A journal is a primary book for recording the day-to-day transactions in

chronological order i.e. in the order in which they occur. (Day Book)

It is a book of original or prime entries written up from various source

documents.
The format of a journal is shown as follows :
Date Particulars L.F Debit Credit
Journal ledger (Rs.) (Rs.)
folio

27/01/25 Rent Account ……….Dr. 5000

To Cash Account 5000
(Being rent paid )
Narration---brief
explanation of transaction

28/01/25 Cash Account….. Dr. ****

To Interest Account *****
 Some important terms in Journals:

❖Journal entry - entry recorded in journal.

❖Journalizing - process of recording a transaction in
journal.
❖Posting - transfer of entry to a ledger account.
❖Ledger - it is a book containing ledger accounts.
❖Opening entry - it is the first entry passed in the
journal book, accounting for closing balances of the
last year.
Transaction Accounts Nature of Debit/
Involved Accounts Credit

i) Mohan Started Mohan's capital Account Personal Account Credit

business with cash Cash Account Real Account Debit
ii) Purchased Purchases Account Real Account Debit
goods from Ram Ram Account Personal Account Credit
on credit
iii) Sold goods on Sales Account Real Account Credit
cash Cash Account Real Account Debit

iv) Bought Cash Account Real Account Credit

Furniture from Furniture Account Real Account Debit
Ganesh for cash
v) Paid Salary Salary Account Nominal Account Debit
Cash A/c Real Account Credit
vi) Paid Rent Rent A/c Nominal Account Debit
Cash Account Real Account Credit
 Journalise the following transactions :
2024 Rs.
Jan. 1 Mohan started business with cash 80,000
Jan. 6 Purchased goods from Ram on credit 30,000
Jan. 8 Sold goods on cash 6,000
Jan. 15 Bought Furniture from Ganesh for cash 8,000
Jan. 18 Paid Salary to manager 6,500
Jan. 20 Paid Rent to landlord in cash 1,000
Date Particulars LF Debit Credit

2024 Cash Account………… Dr. 80,000

Jan. 1 To Mohan's Capital Account 80,000
(Being business started with cash)

"6 Purchases Account……… Dr. 30,000

To Ram's Account 30,000
(Being purchase on credit)

"8 Cash Account……………. Dr. 6,000

To Sales Account 6,000
(Being sold goods for cash)

" 15 Furniture Account……………… Dr. 8,000

To Cash Account 8,000
Being bought furniture for cash)

" 18 Salary Account ………………Dr. 6,500

To Cash Account 6,500
(Being salary paid to manager)

" 20 Rent Account ……………………Dr. 1,000

To Cash Account 1,000
(Being rent paid to land lord)
LEDGER
 Ledger is a principal book of accounts of the enterprise. It is rightly called
as the 'King of Books'. Ledger is a set of accounts. Ledger contains the
various personal, real and nominal accounts in which all business
transactions of the entity are recorded. The main function of the ledger is
to classify and summarise all the items appearing in Journal and other
books of original entry
Posting --Recording of transactions from journal to Ledger
Format
Cash Account ( Name of A/c)
Dr. Cr.
Date Particulars J Amoun Date Particulars JF Amount
F t
2019 To Capital A/c 120000 Dec 2 By Bank 40000
Dec 1 ‘4 ,, Purchases a/c 12000
,, 14 To L Ltd A/c 10000 10 By Cartage 500
Trade Expenses 700
24 Stationery 1200
29 Drawings 10000
 Basis for
Journal Ledger
Comparison
Meaning The book in which all The ledger holds financial
financial transactions of a information needed to make the
business are recorded financial statements
Known as Book of original entry Book of secondary entry
Purpose Used in preparation of It is used for making the trial
ledger balance and final accounts
Transactions Journal entries are made in Posted account-wise
recorded chronological order
Debit and Columns A ledger has two sides. The left
credit side is called debit and the right
side is known as credit in the “T”
format
Narration Required Not necessary

Balancing Balancing is not done All accounts are balanced

 TRANSACTIONS RELATED BANKS:
1. Cash deposited into the bank
Bank a/c Dr.
To Cash a/c

