Journalizing, Posting And Balancing

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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 Accounts 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 1.

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) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k)

Ganesh started his business with cash Rs.1,00,00/Borrowed from Mahesh Rs.50,000/Purchased Furniture for Rs.10,000/Purchased goods for cash Rs.40,000/Purchased goods on credit from Ram Rs.25,000/Paid cash to Ram Rs.10,000/Sold goods for cash Rs.30,000 Sold Goods on credit to Shyam Rs.25,000. Received cash from Shyam Rs.15,000/Withdrew cash for personal use Rs.1,000/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 Balance 2006 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 6,650 full settlement

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

Jan.10

Paid for stationery Postage Stamps

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

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

100 147 800 66 15

50

Jan.22

Bank advises Jai Chand & sons, cheque returned unpaid

Jan.23

Sold goods to Ajay for cash

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

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

800

23 600 300 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)…… Dr. Cr. Folio Date Particulars

Ledger Folio No……….. Amount Date Particulars (Rs.)

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