BCOC-131

Financial Accounting
Indira Gandhi
National Open University
School of Management Studies

Block

2
ACCOUNTING PROCESS
UNIT 5
Journal and Ledger 5

UNIT 6
Subsidiary Books 48

UNIT 7
Trial Balance 100
Accounting Process
PROGRAMME DESIGN COMMITTEE B.COM (CBCS)
Prof. Madhu Tyagi Prof. D.P.S. Verma (Retd.) Faculty Members
Director, SOMS, IGNOU Department of Commerce
University of Delhi, Delhi SOMS, IGNOU
Prof. R.P. Hooda Prof. N V Narasimham
Former Vice-Chancellor Prof. K.V. Bhanumurthy (Retd.) Prof. Nawal Kishor
MD University, Rohtak Department of Commerce
University of Delhi, Delhi Prof. M.S.S. Raju
Prof. B. R. Ananthan Dr. Sunil Kumar
Former Vice-Chancellor Prof. Kavita Sharma
Department of Commerce
Dr. Subodh Kesharwani
Rani Chennamma University
Belgaon, Karnataka University of Delhi, Delhi Dr. Rashmi Bansal
Dr. Madhulika P Sarkar
Prof. I. V. Trivedi Prof. Khurshid Ahmad Batt
Former Vice-Chancellor Dean, Faculty of Commerce & Dr. Anupriya Pandey
M. L. Sukhadia University Management
Udaipur University of Kashmir, Srinagar

Prof. Purushotham Rao (Retd.) Prof. Debabrata Mitra

Department of Commerce Department of Commerce
Osmania University, Hyderabad University of North Bengal
Darjeeling
Prof. R. K. Grover (Retd.)
School of Management Studies
IGNOU

COURSE DESIGN COMMITTEE

Prof. Madhu Tyagi Faculty Members
Director, SOMS, IGNOU SOMS, IGNOU
Prof. N. V. Narasimham
Prof. A.A. Ansari Prof. Nawal Kishor
Jamia Millia Islamia, New Delhi Prof. M.S.S. Raju
Dr. Sunil Kumar
Ms. Surbhi Gupta Dr. Subodh Kesharwani
Vivekananda College Dr. Rashmi Bansal
University of Delhi, Delhi Dr. Madhulika P. Sarkar
Dr. Anupriya Pandey

COURSE PREPARATION TEAM

Preparatory Course in Commerce: PCO-01
Prof. M.S.S. Raju
(Unit-4, 5 and 6 Revised by Dr. Sunil Kumar) (Course Coordinator & Editor)
Prof. J. Satyanarayan, Osmania University, Hyderabad Dr. Sunil Kumar
Prof. V. Vishwanadham, Osmania University, Hyderabad (Course Coordinator & Editor)
Dr. D. Obul Reddy, Osmania University, Hyderabad
Shri M. Satyanarayana, Badruka College, Hyderabad

Print Production
Sh. Y. N. Sharma Sh. Sudhir Kumar
Assistant Registrar (Pub.) Section Officer (Pub.)
MPDD, IGNOU MPDD, IGNOU

June, 2019
Indira Gandhi National Open University, 2019
ISBN-978-93-89200-07-2
All rights reserved. No part of this work may be reproduced in any form, by mimeograph or any
other means, without permission in writing from the Indira Gandhi National Open University.
Further information on the Indira Gandhi National Open University courses may be obtained from
the University’s Office at Maidan Garhi, New Delhi-l10068 or website of INGOU www.ignou.ac.in
Printed and published on behalf of the Indira Gandhi National Open University, New Delhi by
Registrar, MPDD, IGNOU, New Delhi.
Laser Typeset by : Rajshree Computers, V-166A, Bhagwati Vihar, (Near Sec. 2, Dwarka), Uttam
Nagar, New Delhi-110059
Printed by :

2
BLOCK 2 ACCOUNTING PROCESS
This block introduces you to the initial stages of recording business transactions
in the books of account. It consists of three units as follows:
Unit 5 deals with the first stage of recording transactions in the books of account
i.e., Journalising and it is also devoted to the second stage of recording
transactions in the books of account i.e., posting into ledger.
Unit 6 identify the need for sub-division of journal and specifies the subsidiary
books usually maintained by business. It concentrates on the preparation of
the most important subsidiary book called Cash Book. It also describes the
nature of various banking transactions as related to business and their recording
in the Three Column Cash Book. It also covers the preparation of the remaining
subsidiary books viz., Purchases Journal, Purchases Returns Journal, Sales
Journal, Sales Returns Journal etc. It also describes the method of posting these
books into related ledger accounts.
Unit 7 deals with the preparation of Trial Balance and discusses its role in
ascertaining the arithmetical accuracy of the books of account. It also describes
the methods of rectification of errors and their effect on profits.
The three units together constitute the basic steps in accounting and facilitate
the initiation into the fundamental recording process.