2. Cash withdrawn for office use.

Cash a/c Dr.
To Bank a/c

3. When cheque is received from customer and deposited into bank same day.
Bank a/c Dr.
To Customer’s personal a/c

4. When cheque is received from customer and not deposited into bank same
day.
Cash a/c Dr.
To Customer’s personal a/c

5. When above cheque (Point 4) is deposited later into bank.

Bank a/c Dr.
To Cash a/c
6. When payment is made through cheque.
Personal a/c Dr.
To Bank a/c

7. When expenses is paid through cheque.

Expense a/c Dr.
To Bank a/c

8. When interest is allowed by the bank.

Bank a/c Dr.
To Interest a/c

9. When Bank charges for the services provided.

Bank Charges a/c Dr.
To Bank a/c
Journalise the transactions of M/s T Ltd and post them to the ledger accounts :
2024 Rs.
Dec. 01 Business started with cash of 1,20,000
Dec. 02 Opened a bank account with ICICI 4,00,00
Dec. 04 Goods purchased for cash 12,000
Dec. 10 Paid cartage 500
Dec. 12 Goods sold on credit to L Ltd 25,000
Dec. 14 Cash received from L Ltd 10,000
Dec. 16 Goods returned from L Ltd 3,000
Dec. 18 Paid trade expenses 700
Dec. 19 Goods purchased on credit from T Ltd 32,000
Dec. 20 Cheque received from L Ltd for final settlement and deposited
S Ltd bank ( 25000-10000=15000-3000=12000-11500=500) 11,500
Dec. 22 Goods returned to T Ltd 1,500
Dec. 24 Paid for stationery 1,200
Dec. 26 Cheque given to T Ltd on account 20,000
Dec. 28 Paid rent by cheque 4,000
Dec. 29 Drew cash for personal use 10,000
Dec. 30 Cash sales 12,000
Dec. 31 Goods sold to M/s R Traders 11,000
Date Particulars L.F. Debit Rs Credit Rs

2024 Cash A/c …………….Dr 1,20,000

Dec. To Capital A/c 1,20,000
01 ( Business started with cash)
02 Bank A/c…………. Dr. 400000
To Cash A/c 400000
(Opened a current account with ICICI bank)
04 Purchases A/c Dr. 12000
To Cash A/c 12000
(Goods purchased for cash)
10 Cartage A/c Dr. 500
To Cash A/c 500
(Cartage paid)
12 L Ltd A/c Dr. 25,000
To Sales A/c 25,000
(Goods sold on credit)
14 Cash A/c Dr 10,000
To L Ltd A/c 10,000
(Cash received from L Ltd
16 Sales Return A/c …………Dr 3,000
To L Ltd A/c giver 3,000
(Goods returned from L Ltd )
18 Trade Expenses A/c Dr. 700
To Cash A/c 700
(Trade expenses paid)

19 Purchases A/c Dr. 32,000

To T Ltd A/c 32,000
(Goods purchased on credit)

20 Bank A/c………….. Dr. (Cheque) 11,500

Discount A/c……. Dr. 500
To L Ltd A/c 12,000
(Cheque received for final settlement)
( 25000-10000=15000-3000=12000-11500=500
discount
22 T Ltd A/c Dr. 1,500
To Purchase Return’s A/c 1,500
(Goods returned to T Ltd )

24 Stationery A/c Dr. 1,200

To Cash A/c 1,200 1,200
(Cash paid for stationery)
26 T Ltd A/c Dr. 20,000
To Bank A/c 20,000
(Cheque given to T Ltd )
28 Rent A/c Dr. 4,000
To Bank A/c 4,000
(Rent paid by cheque)
29 Drawings A/c Dr. 10,000
To Cash A/c 10,000
(Cash withdrawn for personal use)
30 Cash A/c Dr. 12,000
To Sales A/c 12,000
(Goods sold for cash)
31 M/s R Traders A/c………… Dr. 11,000
To Sales A/c 11,000
(Goods sold on credit)
 Posting in the Ledger Book
Cash Account
Dr Cr.

