What is a Journal Entry Accounting? Meaning & definition of journal Entry

What is a Journal Entry Accounting?Meaning and definition of journal

What is Journal Entry Account ?
Journal entry
Introductions
Business organizations used different types of books of account depending upon the nature of transactions. The books which are used by the business organization for recording financial transaction are called books of account. Generally, there are two sets of book of account which re maintains by each business originations to record the various business transactions. Those are:
• Journal

• Ledger
Journal
Journal is a book which records every financial transaction of a business organization. The financial transactions are firstly recorded into journal on chronological order. It is known as "book of original entry".
The word 'journal' is derived from French word 'jour' which means a diary or long book. It means daily record. A journal may therefore, be defined as a book which records transaction of each day. It is the book which record financial transaction based on the principle of double entry system of book-keeping.

Meaning and definition of journal

Journal is a book of original entries containing a chronological record of business transaction according to the principle of double entry system. A journal may, therefore, to be defined as a book containing a day to day record of transaction.
L.C. Cropper, a 'A journal is a book, employed to classify or sort out transaction in a form convenient for their subsequent entry in the ledger.'
R.N. Carter, the journal' or 'daily record' as original use was a book of prime entry in which transactions were copied in order of date from memorandum or waste book. The entries as they were copied, were classified into debits, so as to facility their being correctly posted afterwards in the ledger.'
It is clear from the above definition that the journal is books of prime or original entry in which all financial transactions of a business are systematically recorded according to their dates of occurrence and is maintained with a view to help to prepare the subsequent ledger book.
Objective of journal
Journal is a book which is used to record financial transaction. It is the book of original record of financial transactions.
The objectives of journal are as follows:
• To record the financial transactions in a systematic way.
• To show necessary information in a systematic way.
• To provide legal evidences of business.
• To provide data wise (chronological) record of transactions.
• To help in preparing ledgers.
Journalising
Journalizing is a systematic process of recording of financial transaction. Such recording are made in terms of debit and credit. Thus, the process of recording financial transaction in the original book is called journalizing.
The specimen ruling of journal is as follows:
A) Date
B) Particulars
C) LF
D) Debit Rs.
E) Credit Rs
Definition of specimen rule:
a) The data column: in this column, the data in which transaction occurred is recorded in sequential order.
b) The particulars column: in this column, the accounts to be debited and the account be credited are recorded. The debit account is firstly written close to data line and the credit account is written on next line at short distance from date line starting with "to …..A/C. after classification of debit and credit, a short description about the transaction called narration is written.
c) The ledger folio (L.F.) column: after classification all transaction into different account; they are posted into respective ledger account. The page number of the folio number of the ledger account where posting has been made from journal is recorded in L.F. column.
d) Debit amount: this column shows the amount t which is debited.
e) Credit amount: this column show the amount which is credited.
Types of Journal
There are two types of journal used by business organization. They are:
• General Journal
• Special Journal
General journal records all types of business transactions in scientific, systematic and sequence order. It is used where the nonmember of transaction is limited and manageable in a single book. Normally, the term 'journal' is referred as general journal.

