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  1. 1. What is Journal???
  2. 2. Need of Journal <ul><li>Convenient </li></ul><ul><li>Maintenance </li></ul><ul><li>Nature of transactions </li></ul><ul><li>Permanent record </li></ul>
  3. 3. Debit and Credit <ul><li>To record purchase of office furniture for cash </li></ul><ul><li>Debit : Office furniture </li></ul><ul><li>Credit : Cash </li></ul>
  5. 5. Rules of Debit and Credit <ul><li>Personal Account : </li></ul><ul><ul><li>Debit the receiver </li></ul></ul><ul><ul><li>Credit the giver </li></ul></ul><ul><li>2. Nominal Account : </li></ul><ul><ul><li>Debit all expenses and losses </li></ul></ul><ul><ul><li>Credit all incomes and gains </li></ul></ul><ul><li>3. Real Account : </li></ul><ul><ul><li>Debit what comes in </li></ul></ul><ul><ul><li>Credit what goes out </li></ul></ul>
  6. 6. Difference b/w cash & trade discount <ul><li>cash discount </li></ul><ul><li>It is allowed when payment is made before a certain date </li></ul><ul><li>It is allowed to encourage early cash payment </li></ul><ul><li>It may vary with period within which payment is to be made </li></ul><ul><li>Separate ledger a/c maintained </li></ul><ul><li>Not deducted from invoice </li></ul><ul><li>Offered at the time of getting quick payment </li></ul><ul><li>trade discount </li></ul><ul><li>It is allowed on certain quantity being purchased </li></ul><ul><li>It is given to promote sales </li></ul><ul><li>It may vary with quantity of goods purchased </li></ul><ul><li>Not recorded in books </li></ul><ul><li>Deducted from invoice </li></ul><ul><li>Offered at the time of sale or purchase </li></ul>
  7. 7. Ruling of the Journal Credit Rs. Debit Rs. l/f Particulars Date
  8. 8. Treatment of various transactions <ul><li>Treatment of cash/credit transactions </li></ul><ul><li>Purchased goods for Rs 1200 cash </li></ul><ul><li>Purchased goods for Rs 1200 from S </li></ul><ul><li>Purchased goods for Rs 1200 </li></ul><ul><li>Purchased goods for Rs 1200 from S on cash </li></ul>
  9. 9. <ul><li>Treatment of payment on personal/expenses account </li></ul><ul><li>Paid Rs 500 to V on account. </li></ul><ul><li>Paid Rs 500 to V for his salary. </li></ul>
  10. 10. <ul><li>Treatment of receipt on personal/income account </li></ul><ul><li>Received Rs 800 from A on account. </li></ul><ul><li>Received Rs 800 from A as commission. </li></ul>
  11. 11. <ul><li>Treatment of trade discount </li></ul><ul><li>Sold goods to S Rs 1000, trade discount </li></ul><ul><li>10 %. </li></ul>
  12. 12. <ul><li>Treatment of cash discount (full settlement) </li></ul><ul><li>Received Rs 1000 from R in full settlement against amount due from him Rs 1050. </li></ul><ul><li>Paid Rs 960 to A in full settlement against amount due to him Rs 1000 </li></ul>
  13. 13. <ul><li>Treatment of bad debts and bad debts recovered </li></ul><ul><li>R who owed Rs 1000 is declared insolvent and 60% amount is received from her estate. </li></ul><ul><li>R remitted Rs 400 against the amount previously written off as bad </li></ul>
  14. 14. <ul><li>Treatment of personal expenses of owner </li></ul><ul><li>Withdrew Rs 350 from bank for private use </li></ul><ul><li>Withdrew goods worth Rs 300 for private use. </li></ul>
  15. 15. Solve these journal entries based on your understanding… <ul><li>Started business with cash 10,000; paid into bank 5000. </li></ul><ul><li>Bought furniture Rs 900 </li></ul><ul><li>Purchased machinery from S Rs. 35000 cash </li></ul><ul><li>Sold goods worth Rs 2000 to S. </li></ul><ul><li>Paid telephone rent Rs 150 by cheque. </li></ul><ul><li>Purchased goods of list price 2000 at trade disc 10% and cash disc 2%.half the amount paid in cash </li></ul>
  16. 16. <ul><li>Received cash from S Rs 1500 in full settlement of his account. </li></ul><ul><li>A who has to pay Rs 1000 became insolvent. </li></ul><ul><li>Amount earlier written off as bad is now recovered from A . </li></ul>
  17. 17. <ul><li>Paid cartage on behalf of our customer A </li></ul><ul><li>Rs 50 </li></ul><ul><li>Received interest Rs 70 on behalf of Z </li></ul><ul><li>Treatment of payment/receipt on behalf of customer/supplier </li></ul>