Date Particulars JF Amount Date Particulars JF Amount

Dec. 01 To Capital 1,20,000 Dec. 02 By Bank 40,000

Dec. 14 ,,, L Ltd 10,000 Dec. 04 ,, Purchase 12,000
Dec. 30 ,, Sales 12,000 Dec. 10 ,, Cartage 500
Dec. 18 ,Trade Expenses 700
Dec. 24 ,, Stationery 1,200
Dec. 29 ,,Drawings 10,000

By Balance C/d 77,600

142000 142000

To Balance 77600
 L ltd. Account
Dr Cr.
Date Particulars JF Amount Date Particulars JF Amount

Dec.01 Bank A/c…… Dr. 11500

Discount A/c…Dr. 500
To Bal. c/d 12000
12000
12000
By Bal b/d 12000

Bank Account
Dr Cr.
Date Particulars JF Amount Date Particulars JF Amount

Dec.02 Cash 40,000 Dec.26 T Ltd 20,000

Dec.20 L Ltd 11,500 Dec.28 Rent 4,000
 TRIAL BALANCE

I. Meaning : When posting of all the transactions

into the Ledger is completed and accounts are
balanced off, then the balance of each account is put
on a list called Trial Balance.

II. Definition : Trial Balance is the list of debit and

credit balances taken out from ledger. “It also
includes the balances of Cash and bank taken from
the Cash Book”.
Date Particulars L.F. Debit Credit
Rs Rs
June Cash a/c .Dr 45000
2011 To capital a/c 45000
1 (Being cash bought into business)
1 Bank a/c …Dr. 25000
To cash a/c 25000
(Cash paid into bank)
2 Purchase a/c .Dr. 15000
To cash a/c 15000
( goods purchased for cash)
3 Furniture a/c .Dr 5000
To Bank a/ 5000
( being purchased furniture and issue
cheque)
5 Cash a/c.Dr. 8500
To sales a/c 8500
(being goods sold for cash)
8 Arvind a/c ……..Dr 4000
T Sales A/c 4000
Date Particulars L.F. Debit Credit
Rs Rs
2 Cash A/c….Dr 5lakh
To Capital A/c 5lakh
4 Furniture A/c ….Dr. 20000
To cash 20000
4 Purchase 29000
To cash 29000
5 ( Cash- real- credit) Bank – personal – debit
receiver
Bank 30000
To cash 30000
6 Purchase 40000
To Prakash giver- credit 40000
,, Cash (Debit Nath A/c instead of cash if 28000
transaction is on Credit) 28000
To Sales
(cash sales made to nath
7 Stationary A/c. 1000
To cash 1000
Date Particulars L.F. Debit Credit
Rs Rs
11 Purchase 5000
To Bank
14 Cash 10000
TO prakashh 10000
14 If separate journal entry
Sunil 12000
To cash 12000
Sunil 1000
To Discount 1000
Sunil 13000
To cash 12000
To Discount 1000
17 Cash 17000
Discount 1000
To Mitttal 18000

18 Bad Debt- Nominal 16000*.50=8000

Cash- real
Banerjee– personal
Ledger
Dr Cr.

Date Particulars JF Amount Date Particulars JF Amount

By Bal. b/d

To Bal. c/d
 MODULE II

What is a Journal?
A journal is the most primary step of recording a transaction and looking at the dual effect of a transaction
on two accounts. In other words “A journal is the primary book of accounts in which transactions are first
recorded in a chronological order that is as they are entered into.” It is only through journal that it becomes
even possible to review the effect on any transaction on the business.

Some important terms in Journals:

Journal entry - entry recorded in journal.
Journalizing - process of recording a transaction in journal.
Posting - transfer of entry to a ledger account.
Ledger - it is a book containing ledger accounts.
Opening entry - it is the first entry passed in the journal book, accounting for closing balances of the last
year.

Components of Journal
➢ Date: date of transaction is entered into this column.
➢ Particulars: in this column the journal entry is recorded showing the double effect of a business
transaction, the accounts affected by the transaction. The debit of an account is often signified by
the usage of the word “By..” and the credit of an account is signified by the usage of the word “
To..” .
➢ Ledger Folio: in this column, the number of ledger papers is written to which the amount is posted
in ledger.
➢ Debit Account: the amount to be debited is entered into this column in front of the account being
debited.
➢ Credit Account: the amount to be credited is entered into this column in front of the account being
credited.
Characteristics of a Journal
1. Contains day to day transactions.
2. Transactions recorded in a chronological order.
3. It is a book original entry as the transactions are first recorded here and then posted in the ledger.
4. It utilizes the double entry book keeping system to record transactions. It bifurcate transactions
into debit and credit according to the functioning and nature of transaction.
5. Shows complete detail of a transaction in one entry.
6. Journalizing of entries in journal is called recording journal entry.