On the other hand, in large organization, it may not be possible to record transaction as and when they occurred because of voluminous transaction. Therefore, these business houses divide when they occur because of voluminous transaction. Therefore, these business houses divide journal into several division depending up to the need. For example, purchase book is maintained for the goods purchase on credit, sales book is transaction and so on, thus, journal is divided into several books required separate persons. Such book as purchase book, sales book, cash book etc. are called special journal.
Rules of journalising
Every financing transaction of a business organization has dual effect: debit and credit, in other world. Each financial transaction of a business organization involves at least two accounts. One account is debited and other account is credited debited. Debiting and crediting of the accounts are made by following the rules of debit and credit. There and two concept available for recording financial transactions of business organization. Those are:
• Traditional concepts
• Modern concepts:
Traditional concept of journaling is also knows as British approach. Under it, transactions are recorded by classifying into three categories. Those are:
• Personal account
• Real account
• Nominal account
Definitions are transaction
Personal account
Accounts which are related in individuals firms are called personal accounts. In personal accounts. Transaction relation  to personal. Firms' organization, business etc. are recorded. For example ram shah account, debtor's account, creditor's account etc.
For example rules:
Debit: the receiver
Credit: the giver
For example, it cash is paid Mr. ram shah, then ram shah's account must be debited since he is the receiver of cash similarly, it cash is received from miss priyanka shah account must be recited because he is the giver of cash.
Real account
Account which is related with assets or properties of business is called are real account. Transactions which are related with the assets or properties are recorded in this account. For example, building account, machinery account, goodwill account, land and building account etc. according to this is the rules of debit and credit are as follows:
For example rules follow:
Debit: what comes in
Credit: what goes out
For example: when furniture is purchased for cash, then furniture account must be debited because it comes into business is cash account is credited as it goes of business.
Nominal account
Nominal account which is are related with expenses, income, loss or gains are called nominal account. Under nominal account transactions relating expenses income, loss or gain are recorded. For example, salary account, rent account, income, discount, purchase, allowed account, goods lost by fire account, discount received account, commission received account etc. the rules are used for debit and credit according to this account are
Debit: all expenditures and losses
Credit: all incomes or gain
For example which salary is paid, it is the expanses of the business. Hence, salary account must be debited, similarly, when interest is received. It is the income of the business; therefore interested received account must be credited.
Hint/Rules for journalizing:
The following discrimination we will be help to diagnosing the transactions with view/work to find which account are relieved for passing the journal entry:
1. Treatment of cash and credit transaction:
i) Purchase goods for rs 5,000 ash
ii) Purchase goods for rs 4,000
iii) Purchase goods for rs 6,000 for arun.
iv) Purchase goods for rs 3,000 from arun on cash.
2. Treatment of payment on personal expenses account :
When payment is made to a person amount due to him as per his ledger account, the personal account of the creditor should be debited. However if the payment is being made to a person representing business then the particular expenditure account should be debited. For example (i) paid rs 500 an account (ii) paid rs 500 to karun for his salary, to transaction (ii) the entry is:
Karun
To: cash account
In transaction (ii) the entry is
Salary account
To: cash account
3. Treatment of receipt on personal/income account
When amount is received from a person against recoverable from his a per ledger account. The personal account of the debtor should be credited, however if the amount received represents business income. Then the particular income account shuld be credited. For example
I) received rs 800 from tarun on account
II) Received rs 800 tarun s commission.
1 Cash account dr. 800
To tarun cr. 800
2 cash account dr.800
To: Commission account cr. 800
4. Treatment of trade discount :
In many cases the similar to the buyer deduction off list price. Such deduction is know as trade discount as such is not recorded in the books. The transaction is recorded with only not amount. i.e.
For example:
1. Sold good to raman list price rs 1,000 trade discount 10%.
Raman a/c dr. 900
To: sales a/c cr. 90
5. Treatment of cash discount (full settlement) :
In some cases creditor may allow some concession to his debtor to prompt his to made the payment within the period of credit allowed. Such concession is known as 'cash discount' it is allowed by the person receiving the payment and represent expenditure. It is availed by the person making the payment nd represent income.
1. Received rs 1,000 from trilok nath in full settlement against the amunt due from his rs. 1000.
Cash a/c dr. 1000
Discount allowed a/c dr. 50
To Triloki Nath cr 1050.
2. Paid rs 960 to ram shah in full settlement against the amount due to his rs. 1000.
Ram shah dr. 1,000
To cash a/c 960
To discount received a/c 40
6. Treatment off bad debts (debtor becoming insolvent) :
An amount due from a debtor may become irrecoverable either partially or wholly, reason may be that he has been declared insolvent or any other. Such irrecoverable mount represent loss to the business and is debited to bad debts account.
Sarkar who owed us rs. 1.000 is declared insolvent and 60 paisa in the rupees is received as final dividend from the estate.
Cash a/c dr. 600
Bad debts a/c dr. 400
To sarkar 1,000
7. Treatments of bad debtor recovered :
It is evident from the above entry that whenever irrecoverable amount is written of the personal account is credited. If after some time any payment is received against a debtor previously written of then it repents income and as such should be credited to an account styled as 'bd debts recovered ac-found'. Personal account must not be credited. For example.
Chandju remitted rs. 400 against the amount previously written off as bad.
Cash a/ dr. 400
To bad debts recovered a/c 400
8. Treatment of personal transactions of the owner:
It is quite common for the proprietor to withdraw cash or goods from the business for personal or domestic use. Sometimes premium on proprietor may be paid by business. All this represents owner's personal express and are debited to his personal account viz. drawing account. For example.
X withdraws goods for the marriage of his daughter, nalini, selling price of which was rs. 800 (25%is added to the cost for fixing the selling price)
X's drawings a/c dr. 640
To purchases a/c 640
Notes that drawing account has been denited by rs. 640; representing cost of purchase (1000+125 x added to the cost for fixing the selling price.)
9. Treatment of payment/ received on behalf of customer or supplier
 In some cases business might pay express on behalf of its customers. Such payments do not constitute the expenditure of business. Hence it should be debited to the personal account of the onerned customer for example.
Paid cartage on behalf of our customer mr. bhushan rs. 500
Bhushan dr. 50
To cash a/c 50
Simillary business might reveived any amount on behalf of its suppliers. Such reveipt does not become the income of bussiness. Hence it should be credited to the personl account of the supplier. For example;
Received interest rs. 70 on behalf of our suppliers mr. shashi.

