JOURNAL AND JOURNAL ENTRIES (WITH EXAMPLES)

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Journal is the book of prime entry original entry. It is called the book of original entries because business transactions are first recorded in the journal. 

Journal is the chronological record of the day-to-day activities of the business in which transactions are expressed in terms of debit and credits to the account they affect.

Journal provides details of the transaction and account affected. The process of recording business transactions in the journal is called journalizing

Entries recorded in the book of the journal are called journal entries. Journal entries are prepared after examining the effect of a transaction on both the debit and credit sides.

For every journal entry, the exact amount debited is credited.

Some journal entries require one account debited and another credited, these are called simple journal entries.

Other journal entries require that more than one account be debited or credited. 

This type of journal entry is called a compound journal entry. Either waythe total debit should always equal the total credit.

Sample journal

Date

Particulars

L.F

Debit

Credit

















Column 1(Date)

The date the transaction occurred is written in the date column.

Column 2(particulars)

Here, the name of the account debited and credited as well as the narration is entered.

Column 3(L.F)

L.F stands for ledger folio. The page number on which numerous transactions appear in the ledger is entered in this column.

Column 4(Debit)

In this column, The amount debited is explicitly written plus the reporting currency.

Column 5(Credit)
The amount credited is written plus the reporting currency.

Enough of the talk, let's practise what we learned so far by trying this illustration:

On December 19, 2019, Eathyreading and co. bought equipment and paid €20,000 in cash.

Analyzing this transaction, you can deduce that the two accounts involved are cash and equipment.

Both are assets. Equipment is increasing, therefore, it is debited. Since cash was paid, Cash decreased, and therefore is credited.

Note: the golden rule for assets:

Debit assets to increase, and,

Credit assets to decrease.

If you're not yet familiar with debit and credit, see my post on debit and Credit here.

If we are to represent the effect of this transaction on the journal, Here is what it will look like:

Date

Particulars

L.f

Dr.(€)

Cr. (€)

2019

Dec. 19,

Equip.  A/c                           

cash A/c

record of bought equip. 


20,000


20,000


The above is an example of a simple journal entry. But, for some journal entries, more than one account is debited or credited.

This type of journal entry is called a compound journal entry. The example illustrates this fact.

Assuming on December 19, 2019, Eathyreading and co. bought equipment for €4,000.

They paid €2000 cash and promise to pay the remaining balance after 7 days.

This journal entry affects three accounts: cash, account payable, and equipment.

Equipment (an asset) is increasing, hence, debited. Cash (asset) is decreasing, therefore, it's credited.

Account payable(liability) is increasing, hence, credited.

Here is the journal entry

Date

Particulars

L.f

Dr.(€)

Cr. (€)

2019

Dec. 19,

Equipment a/c                           

cash a/c

Account payable a/c

record of equipment. bought


4,000


2,000

2000



Notice that the total debits equal the total credits. This is the idea of double-entry bookkeeping.

To get an intuitive feel of this topic, let's considered this example
 
Question
  1. 1st May 2018; Daniel started a business. He brought in cash €40,000 into the business. 
  2. 2nd May 2018; He bought goods worth €12,000 on credit from Samson.
  3. 5th May 2018; Daniel brought furniture valued at €9,000 from his house to the office for business use.
  4. 10th may, 2018; He returned some goods worth €2000 to Samson 
  5. 19th May 2018; Daniel Sold goods worth €8,000 to Donald, who paid €6,000 and promised to pay the remaining balance after 30 days
  6. 21st May 2018; Paid cash of €10,000 to Samson In full settlement of goods purchased.
  7. 28th May 2018; Paid cash of €2,000 for salaries and wages.
You're required to journalize this transaction.
 
Solution:
 

Date

Particular

l.f

Debit(€)

Credit(€)

2018

May 1

Cash

Capital

(Being cash invested in the business)


40,000


40,000

May 2

Purchase

Trade payable

(being goods purchased on credit)


12,000


12,000

May 5

Furniture

Capital

(As furniture was brought into the business)


9,000


9,000

May 10

Return out.

Trade payable

(Being purchased good returned)


2000


2000

May 19

Cash

Trade rec.

sale

(Being good sold)



6000

2000



8000

May 21

Cash

Trade rec.

(Being cash paid for debt

settlement) 


10,000


10,000

May 28

Salaries

Cash

(Bring salaries and wages paid)


2,000


2,000



Analysis
Transaction 1
The accounts involved are cash and capital. Both are increasing, therefore, cash and capital are debited and credited respectively.

Transaction 2
The simple thing to do here is to debit purchase, and credit account payable.

This signifies that the goods were bought on credit.

Transaction 3
In accounting, capital does not necessarily mean cash brought into the business, it may include van, equipment, and other things brought into the business. 

Furniture, in this case, is a kind of capital. Furniture, which is an asset is increasing, hence, debited. Similarly, Capital is increasing, hence, credited. 

Related posts

Transaction 4
Here, the business returns some goods to its creditor.

The affected accounts are trade payable and return outward.

Trade payable(a liability) is decreasing, thus, debited. Return outward, on the other hand, is credited.

Transaction 5 
This is a compound journal entry. Three accounts are affected: Cash, trade receivable, and sales.

Cash and trade receivable(assets) are debited while sale(revenue) is credited.

Transaction 6
Since cash is for the settlement of debt,  trade payable as well as cash is decreased.

Trade payable is debited, and cash is credited. 

Transaction 7
This is straightforward. The journal entry is debit salaries and wages, credit cash.

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