3
Accounting Process

4
 Journal and Ledger
UNIT 5 JOURNAL AND LEDGER
Structure
5.0 Objectives

5.1 Introduction

5.2 What is Journal?

5.3 Form of the Journal

5.4 Steps in Journalising

5.5 Transactions of Different Types

5.5.1 Transactions Relating to Purchase and Sale of Goods for Cash

5.5.2 Transactions Relating to Purchase and Sale of Goods on Credit

5.5.3 Transactions Relating to Return of Goods

5.5.4 Transactions Relating to Purchase and Sale of Assets

5.5.5 Transactions Relating to Expenses and Incomes

5.5.6 Transactions Relating to other Receipts and Payments of Cash

5.5.7 Transactions Relating to Receipts and Payments by Cheque

5.5.8 Transactions with the Proprietor

5.5.9 Transactions Relating to Cash Discount

5.5.10 Transactions Relating to Bad Debts

5.6 Compound Journal Entry

5.7 Opening Entry
5.8 Casting and Carry Forward
5.9 What is Ledger ?
5.10 Form of a Ledger Account
5.11 Posting in to Ledger
5.12 Posting a Compound Journal Entry
5.13 Balancing Ledger Accounts
5.14 Significance of Balance
5.15 Posting an Opening Entry
5.16 Let Us Sum Up
5.17 Key Words
5.18 Answers to Check Your Progress
5.19 Terminal Questions/Exercises
5.20 Some Useful Books
5
Accounting Process
5.0 OBJECTIVES
After going through this unit, you will be able to:
 explain what journal is;
 analyse a business transaction and identify the accounts affected;
 apply rules of debit and credit, and formulate journal entries;
 prepare journal;
 post the journal entries in the respective ledger accounts;
 balance a ledger account and explain the significance of balance in an
account;
 prepare a trial balance to test the arithmetical accuracy of recording
in the books of account; and
 post an opening entry.

5.1 INTRODUCTION
You are aware that every business transaction involves transfer of money
or money’s worth between two accounts. Recording of transaction is considered
as complete only when both the receiving and the giving aspects are recorded
in the books of account. This recording takes place in two stages. In the
first stage, the transactions are recorded through a book called ‘Journal’
and in the second stage they are entered in the other book called ‘Ledger’.
You have learnt about the different stages of accounting, different classes
of accounts, and the rules of debit and credit. With this background, you
will now be able to analyse the transactions and record them in the book
of original entry i.e., Journal. In this unit, we intend to explain how exactly
the entries are made in the journal. All business transactions are recorded
in the books of account in two stages: (1) Journalising, and (2) Posting
into Ledger. In this unit, you will learn about recording in the ledger. This
involves posting journal entries into various accounts in the ledger, balancing
the accounts periodically, and preparing a Trial Balance to check the arithmetical
accuracy of all accounting entries.

5.2 WHAT IS JOURNAL ?

A Journal is called a book of prime entry (also called book of original entry)
because all business transactions are entered first in this book. The word
‘Journal’ means a daily record. The transactions are recorded in this book
in the order in which they occur i.e., they are entered in a chronological
order. In this book, both aspects i.e., the receiving aspect and the giving
aspect of the transaction, are recorded. The process of recording a transaction
in the journal is called Journalising. The entries made in the journal are called
‘journal entries’.