  18. 18. <ul><li>Treatment of exchange of new asset with old one </li></ul><ul><li>Exchanged old furniture for new; the value of old furniture was Rs 350 while the value of new furniture was Rs 900 balance paid in cash. </li></ul>
  19. 19. <ul><li>Treatment of goods given as charity/advertisement </li></ul><ul><li>Given away as charity goods costing Rs 100 and cash Rs 51. </li></ul>
  20. 20. <ul><li>Treatment of goods lost in accident </li></ul><ul><li>Goods worth Rs 4000 were destroyed in fire. Stock of goods was incurred to extent of 80%.Insurance Co. paid claim in cash </li></ul>
  21. 21. <ul><li>Treatment of depreciation charged on fixed assets </li></ul><ul><li>Plant purchased for Rs 70,000.Provide dep @ 10% p.a for full year on original cost </li></ul>
  22. 22. <ul><li>Treatment of receipt/payment of representative personal account </li></ul><ul><li>Salary due in Dec 1994 was paid in January 1995, 5000 </li></ul><ul><li>Rent accrued due in Dec 1994, amounting 5000 received in Jan 1995. </li></ul>
  23. 23. Solve the journal entries given below!! <ul><li>Goods stolen by store-keeper Rs 200 </li></ul><ul><li>A borrowed from B and from C Rs 10,000 each. </li></ul><ul><li>Purchased goods worth Rs 20,000 out of which 12000 on credit from A </li></ul><ul><li>Organization purchased goods from R on credit 24000.A week later it returned goods to extent of 3000 </li></ul><ul><li>Prepaid insurance comes to Rs 250 </li></ul>
  24. 24. <ul><li>S purchased goods from organisation on credit Rs 65000. 2 days later she returned goods to the extent of 48000 </li></ul><ul><li>Closing stock worth Rs 5000 was destroyed by fire and GIC admitted claim of Rs 4500. </li></ul><ul><li>Paid wages for installing a machinery Rs 3000 </li></ul>
  25. 25. Characteristics of Journal <ul><li>Book of original entry </li></ul><ul><li>First step in recording process </li></ul><ul><li>Day book </li></ul><ul><li>Chronological record </li></ul><ul><li>Transactions accompanied with narrations </li></ul><ul><li>Both debit and credit aspects recorded </li></ul><ul><li>Inter-relation of journal and ledger </li></ul>
  26. 26. Advantages of Journal <ul><li>Transaction recorded date wise </li></ul><ul><li>Process of classification at convinience </li></ul><ul><li>Ensures that double entry rules hav been followed </li></ul><ul><li>Reliable evidence </li></ul><ul><li>Sub division enables division of labour </li></ul><ul><li>Detection of arithmetical errors </li></ul><ul><li>Provides primary source data </li></ul>
  27. 27. Double Entry Accounting <ul><li>Accounting system uses double entry </li></ul><ul><li>Transactions always recorded using 2 sides </li></ul><ul><li>Debit : left hand side , Credit : right hand side </li></ul><ul><li>Sum of debit and credit amounts must be equal </li></ul><ul><li>Balanced journal entry </li></ul>
  28. 28. Special Journals <ul><li>Sales Journal </li></ul><ul><li>Purchases Journal </li></ul><ul><li>Cash Receipt Journal </li></ul><ul><li>Cash Disbursements Journal </li></ul>
  29. 29. Compound Journal Entries <ul><li>An entry containing more than one debits or credits.. </li></ul><ul><li>CONDITIONS </li></ul><ul><li>Transactions take place on same day </li></ul><ul><li>One aspect of these transactions is common </li></ul><ul><li>Number of a/cs involved are more than 2. </li></ul>
  30. 30. Example of compound journal entries <ul><li>Paid wages Rs 500, salary Rs 2000 and insurance premium on building Rs 500. </li></ul><ul><li>D purchased furniture worth Rs 6000, tools and implements worth Rs 4000 </li></ul>
  31. 31. <ul><li>From Journal Entry to Ledger Posting </li></ul><ul><li>Once the source document is generated and the appropriate journal entry is made, the next step in the accounting cycle is to post the entry to the general ledger. </li></ul>
  32. 32. OPENING ENTRTY <ul><li>In the case of continuing business we are required to pass an entry in the journal for bringing in the new books all assets and liabilities as appearing in the books on the last day of the previous year. This entry is known as 'opening entry'. Rule of passing opening entry is to debit each asset account; credit each liability account ; excess of debits over credits represents capital balance. Thus if in a question capital balance is not given it can be ascertained as follows: </li></ul><ul><li>Total debits - Total credits = Capital </li></ul>