Simple and Compound Journal Entries

Simple journal entry: in this type only two accounts are affected by a transaction that is one is debited and
one is credited with equal amount.
Compound journal entry: in this type of entry in which two or more accounts are debited and one or more
accounts are credited or vice versa.
Contra entries

Contra entry is an adjustment entry between banker and customer. When an entry affects both cash and
bank accounts it is called a contra entry. Contra in Latin means the opposite. In contra entries, both the
debit and credit aspects of a transaction are recorded in the cash book itself. This account is a general ledger
account which is intended to have its balance be the opposite of the normal balance for that account
classification.
Example: Cash paid into bank
Bank A/c… ............ Dr. x x x
To Cash A/c xxx
(Cash paid into bank)

If both aspects of the same transaction appear in one account, it is called a contra entry. Contra
entries affect the debit and credit sides of the cash book. Such contra entries are denoted by writing
the letter ‘C’ in the L.F. column on both sides of the cash book.

From the following transactions, pass the necessary Journal entries in the books of X & Co.

Date (2024) Particulars Rs

Jan 1 Commencement of business 80000

Feb 5 Purchase of goods 25000

Feb 20 Sold goods 30000

May 10 Purchased goods from Sandy 18000

May 25 Sold goods to Wilson 40000

June 15 Cash give to Sandy 18000

June 28 Cash received from Wilson 40000

Aug 2 Purchased goods for cash from Sandy 19000

Aug 29 Withdrew for personal use 1500

Oct 10 Purchased goods for Emma 17000

Nov 20 Cash paid to Emma 17000

Discount allowed by them 300

Dec 31 Paid salaries 12000

Solution
JOURNAL

Date Particulars L.F. DR($) CR($)

(2024)

Jan 1 Cash a/c 80000

To Capital a/c 80000
(being cash bought in for capital)

Feb 5 Purchases a/c 25000

To cash a/c 25000
(being goods purchased for cash)

Feb 20 Cash a/c 30000

To Sales a/c 30000
(being sales of goods for cash)

May 10 Purchases a/c 18000

To Sandy a/c 18000
( Being purchase of goods from Sandy )

May 25 Wilson a/c 40000

To Sales a/c 40000
(Being goods sold to Wilson )

June 15 Sandy a/c 18000

To Cash a/c 18000
(Being cash paid to Sandy)

June 28 Cash a/c 40000

 To Wilson a/c 40000
(Being cash received from Wilson )

Aug 2 Purchase a/c 19000

To Cash a/c 19000
(Being purchase of goods for Cash)

Aug 29 Drawings a/c 1500

To Cash a/c 1500
(Being cash withdrawn for personal use)

Oct 10 Purchase a/c 17000

To Emma a/c 17000
(Being goods purchased from Emma )

Nov 20 Emma a/c 18000

To Cash a/c 17700
To Discount 300
(Being Cash paid to the extent of $16800 to Emma
and he allowed discount of $200)

Dec 31 Salaries a/c 12000

To Cash a/c 12000
(Being salaries paid)

Opening entry
As we are familiar with the practice of closing books of accounts at the end of every accounting period and
starting the new period with a set of new books of accounts. The closing balances of last year become the
opening balance of the current year. Therefore, the first entry is the carrying over of last year’s balance into
the New Year through an opening entry. “While passing an opening entry, all asset accounts are debited
and Liabilities accounts are credited.”

Advantages of a Journal
1. Reduces the Possibility of Error: The possibility of errors is reduced as the amounts to be debited and
credited are written side by side and the two can be compared to see if they are equal. If they are recorded
directly it may be have errors as wrong amounts may be written wrong.
2. Provides an explanation for transactions: the narration accompanying the journal entry helps to
understand the entry better later.
3. Provides chronological record of all transactions: as we see that journal entries are posted in a
chronological order hence journal enters records permanently as they happen according to time.
 • Journal records all the financial transactions of a business in one place on the time and date
basis.
• The transactions are recorded, in support with a bill, to check the authenticity of each of
these journal entries with their bills.
• There is a less chance to avoid transactions as in a journal we record each and every
transaction on a date basis.
• The accountant writes each journal entry’s narration below every journal entry, so that
another auditor can audit it without any confusion.
• In a journal, we record these transactions which help in deep analysis of the two accounts
on the basis of a double entry system, and this prevents a minimum chance of mistake in the
journal.
• Journal posts the transactions in their respective ledger accounts. Without making this
journal, an accountant will be unable to make the ledger accounts.
• In case of a mistake in the ledger accounts, this can be easily rectified with the help of a
journal or by passing a rectified journal entry in the journal.
• All the opening journal entries, closing journal entries and all other transactions which
cannot be recorded in any other subsidiary books, can be recorded in the journal proper.
• Even in accounting software, journals are required. Accounting software can make an auto
system of posting the journal entries to the ledger by their automatic processing system.
• There is a single column of ledger folio, which is very helpful for checking the reference of
each account’s posting with its own original journal entry.