5.3 FORM OF THE JOURNAL

We shall now study the form of the journal. The form is given in Figure 5.1.
6
 JOURNAL Journal And Ledger

Date (1) Particulars (2) L.F. (3) Dr. Amount (4) Cr. Amount (5)

Fig. 5.1

The journal is provided with five columns. Each of these columns is meant for
recording a specific detail of the transaction.
Column (1) is used for recording the date of the transaction i.e., the date on
which the transaction has occurred. It is customary to write the year at the
top of the column. In the next line, the month is written below the year and
the date of the transaction is entered immediately after the month as follows:
(Year) 2018
(Month,date) Jan. 1
Note that the year and the month are not repeated for every transaction. Ditto
(“) mark is placed below the month to indicate that the month is the same.
Similarly when two or more transactions have taken place on the same day,
ditto mark is placed below the date.
Column (2) is called Particular’s column. This column is meant for recording
the names of the two accounts which are involved in the transaction. This is
also used for writing a brief description about the transaction called ‘narration’.
Let us note carefully the method of writing in this column.
The same of the amount to be debited is written very close to the left hand
side line i.e., the line demarcating the date column and the particulars column.
The abbreviation ‘Dr’ for debit is written on the same line against the name
of the account. The name of the account which is to be credited is written
in the next line preceded by the word ‘To’. Note that it is not written immediately
below the name of the account which has got the debit but a few spaces towards
the right. It is not necessary to write ‘Cr.’ after the name of the account to
be credited. Then, in the next line, a brief description (narration) of the transaction
is given within brackets. The narration would generally begin with a word like
‘Being’ or ‘For’. After completing narration, a line must be drawn across the
entire ‘particulars’ columns to separate one entry from the other.
Let us take an example: Sold goods for cash, Rs. 500 on May 2, 2018.
In this transaction, the two accounts are Cash Account and Goods Account.
You know, as per rules, Cash Account is to be debited and Goods Account
is to be credited. This transaction will be shown in the journal as follows: 7
Accounting Process
Date Particulars L.F. Dr. Amount Cr. Amount

Rs. Rs.
2018 Cash Account Dr.  500
May 2 To Goods Account 500
(Being cash Sale of goods)

Column (3) is known as the L.F. (Ledger Folio) Column. Folio means page number,
so it is meant for writing the number of the page in the Ledger on which the particular
account appears. The account to be debited and the account to be credited are
likely to be on different pages in the Ledger. The page numbers on which these
accounts appear are indicated against the name of each account in this column. This
column is filled at the time of posting into the ledger.
Columns (4) and (5) are called amount columns. Column (4) is called the debit
amount column and column (5) is called the credit amount column. The amount to
be debited is entered in the debit amount column against the name of the account,
and the amount to be credited is entered in the credit amount column against the
name of the account. Both the amounts will always be equal, as you have observed
in the case of the above example.

5.4 STEPS IN JOURNALISING

In recording various business transactions in the journal, the most important aspect
is the entry in the ‘Particulars’ column. Any mistake in this regard would lead to
incorrect accounting. Hence, you should analyse the transaction carefully before
making such entries. The following steps shall help you to do such analysis:
1. Take up the transaction, one by one. Read and analyse the transaction carefully
from the business entity point of view, and identify the two accounts that are
being affected by the transaction.
2. You are aware that accounts have been classified as personal, real and nominal
accounts. Hence, after identifying the two accounts that are affected by the
transaction, you must determine, in respect of each account, whether it is a
personal account or a real account or a nominal account.
3. Each class of account has its own rule of debit and credit, which you have
already learnt. Now, apply the relevant rules and decide which account is to be
debited and which is to be credited.
The three steps explained above will have to be repeated in respect of every
transaction. We have simply reinforced the point here to help you to journalise
correctly.
Besides identifying the accounts to be debited and credited, you should be equally
careful about the date of the transaction and the amounts with which each account is
to be debited or credited. Now let us take a transaction, analyse it and see how a
complete journal entry will be made.
Sold goods to Saran Brothers on credit for Rs. 500 on January 3, 2018
Step 1: From the business point of view, it is a sale of goods on credit. In this case,
the receiving aspect is Saran Brothers (as they receive the goods) and the giving
aspect is Goods (as goods go out). So, the two accounts affected are ‘Saran Brothers’
8 Account’ and ‘Goods Account’.
Step 2: The next step is to classify the accounts identified in the Step 1. You are Journal and Ledger
aware that Saran Brothers’ Account is a personal account because it relates to
persons, and Goods Account is a real account as it relates to property of the business.
Step 3: The rule for personal accounts is ‘debit the receiver and credit the giver’.
Saran Brothers receive the goods. So, Saran Brothers’ Account will be ‘debited’.
The rule for real accounts is ‘debit what comes in and credit what goes out’. Goods
go out of business. So, Goods Account will be credited.
Having identified that Saran Brothers’Account is to be debited and Goods
Account is to be credited, the entry will be recorded in the journal as follows:
Date Particulars L.F. Dr. Amount Cr. Amount

