What is a Journal Entry?

Last Updated on

The record of a transaction in the Journal is called a journal entry.

Definition of Journal entry

A journal entry is a formal accounting entry used to identify a business transaction. The entry itemizes accounts that are debited and credited, and should include some description of the reason for the entry, as well as the date.

How to make Journal Entry

Before recording a journal in the journal book,You have to analyse and Journalise the transaction.After finding out which account is to be debited and credited follow the steps below to make a journal entry.

  1. Write the date of the transaction in the date column.
  2. Write the name of the account to be debited in the particulars column,and enter the amount of the debit in the left money column.It is customary to write ‘Dr’ after the account to be debited and close to the ledger folio column.
  3. On the next line, leaving some space, write the name of the account to be credited in the particulars column,and enter the amount of credit in the right money column.It is customary to begin this second line with ‘To’ But ‘Cr’ is not written after the name of account to be credited,it is just implied.
  4. Write an explanation of the transaction.The description may be brief,but it should be sufficient to help recall full particulars if reference is made to the transaction later. Start the explanation on the line immediately following the last credit item and write only in the particulars column.The explanation is called narration.
  5. Draw horizontal line after narration,touching the two lines of the particulars column.This line is to separate the journal entry for one transaction from that of another and is not necessarily apart of journalising.
  6. Note: The ledger folio (L.F) Column in the journal is intended to write the page (folio) number of the Ledger where the particular account is opened.

Example of Journal Entry

Lets take the following example for preparing a journal entry

Journal Entry More Examples

  • Example 1 : On 01-06-2016 Cash sales to Mr .X.  $2000

Analysis: Cash  & Revenue( sales) increased and stock decreased.

  • Example 2: On 02-06-2016 Credit Purchase from XYZ Trading $ 5000

Analysis:Expense Increased ( Purchase)and Liability Increased ( XYZ ) Stock Increased.

Journalising the transactions

  • Journalising of example 1

Cash is Real Account -Apply Rule- Debit What Comes In 

Sale is a Nominal Account- Apply Rule – Credit All Incomes or gain.

  • Journalising of example 2

Purchase is a Nominal Account – Apply Rule – Debit all Expense

XYZ Trading is a Personal Account -Apply Rule –Credit the Giver.

Journal Entry

After Journalising ,the transactions,the debit and credit should be recorded in the journal books.The above example is recorded in the General Journal among the various Types of Journals as follows.

What is a journal entry

Related Posts

Leave a Reply

Your email address will not be published. Required fields are marked *

Translate »
error: Content is protected !!