journalizing, posting and balancing
TRANSCRIPT
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