Rs. Rs.
2018 Saran Brothers Dr.  500
Jan. 3 To Goods Account 500
(Being goods sold on credit)

Check Your Progress A

1. State whether the following are True or False:
a) Journal is a book of original entry.
b) Journal records all transactions in a business in the order in which they
occur.
c) The process of recording a transaction is called posting.
d) In the journal entry ‘Dr.’ must be written against the name of the
account debited, and ‘Cr.’ against the name of the account credited.
e) Narration must be written for every transaction entered in the Journal.
2. What are the steps to be followed in journalising the business transaction?
..................................................................................................................
..................................................................................................................
..................................................................................................................
..................................................................................................................

5.5 TRANSACTIONS OF DIFFERENT TYPES

Study carefully the following illustrations where entries for particular type of
transactions are presented. Later, some comprehensive illustrations will be given
which shall include transactions of all types.
5.5.1 Transactions Relating to Purchase and Sale of Goods
for Cash
Most common transactions in business relate to buying and selling of goods. Purchase
and sale of goods can take place either on cash basis or on credit basis. In illustration
1, we take up transactions relating to purchase and sale of goods for cash.
Illustration 1
Enter the following transactions in the journal. 9
Accounting Process 2018 Jan. 1. Bought goods for cash 38,000
2. Sold goods for cash 2,500
3. Purchased goods for cash from Ajeet 8,000
4. Sold goods to Kishan for cash 3,500
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

Rs. Rs.
2018 Goods Account Dr. 38,000
Jan. 1 To Cash Account 38,000
(Being cash purchase of goods)
“ 2 Cash Account Dr. 2,500
To Goods Account 2,500
(Being cash sale of goods)
“ 3 Goods Account Dr. 8,000
To Cash Account 8,000
(Being cash purchase of goods)

“ 4 Cash Account Dr. 3,500

To Goods Account 3,500
(Being cash sale of goods)

If you carefully go through the four transactions given above, you will notice that in
the first two transactions, there is no mention of the names of the parties with whom
the transactions took place. In the other two transactions, the names of the parties
concerned are clearly given. However, it has not made any difference in the journal
entries. They remain the same, because while recording cash purchase or cash sale
it is not necessary to involve personal accounts of the parties concerned. For the
business, the dual effect of such transactions is only on (i) cash account, and (ii)
goods account.

5.5.2 Transactions Relating to Purchase and Sale of Goods

on Credit
In case of purchase and sale of goods on credit, cash is not paid immediately. The
settlement of the account is postponed to a later date. Hence, while recording such
transactions, it is necessary to involve the personal accounts of the parties concerned.
In case of credit sale, the personal account of the buyer is debited. He becomes a
debtor, signifying that the party is under an obligation to pay later. Similarly, in case
of credit purchase, the personal account of the party is credited. He becomes a
creditor, signifying that the business is under an obligation to pay them at a later date.
Now let us consider some transactions of purchase and sale of goods on credit and
understand how they are recorded in journal.
Illustration 2
Journalise the following transactions:
2018 Rs.
March 1 Sold goods to Anand on credit 18,000
“ 4 Bought goods on account from Ram 48,000
10 “ 6 Purchased goods from Shyam 13,000
Solution: Journal and Ledger

JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount
Rs. Rs.
2018 Anand’s Account Dr. 18,000
March 1 To Goods Account 18,000
(Being goods sold on credit)
March 4 Goods Account Dr. 48,000
To Ram’s Account 48,000
(Being goods purchased on credit)
March 6 Goods Account Dr. 13,000
To Shyam’s Account 13,000
(Being goods purchased on credit)