Subsidiary Books
Purchase Book - for recording all credit purchases

Sales Book - For recording all sales on credit

Purchases return Book (Return Outwards Book) – For recording all purchases returned to creditors

Sales return Book (Return inwards Book) – For recording all sales returned by customers

Bills Receivable Book - To keep a record of bills received from customers

Bills Payable Book - To keep a record of bills Payable to creditors.

Journal Proper – To keep a record of those transactions for which there is no separate Book
 What is Discount? Meaning
Discount is an allowance or concession in price. Discount is given so that the buyer is induced to place an
order and later to make payment in time.

Discount can be also referred to as a deduction in price. The seller deducts the discount from the gross
or total price, and the buyer is supposed to pay the net amount.

TYPES OF DISCOUNT
1. Cash Discount: It is an allowance or concession given by the seller to the buyer. This discount is
offered to encourage the buyer for quick payment or settlement. It is allowed for immediate payment of
cash or payment within a short period. The cash discount is normally shown in the quotation and invoice. It
is deductible from the total price and the buyer is requested to pay only to the net amount. Cash Discount
is usually stated in the percentage form.
2. Trade Discount: It is a reduction in the catalogue price of the goods allowed only if the quantity ordered
by the buyer is quite large. Its purpose is to encourage the buyer to make bulk purchases. It is allowed on
cash as well as credit sales. The trade discount is not shown in the books of account. The trade discount
is calculated as some percentage of the catalogue price.

What are Discount Allowed and Discount Received?

Discount allowed is accounted as an expense of the seller. Hence, it is debited while
making accounting entries

Accounting Entries

Example
Mr. X sells TV at $50,000. Mr. X offers a 10% trade discount if the customer purchases 2 TV. If the
customer makes UPFRONT cash payment, a further 5% discount is given on total sales value.

Here, the seller offers two types of discounts, a 10% trade discount to increase the sales and a
5% cash discount as an incentive to make a quick payment.

Trade discount is not recorded in the books and sales are shown as net of trade discount
offered.

100000*10/100=10000

90000

Solution Journal Entry

Date Particulars Debit Credit

,, Debtors A/c. .................. Dr. 90,000

To Sales A/c 90,000
,, Cash A/c ................................. Dr. 85,500
Discount allowed A/c… . Dr.(90000*5%=4500) 4500
To Debtors A/c 90,000

Discounts received
There are two types of discounts received by the buyer. First is a Trade discount and another is Cash discount.
Trade discount is not recorded in the books of accounts. It is generally given at the time of sales, like on bulk
purchase. Hence, the Purchase amount is shown net of trade discount in the books.

A cash discount is received as an incentive for early payment. It is shown as an income in the Profit and loss account.
Initially, the Purchases are shown as full amount. Then, the payable is reduced with the amount of discount received.

Discount received is accounted as an income in the books of the buyer. Hence, it is credited while making
accounting entries in the books.
Example

Mr. P sells a water cooler at $50,000. Mr. P offers a 10% trade discount if the customer purchases
2 water coolers. If the customer makes upfront cash payment, a further 5% discount is given on
total sales value.

Here, the seller offers two types of discounts, a 10% trade discount to increase the sales and a
5% cash discount as an incentive to make a quick payment. Here we will make accounting entries
in the books of the buyer. Trade discount is not recorded in the books, and Purchases are shown
as net of trade discount received.
Difference between Discount Allowed and Discount Received

1. Discount allowed is granted by the seller to the buyer. The discount received is received by
the buyer from the seller.

2. The discount allowed is the expense of the seller. Discount Received is an income of the
buyer.
3. Discount allowed is debited in the books of the seller. Discount Received is credited in the
books of the buyer.