3 JOURNALIZING, POSTING AND BALANCING

Meaning of an ACCOUNT

An Account is a summary of the relevant

transactions at one place relating to a particular

head.

Traditional Classification of Accounts

Personal Accounts: relate to natural persons, artificial persons and representative persons

Real Accounts: relate to the tangible or intangible real assets

Nominal Accounts: relate to expenses, losses, profits & gains.

Accounting Equation Based Classification of Accounts Assets Accounts: tangible or intangible real assets Liabilities Accounts: relate to financial obligations of

an enterprise towards outsiders Capital Accounts: relate to owners of an enterprise Revenue Accounts: relate to the amount charged for

goods sold or services rendered or permitting others to use enterprise resources yielding interest, royalty and dividend.

Expenses Accounts: relate to the amount incurred or lost in the process of earning revenue

Illustration 1: Classify the following Accounts1. Capital Brought in

2. Building Purchased

3. Purchases A/c

4. Sales A/c

5. Carriage Inwards paid

6. Carriage Outwards paid

7. Cash Received

8. Cash Paid

9. Interest Paid

10. Interest Received

Contd………

11. Bank A/c

12. Sales Promotion Expenses

13. Furniture Purchased

14. Sales Return

15. Bank Overdraft

16. Purchase Return

17. Bad Debts written off

18. Subscription received

19. Outstanding Salary A/c

20. Bank Loan

Meaning of Debit and Credit

Debit (Dr.) means to enter an amount on the left side of an account

Credit (Cr.) means to enter an amount on the right side of an account

Rules of Debit and Credit (based on traditional classification) For Personal Accounts Debit the receiver Credit the giver For Real Accounts Debit what comes in Credit what goes out For Nominal Accounts Debit all expenses and losses Credit all gains and profits

Rules of Debit and Credit (based on accounting equation) For Assets Accounts

Debit the increase; Credit the decrease For Liabilities Accounts

Debit the decrease; Credit the increase For Capital Accounts

Debit the decrease; Credit the increase For Revenue Accounts

Debit the decrease; Credit the increase For Expenses Accounts

Debit the increase; Credit the decrease

JOURNAL

A Journal is a book in which transaction are recorded in the order in which they occur i.e. in chronological order.

A Journal is also called book of prime entry because all transactions are entered first in this book

The process of recording a transaction in Journal is called a Journalizing

An entry made in Journal is called Journal Entry

FORMAT OF A JOURNAL

Journal

Date Particulars L.F. Debit

(Rs.)

Credit

(Rs.)

Illustration 2:Journalize the following transactions:(a) Ganesh started his business with cash Rs.1,00,00/-(b) Borrowed from Mahesh Rs.50,000/-(c) Purchased Furniture for Rs.10,000/-(d) Purchased goods for cash Rs.40,000/-(e) Purchased goods on credit from Ram Rs.25,000/-(f) Paid cash to Ram Rs.10,000/-(g) Sold goods for cash Rs.30,000(h) Sold Goods on credit to Shyam Rs.25,000. (i) Received cash from Shyam Rs.15,000/-(j) Withdrew cash for personal use Rs.1,000/-(k) Salaries Paid Rs.6,000/-

Journal Entry

Compound Journal Entry: When two or more accounts are involved in a transaction and the transaction is recorded by means of a single journal entry instead of passing several journal entries, such single journal entry s termed as ‘Compound Journal Entry’

Opening Entry: A journal entry by means of which the balances of various assets, liabilities and capital appearing in the balance sheet of the previous accounting period are brought forward in the books of current accounting period, is known as ‘Opening Entry’

Illustration 3: Enter the following transactions in a Journal, post them to ledger and prepare a Trial Balance2006

Jan.1

Assets in Hand: Cash Rs.630, Cash at Bank Rs.23,100; Stock of goods Rs.26,400; Mohanratta & Co. Rs.6,750

Liabilities: Marathi & Co. Rs.3,880; Ram Sons Rs.3,000

Jan.2 Received a cheque from Mohanaratta & Co. in full settlement

6,650

Jan.3 Sold goods to Dass & Co. 1,400

Jan.4 Sold goods to Jai Chand & Sons

Carriage paid

Sold goods to Gainda & Co., for cash

1,440

35

3,120

Jan.5 Brought goods from Ram & Sons

Paid Marathi & Co., by cheque in full settlement

4,000

3,800

Jan.6 Bought goods from Chatterjee & Mukherjee 6,300

Jan.7 Dass & Co. return goods, not being up to standard

Travelling Expenses paid to salesman

Goods sold to cash to Vijay

100

147

800

Jan.10 Paid for stationery

Postage Stamps

66

15

Jan.13 Returned goods to Chatterjee & Mukherjee (not being upto standards)

Chatterjee & Mukherjee (also admit claim for breakage of goods)

300

100

Jan.15 Paid for furniture by cheque 700

Jan.16 Goods used personally by proprietor 50

Jan.17 Sold goods to Mohanratta & co. 5,000

Jan.19 Dass & Co. pay by cheque 1,300

Jan.20 Cheque received from Jai Chand & Sons 1,440

Jan.22 Bank advises Jai Chand & sons, cheque returned unpaid

Jan.23 Sold goods to Ajay for cash 800

Jan.24 Cash deposited with bank 2,000

Jan.27 Cheque sent to Chaterjee & Mukherjee

(Discount allowed Rs.50/-)

5,850

Jan.29 Paid telephone charges 23

Jan.31 Paid Salaries

Paid Rent

Bank Charges

Drew for personal use out of bank

Received claim from Mohanratta & Co., for defect on goods supplied to them, claim admitted

600

300

10

500

150

LEDGER

Ledger is the principle book which contains all accounts to which transactions recorded in the book of original entry are transferred

The ledger is also called ‘Book of Final Entry’ as it is the ultimate destination of all transactions.

UTILITY OF LEDGER

It provides complete information of all accounts in one book

It enables to ascertain what are the main items of revenue

It enables to ascertain what are the main items of expenses

It enables to ascertain which are the assets and of what values

It enables to ascertain which are the liabilities and of what amounts

It facilitates the preparation of final accounts.

FORMAT OF A LEDGER A/C

(Name of the Account)…… Ledger Folio No………..

Dr. Cr.

Date Particulars Folio Amount (Rs.)

Date Particulars Folio Amount (Rs.)

POSTING

Posting is the process of transferring the transactions recorded in the books of original entry in the concerned accounts opened in Ledger.

It may be done daily, weekly, fortnightly or monthly according to the convenience and requirements of the business.

Posting helps us to know the net effect of various transactions during a given period on a particular account

BALANCING

Balance of an account is the difference between the total of debit and total of credit appearing in an account.

Balance signifies the net effect of all transactions posted to that account during a given period.

Normally, Personal and Real accounts are balanced; Nominal Accounts are closed by transferring to Trading & Profit & Loss A/c