You have seen that it is necessary to involve the personal account of the party, when
purchase or sale of goods is on credit. You must have noticed that terms like ‘on
credit’ and ‘on account’ indicate that it is a credit transaction. It is not always necessary
to use such terms. For example, transactions can be worded as ‘Bought goods from
Mahesh’, ‘Sold goods to Suresh’, without using the terms ‘on ‘on credit’ or ‘on
account’. These are also credit transactions.
Sometimes a transaction may merely read as ‘bought goods’ or ‘sold goods’. Here
it is not clearly stated whether these are cash or credit transactions. Remember that
in case of a credit transaction, the name of the party concerned is always given. In
the above transactions, names of the parties concerned are not stated. Hence,
these shall be treated as cash transactions.
Check Your Progress B
1. Explain the distinction between cash and credit transactions.
................................................................................................................
................................................................................................................
................................................................................................................
2. Some transactions are given below. State whether they are cash transactions
or credit transactions.
Transaction State whether a cash
transaction or a credit
transaction
a) Bought from Rahul, goods worth
Rs. 10,000 .
b) Purchased goods for Cash, Rs. 5,000
from Tagore
c) Bought on account from Bose, goods for
Rs. 8,000
d) Bought goods for Rs. 16,000
e) Sold goods to Chatterjee Rs. 2,000
11
Accounting Process
f) Sold goods to Trivedi for cash Rs. 3,000

g) Sold goods to Lal on account, Rs. 4,000

h) Sold goods Rs. 6,000

5.5.3 Transactions Relating to Return of Goods

Goods may be returned for various reasons. When goods are returned by a customer,
his liability to that extent gets reduced. Hence, it is necessary to give him a credit for
the goods returned. Similarly, when the business returns some goods to its supplier,
the liability of the business stands reduced to that extent. Hence, the supplier’s account
will be debited.
Illustration 3
Journalise the following transactions:
2018 Rs.
April 10 Anand returned goods 500
“ 12 Returned goods to Ram 700
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount
Rs. Rs.
2018 Goods Account Dr. 500
April 10 To Anand’s Account 500
(Being goods returned by Anand
April 12 Ram’s Account Dr. 700
To Goods Account 700
(Being goods returned by Anand)
Note: In illustrations 1, 2 and 3 above you find that all transactions relating to
goods (be it purchase, purchase return, sale or sale return) have been recorded
through the Goods Account. However, it would be more purposeful and convenient
to record different types of transactions relating to goods, through separate accounts.
This helps you to ascertain the amount of purchase and sale for a given period more
quickly and correctly. Hence, in practice, instead of one Goods Account, five
separate accounts are maintained, as shown below:
i) For recording all cash and credit purchases of goods—Purchases Account.
ii) For recording all cash and credit sales of goods—Sales Account.
iii) For recording goods returned to suppliers—Returns Outward Account or
Purchase Returns Account.
iv) For recording goods returned by customers—Returns Inward Account or Sales
Returns Account.
v) For goods in stock as at the end of the year—Stock Account.
In the comprehensive illustrations 9 and 10, entries have been made according to
the above practice. Purchase of goods has been debited to Purchases Account, and
sale of goods has been credited to Sales Account, and so on.
12
5.5.4 Transactions Relating to Purchase and Sale of Assets Journal and Ledger

Assets like machinery, furniture, vehicles, etc. are brought for use in the business
and not for resale. Hence, when an asset is bought, the particular asset account is
debited. Similarly, when an asset is sold, the account of that asset is credited.
Assets may also be bought for cash or on credit. You have already noted the difference
in the treatment of transactions relating to cash and credit purchases. The same
treatment is followed in case of transactions relating to purchase and sale of assets.
Illustration 4
Journalise the following transactions:
2018 Rs.
May 1 Purchased buildings 1,75,000
“ 4 Sold old machinery to Joshi 1,500
“ 8 Bought furniture from Gopal & Company for cash 1,10,000
“ 9 Bought motor vehicles from Allied Motors 90,000
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount
Rs. Rs.
2018 Building Account Dr. 1,75,000
May 1 To Cash Account 1,75,000
(Being building purchased)
“ 4 Joshi’s Account Dr. 1,500
To MachineryAccount 1,500
(Being machinery sold to him)
“ 8 Furniture Account Dr. 1,10,000
To Cash Account 1,10,000
(Being furniture purchased)
“ 9 Motor Vehicle Account Dr. 90,000
ToAllied Motor’s Account 90,000
(Being motor vehicles purchased)

