Definition of Journal
‘Journal’ word is derived from French word ‘Jour’ which means a day book. Journal is a primary book of original entries for accounting data. In "Journal" the business transactions are recorded chronologically that is called Journalising. Thus the accounting data are recorded first time in this book. According to Carter, “A Journal, as originally used, is a book of primary entry in which transactions are copied in the order of date from a memorandum or waste book. The entries are then copied and classified into debts and credits, so far to facilitate their being correctly posted afterwards in the ledger”.
Rules of Debiting and Crediting in Journal
In the Journal the business daily transactions of the financial nature are recorded on the basis of debit and credit. The accounts are debited and credited on the basis of some following rules. These rules are based on the english classification of accounts.
1. Personal Account: If in a transaction, a person receives something in cash or goods, it is debited and if that person gives, that is credited. Debit account is denoted by ‘Dr.’ while credit account is denoted by ‘Cr.’ In brief, the rule of personal account is
Receiver is debited (Dr.)
Giver is credited (Cr.)
2. Real Account: If in a transaction, the assets are coming into business, they are debited and if those are going outside from business, they are credited. Thus these rules are as below:
‘What comes in’ is debited
‘What goes out’ is credited
3. Nominal Account: The rules of debiting and crediting of nominal account are – the expenses and losses of the business are debited and the gains and profit of the business are credited.
In brief the rules are:
Expenses and Losses are debited
Incomes and Gains are credited
At the time of Journalising or recording the transactions, when an account is debited it is denoted by ‘Dr.’ and crediting of an account by ‘To’. When a transaction is recorded first of all its two aspects (accounts) are identified, those may of the same group (same type of account) or different groups (different types of accounts). Then the rules of debiting and crediting are applied. On the completion of a page of the Journal it is totalled and the balance is carried forward to the next page.
Compound Journal Entry
Instead of passing several journal entries for the same account when two or more transactions involving the same account occur in a business on the same day, a single journal entry known as a compound journal entry is passed. Compound entry can be of following three types:
(a) Single debit account and more than one credit account
(b) Single credit account and more than one debit accounts
(c) More than one debit account and more than one credit account
Opening Journal Entry
The closing balances of accounts of one year are transferred to the next year. In the next year these balances become the opening balances. After recording the opening balances, the transactions of the year are recorded. To record the opening balances a Journal entry is passed which is called opening entry. Suppose in a business there are closing balances of cash of 10,000, plant 90,000 and capital of 1,00,000, and then opening Journal entry will be as follows:
Assets Account Dr. 90,000
Cash Account Dr. 10,000
To Capital Account 1,00,000
Special Journal Notes
This journal is the part of general journal. Under this division of Journal, the following Journals or books are included:
1. Purchase Book is also known as Bought Book or Purchase-Day Book. All the credit purchase of goods is recorded in this book. In this book the data wise transactions of purchase are recorded. There are six columns in this book. The date of the transaction is shown in the first column, followed by the invoice number in the second, the transaction details in the third, the ledger folio number in the fourth, and the transaction amount in the final two columns.
2. Sales Book is known by the different names as Sales-Day-Book, or Sales Journal. All credit sales of products are documented in this book. An invoice is created at the moment of the sale of the goods. All credit sales are noted in this book based on the basis of this invoice. The sale of anything other than products is noted in the journal itself.
3. Purchase Return Journal or Return Outward Book are other names for Purchase Return Book. The things that are returned to the suppliers are recorded in this book. The products are not recorded in this book if they were paid for in cash and subsequently returned. Various credit-purchased books include entries for these types of commodities. When products are returned to the supplier, a note including all the information about the returned goods is also sent to the supplier; this note is known as a debit note. It is prepared in two copies.
4. Sales Return Book is known as Sales Return Journal or Return Inwards Book. Customers occasionally return items purchased on credit, and these returns are noted in this book. Except for the debit note number, the same columns as in the purchase return book are preserved here. In this book, credit note number is provided in place of debit note number. A note known as a credit note is given to the consumer when they return certain products. Credit note denotes that the value of the returned products has been credited to his account. For the party receiving the returned items, this credit note functions as a debit note.
5. Bills Receivable Book is also called the Bills Receivable Journal. When a company receives various bills from its debtors, details of all these bills are datewise recorded in the Bills Receivable Book.