Cash a/c dr 70
To shashi 70
11. Treatement of exchange of new asset with old one.
Sometimes business may exhnge its old asset with new one-only the different in value is paid in cash. in such cases assets account
12. Treatment of goods lost in accident/ fire
In certain case a business might suffer. Loss of good due to some accident or fire etc. destroyeded or damaged goods might have been insured also insured also. In such cases total value of good lost or destroyed is credited ot purchase account and the (i) insurance clain admitted is debited to insurance company (ii) balance is debited to loss by accident/fire account. For example.
Goods worth rs. 4,000 were destroyed in a fire. Stock of good was insured against fire to the extent of 80% of their value. Insurance company paid proportionate claim in cash.
Cash a/c dr. 3200
Loss by fire a/c dr. 800
To purchase a/c 4,000
13. Treatment of depreciation charged on fixed assets
Fixed assets are those properties/possessions of the business which are used for carrying on of business viz. plant, machinery; building etc. depreciation is the permanent decrease in the value of an asset due to wear and tear; passage o time and obsolescence. Deprecation is treated as business expenditure. Depreciation account is debited and the respective asset account is credited. For example,
Plant purchase for rs. 70,000. Provided depreciation@10% p.a. for fully year on original cost.
Depreciation a/c dr. 7,000
To plant a/c 7,000
14. Treatment of payment/receipt of representative personal accounts
At the close of the previous accounting year a business might have incurred expenditure. It a representative personal account. When actual payment is made in current accounting period the concerned account is debited and cash account is credited. For example.
Salaries due in December, 1994 were paid in January 1995 rs.5000.
Outstanding salaries a/c dr. 5,000
To cash a/c 5,000
Similarly income accrued due but not received in the previous accounting period is known as 'inome accrued due' and is representative personal account, on actual reeipt the concerned account is credited and cash account is debited. For example,
Rent accrued due, on building let, out, in December 1994 amounting to rs. 5,000 received in January 1995.
Cash a/c dr. 5,000
To accrued rent a/c 5,000

Modern concept
This concept of journalizing is based upon increase or decrease of assets, expenses, liabilities and income or loss. The concept is also known as American approach. This concept assumes that whenever a transaction occurred, it result in increase or decrease in assets, liability, capital, income or expenses. The rules of debit and credit under this concept are simplified in the following table.
s.no. nature of transactions debit or credit
1. Increase in assets and expenses debit
2. Decrease in assets and expenses credit
3. Increase in capital, liabilities, income/gain credit
4. Decrease in capital, liabilities, income/gain debit

Discount
Discount is a kind of concession offered by seller to buyer; it is allowed either with a view to encourage the buyer to purchase goods in bank quantity or to get early recovery of the debit form customer or debtor. Thus, discount is normally of two types;
Trade discount
It is discount offered by the seller to buyer at the time of selling goods. It is offered to encourage the buyer to purchase goods in large quality. Thus, it facilitates trade, hence trade discount.Trade discount is deducted from bill value or invoice. Both buyer and seller do not record trade discount in their books of account. Mr. a goes to market to buy 1,000 pieces of pencils @ 5 each. But if the seller offers at rs 4 pencil.. The different (rs 1) is trade discount which encourage Mr. 'a' to purchase more pencils. It is neither gain of loss to both parties should record it.
Cash discount
A discount allowed to buyer at the time of recovery of debt is called cash discount. The discount is offered especially to motivate buyer to pay his debt in or before due. Date. It is loss for seller (creditor) and a gain for debtor, hence, both parties record cash discount in the books of account. For example, a has to pay rs. 1000 to 'b'. If a settles his a/c paying rs. 950 to b, here rs.50 is cash discount received by a form b. hence, it for A and loss for B. so both parties should record it.
Compound transactions


Each and every business transaction has two fold effect having one debit and one credit. But some transactions need more than or debit or credit. Thus the transactions having more than one debit or credit with equal amount of sum of debit and credit are called compound transactions.
Bills of exchange
Nowadays, goods are mostly sold on credit, when goods are sold on credit, the seller would like than the purchase should give a definite promise in written form to pay the amount of goods, on certain date. Commercial practice has developed these written promises into valuable legal instrument of credit. When such a written promises is made in proper form and properly stamped, it is supposed that the buyer has discharged his debt and that she seller has secured the amount. This is because, these written promises are often accepted by bank and money advanced against them. The written promises may be in form of bills of exchange or promissory note.

A bills of exchange is an instrument in writing containing an unconditional order signed by the maker directing certain person to pay a sum of money only or to the order of certain person or to the bear of instruments, when such order is accepted by writing the word " accepted" across the face of the bill, together will signature it becomes a valid bills of exchange. Suppose X order Y to pay Rs. 5,000 two month after date and Y accept to do so by signing his name, then it will be a bill of exchange.

Parties of bills of exchange
There are three parties of bills of exchange. They are:
• Drawer: the person who writes or draws the bill is called drawer i.e. seller of creditor.
• Drawee: the person to whom the bill is drawn i.e. the buyer or debtor.
• Payee: the person who has the right to receive the amount of bills from the drawee.

When bills of exchange are discounted with bank

When the drawer needs cash immediately he can not wait for 2 month i.e. maturity of bills-of exchange. The drawer can simply get the goals discounted with the bank i.e. deposited into bank. The bank will not pay the full amount of bill. A certain amount of bill is deducted it is called discount.
When bills of exchange are dishonored
If the amount of bills of exchange of rs. 5,000 on 1st jan, to be paid by the and of march shyam could not pay amount of bill of exchange on due date. The bill was dishonored.