5.5.5 Transactions Relating to Expenses and Incomes

You know the expenses and incomes are generally paid/received in cash. So in case
of expenses, we debit the concerned expense account and credit cash account. In
case of incomes, we debit cash account and credit the concerned income account.
Now let us take some examples of such transactions.
Illustration 5
Journalise the following transactions:
2018 Rs.
April 2 Paid salaries 18,000
“ 3 Paid rent to landlord Rajesh 2,000
“ 6 Received interest on investments 1,300
“ 7 Received commission from Mahesh 1,900 13
Accounting Process
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

May 2 Salaries Account Dr. 18,000
To Cash Account 18,000
(Being salaries paid)
May 3 Rent Account Dr. 2,000
To Cash Account 2,000
(Being rent paid)
May 6 Cash Account Dr. 1,300
To Interest Received Account
(Being interest received 1,300
on investments)
May 7 Cash Account Dr. 1,900
To Commission Received
Account 1,900
(Being commission received)

In the second transaction in the above illustration, rent was paid to Rajesh, the
landlord, but the debit has been given to the nominal account (Rent Account) and
not to the personal account of Rajesh. Similarly, when commission was received
from Mahesh (fourth transaction), it is the Commission Received Account that has
been credited and not the personal account of Mahesh who paid the commission.
This is so because these are cash transactions, and no debtor/creditor relationship is
created as there is no obligation yet to be fulfilled.
There is another point to be noted in this context. In illustration 5, you have seen that
when rent is paid, Rent Account has been debited (it is an expense) and when
interest is received, Interest Received Account has been credited (it is an income).
In business, certain nominal accounts like Salaries Account, Wages Account, and
Postage Account would involve only payments, as these will always be expenses.
But certain other items like interest, commission, rent, etc., can sometimes be an
expense, sometimes an income. In such case, it is better to maintain separate accounts
for their payments and receipts.

5.5.6 Transactions Relating to other Receipts and Payments

of Cash
Apart from cash purchase, cash sale, payment of expenses, and receipt of incomes,
there are many other transactions which involve movement of cash. For example,
the business may receive cash from its debtors (customers from the goods were
sold on credit), pay cash to creditors (suppliers of goods on credit), receive or
repay loan, etc. In the earlier illustrations, you have learnt that whenever cash is
paid, Cash Account is credited, and whenever cash is received, Cash Account is
debited. The same treatment will be applicable to the other cash transactions as
given in illustration 6
Illustration 6

14 Enter the following transactions in the journal:

 Journal and Ledger
2018 Rs.
April 1 Received cash from Anand, on account 9,000
“ 2 Paid to Ram on account 6,000
“ 3 Took a loan from Chetan 30,000
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

April 1 Cash Account Dr. 9,000
To Anand’s Account 9,000
(Being cash received on account)
“ 2 Ram’s Account Dr. 6,000
To Cash Account 6,000
(Being cash paid on account)
“ 3 Cash Account Dr. 30,000
To Loan from Chetan Account 30,000
(Being loan taken)

In business, sometimes loans are taken to augment the capital invested by the
proprietor. In such cases, the word ‘loan’ is added to the name of the party concerned
to distinguish this account from the other accounts. For example, in illustration 6, a
loan was taken from Chetan, the credit was given to Loan from Chetan Account
and not to Chetan’s Account.
Similarly, a business unit may give a loan. In such a case, also the word loan is added
to the name of the account. For example, a business unit has given loan to Sohan,
the debit will be given to Loan to Sohan Account, and not to Sohan’s Account.

5.5.7 Transactions Relating to Receipts and Payments by

Cheque
So far, all payments and receipts which have been discussed were in the form of
cash. But you know that payments and receipts are also made through cheque.
Although we intend to discuss the various banking transactions later. You must at
this stage, learn about the journal entries for payments and receipts by cheque.
When payment is made by cheque the credit will be given to Bank Account because
the bank balance will be reduced. Similarly, when payment is received by cheque,
the amount will be debited to Bank Account as the cheque is deposited in the bank
which increases the bank balance. Some examples are given in illustration 7.
Illustration 7
Journalise the following transactions:
2018 Rs
April 2 Paid to Ram on Account by cheque 9,000
“ 4 Received cheque from Shiva on account 6,000
15
Accounting Process JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

April 2 Ram’s Account Dr. 9,000
To Bank Account 9,000
(Being paid to him by cheque)
“ 4 Bank Account Dr. 6,000
To Shiva’s Account 6,000
(Being ammount received from
him by cheque)

