Expense Increases or Debit all expenses and losses.

Credit-Cash A/c -Cash A/c – Asset decreases- cash goes out.

  • Computer purchased from computer solutions  30000.00

Debit Computer A/c – Asset Increases- or debit what  comes in.

CreditComputer Solutions A/c -Credit the giver or Liability Increases

  • Paid commission  500.00

DebitCommission A/c Expense Increases or Debit all expenses and losses.

CreditCash A/c -Cash A/c – Asset decreases- cash goes out.

  • Deposit cash in to SBI 15000.00

Debit -State Bank of India  A/C -Asset Increases – Debit the receiver.

CreditCash A/c -Cash A/c – Asset decreases- cash goes out.

  • cash sales  25000.00

DebitCash A/c -Cash A/c – Asset Increases- cash comes In.

Credit- Sale A/c – Income Increases -Credit all Incomes and gains.

  • Cheque Received from Indian cotton 25000.00

DebitBank A/c  – Asset Increases- Debit the receiver

Credit – Indian Cotton A/c – Aseet (Debtor) decreases or credit the giver

  • Goods returned by Indian cotton  2500.00

Debit- Sales Return A/c – Income decreases -Debit all Expenses or losses

Credit-Indian Cotton A/c  Asset (Debtor) Decreases – Credit the giver.

  • Cash withdrawn from SBI 10000.00

DebitCash A/c -Cash A/c – Asset Increases- cash comes In.

Credit-Bank A/c  Asset  Decreases – Credit the giver.

  • Goods returned to S.K creation  5000.00

Debit -SK Creation A/c – Liability Decreases

Credit – Purchase Return A/c – Credit all Incomes or gains

Now lets post all this transactions in to a journal.

J.K enterprises
Journal
DateParticularsLFDebitCredit
01.01.2009Cash .....Dr200000
To Capital200000
(being capital brought by Mr john)
02.01.2009Land a/c .....Dr105000
To Cash105000
(being land purchased forcash)
03.01.2009Purchase a/c .....Dr200000
To S.K Creation200000
(being credit purchase from S.K creation )
04.01.2009Stationery a/c .....Dr1000
To Cash1000
(Stationery purchased for cash )
05.01.2009Indian Cotton a/c .....Dr45000
To Sales a/c45000
(Credit sales to indian cottons )
06.01.2009Rent a/c .....Dr1500
To cash a/c1500
(being rent paid )
07.01.2009Capital/drawings a/c .....Dr5000
To cash a/c5000
(being cash withdrawn for personel use )
08.01.2009staff welfare a/c .....Dr100
To cash a/c100
(being tea expense incurred for staff )
09.01.2009Computer a/c .....Dr30000
To Computer solution a/c30000
(being computer purchased from computer solution )
10.01.2009Commision a/c .....Dr500
To cash a/c500
(being commission paid )
11.01.2009SBI(Bank) a/c .....Dr15000
To cash a/c15000
(cash deposited in to bank )
12.01.2009Cash a/c .....Dr25000
To Sales a/c25000
(beingcash sales incurred )
13.01.2009SBI(Bank) a/c .....Dr15000
To Indian cotton a/c15000
(ch# 895222 receoved from indian cotton deposited in to bank )
14.01.2009Sales Return a/c .....Dr2500
To Indian cotton a/c2500
(being goods sold returned by indian cotton )
15.01.2009Cash a/c .....Dr10000
To SBI ( Bank) a/c10000
(being cash withdrawn from bank )
16.01.2009S.k creation a/c .....Dr5000
To Purchase Return a/c5000
(Being goods returned to s.k creation )

Comments (3)

  • I am retired bank manager having good knowledge of accounting in banks. Though I know fundamentals of trading a/c, b/s etc relating to manufacturing/trading/service units I lack practical experience. Now I am offered a manager job in a private unit who do accounting in tally. I know the fundamentals of accounting but nothing about Tally. Your blog seems very useful.

    Reply
  • Dear Mr. Saju,

    Greetings from Bangalore!
    I’m a retired person but working in an office.
    They have asked me to come up with Tally Training now!
    This i cannot afford, neither the money nor the time.
    So while i was browsing i came across your good site, thank God!
    Pl. help me what ever lessons you can send me by eMail or SMS or whatever.
    Any thing concerning Tally ERP 9
    Thanking you & may God bless you real good!
    Dave

    Reply
  • HI SIR
    WOULD YOU GIVE ME PRACTICE EXERCISE FOR TALLY TRANSACTION WITH BALANCE SHEET

    Reply

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