5.5.8 Transactions with the Proprietor

You have already learnt that the business and its proprietor are treated as separate
entities. This necessitates maintaining of separate accounts in the ledger for recording
the transactions between the proprietor and the business. Whatever the proprietor
brings into the business is treated as capital and is credited to the Capital Account.
Similarly, when the proprietor withdraws cash from the business for his personal use
he is debited with the amount withdrawn. Such debit is given to a separate account
called Drawings Account. Drawings Account is also debited when the proprietor
takes goods from business for his domestic use.
As explained earlier, both the Capital Account and the Drawings Account are treated
as personal accounts belonging to the proprietor. Some examples of transactions
with the proprietor are given in illustration 8.
Illustration 8
Enter the following transactions in the Journal:
2018 Rs.
May 1 Ganesh commenced business with a capital of 1,00,000
“ 2 He withdraw cash for personal use 7,000
“ 3 He introduced additional capital 18,000
“ 4 He took goods for domestic use 1,000
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

May 1 Cash Account Dr. 1,00,000
To Capital Account 1,00,000
(Being capital bought in)
‘‘ 2 Drawings Account Dr. 7,000
To Cash Account (Being cash 7,000
ithdrawn for personal use)
‘‘ 3 Cash Account Dr. 18,000
To Capital Account (Being 18,000
additional capital brought in)
‘‘ 4 Cash Account Dr. 1,000
To Capital Account 1,000
(Being additional capital brought in)
16
5.5.9 Transaction Relating to Cash Discount Journal and Ledger

You have learnt earlier about two types of discounts allowed to customers: (i) trade
discount, and (ii) cash discount. Trade discount is not shown in the books of account
since it is adjusted in the invoice itself and the entry in the books of account is made
for the net amount only. But the case of cash discount is different. At the time of sale,
the buyer is debited with the net amount of the invoice. Later if cash discount is
allowed at the time of payment, it must be adjusted in the personal account of the
debtor. This would show that his account stands cleared, and nothing more remains
due.
When cash discount is allowed to the debtor, it is a loss to the business and so
debited to Discount Allowed Account and credited to the personal account of the
debtor. Similarly, when cash discount is allowed by the creditor, it is a gain to the
business so it is credited to Discount Received Account and debited to the personal
account of the creditor.
The entries relating to cash discount shall be illustrated under compound journal
entry.
5.5.10 Transactions Relating to Bad Debts
When a debtor becomes insolvent, the business shall not be able to realise full amount
due from him. A part of it will remain unrealised. The unrealised amount is called
‘bad debt’. It is a loss to the business and so debited to Bad Debts Account, and
credited to the personal account of the debtor.
If the amount treated as bad debts is recovered later on, the same shall be
a gain to the business. Hence, it will be credited to Bad Debts Recovered
Account and debited to Cash Account. Note that the bad debts so recovered
shall not be credited to the personal account of the debtor.
Look at journal entry from transaction on April 10 under illustration 12 and see how
bad debts are recorded.
Illustration 9
Ramesh commenced business on January 1, 2018. His transactions for the month
are given below. Journalise them.
2018 Rs.
Jan. 1 Commenced business with a capital of 1,50,000
“ 2 Bought goods from Ajeet and Co. 35,000
“ 3 Sold goods for cash 6,000
“ 4 Purchased furniture 6,000
“ 7 Purchased goods on account from Gautam & Co. 18,000
“ 8 Returned goods to Gautam & Co. 600
“ 8 Paid for advertisement 1,000
“ 10 Cash sales 5,000
“ 13 Sold goods to Venkat 6,000
“ 14 Venkat returns goods 400
“ 19 Paid Ajeet and Co. on account 18,000
17
Accounting Process “ 25 Paid office expenses 300
“ 26 Received from Venkat on account 3,000
‘‘ 31 Paid salaries 5,000
“ 31 Drew cash for private expenses. 3,000
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

Jan. 1 Cash Account Dr. 1,50,000
To Capital Account 1,50,000
(Being capital bought in)
“ 2 Purchase Account Dr. 35,000
To Ajeet and Co’s Account 35,000
(Being credit purchase)
“ 3 Cash Account Dr. 6,000
To Sales Account 6,000
(Being cash sales)
“ 4 Furniture Account Dr. 8,000
To Cash Account 8,000
(Being furniture purchased)
“ 7 Purchase Account Dr. 18,000
To Gautam & Co’s Account 18,000
Being credit Purchases)
“ 8 Gautam & Co’s Account Dr. 600
To Returns Outwards Account 600
(Being goods returned to Gautam
& Co.)
“ 8 Advertisement Account Dr. 1,000
To Cash Account 1,000
(Being payment, for advertisement)
“ 10 Cash Account Dr. 5,000
To Sales Account 5,000
(Being cash sales)
“ 13 Venkat’s Account Dr. 6,000
To Sales Account 6,000
(Being credit sales)
“ 14 Returns Inwards Account Dr. 400
To Venkat’s Account 400
(Being goods returned by Venkat
“ 19 Ajeet Co’s Account Dr. 18,000
To Cash Account 18,000
(Being cash paid on account)
18
 Journal and Ledger
“ 25 Office Expenses Account Dr. 300
To Cash Account 300
(Being office expenses)
“ 26 Cash Account Dr. 3,000
To Venkat’s Account 3,000
(Being cash received on account)
“ 31 Salaries Account Dr. 5,000
To Cash Account 5,000
(Being salaries paid)
“ 31 Drawings Account Dr. 3,000
To Cash Account (Being 3,000
cash withdrawn for personal use)
Illustration 10
Journalise the following transactions:
2018 Rs.
June 1 Cash sale to Ashok 1,800
“ 2 Bought goods from Vinod 10,000
“ 3 Old newspapers sold 100
“ 4 Paid Municipal taxes by cheque 900
“ 4 Paid for repairs to machinery 600
“ 8 Received commission by cheque 1,700
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount
2018 Rs. Rs.
June. 1 Cash Account Dr. 1,800
To Sales Account 1,800
(Being cash sales)
“ 2 Purchase Account Dr. 10,000
To Vinod’s Account 10,000
(Being credit purchase)
“ 3 Cash Account Dr. 100
To Miscellaneous Income Account 100
(Being the income received by
sale of old newspaper)
“ 4 Municipal Taxes Account Dr. 900
To Bank Account (Being 900
Municipal taxes paid by cheque)
“ 4 Repairs Account Dr. 600
To Cash Account 600
(Being repairs to machinery)
“ 8 Bank Account Dr. 1,700
To Commission Account 1,700
(Being commission received
by cheque) 19
Accounting Process Check Your Progress C
1. Name the accounts which are maintained in lieu of Goods Account.
i) .........................................................................................................
ii) .........................................................................................................
iii) .........................................................................................................
iv) .........................................................................................................
v) .........................................................................................................
2. Select the best answer.
a) The amount bought in by the proprietor in the business, should be credited
to :
i) Proprietor’s Account
ii) Drawings Account
iii) Capital Account
b) Purchase of furniture should be debited to
i) Furniture Account
ii) Goods Account
iii) Equipment Account
c) Return of goods to a supplier should be credited to
i) Goods Account
ii) Returns Outward Account
iii) Supplier’s Account
d) Wages paid to Billu should be debited to
i) Billu’s Account
ii) Cash Account
iii) Wages Account
e) Loan taken from Krishna should be credited to
i) Krishna’s Account
ii) Loan from Krishna Account
iii) Bank Account
f) Payment made by cheque should be credited to
i) Bank Account
ii) Cheque Account
iii) Cash Account
20
 g) Cash discount allowed to a debtor should be debited to Journal and Ledger

i) Customer’s Account
ii) Allowances Account
iii) Discount Allowed Account
h) In case of bad debts, the amount should be debited to
i) Debt Account
ii) Bad debts Account
iii) Discount Allowed Account
3. Distinguish between trade discount and cash discount.
.................................................................................................................
.................................................................................................................
.................................................................................................................
.................................................................................................................
4. What is bad debt?
.................................................................................................................
.................................................................................................................
.................................................................................................................
5. How do you deal with the amount treated as bad debt which is recovered later
on?
.................................................................................................................
.................................................................................................................
.................................................................................................................

5.6 COMPOUND JOURNAL ENTRY

You have seen transactions which involve only two accounts. Sometimes, a transaction
may involve more than two accounts. Sometimes, there may be more transactions
of the same nature taking place on the same date. In such situations, if we pass
separate journal entries, it may take more time and also require more space. Hence,
such transactions may be recorded by means of a single journal entry. Such an entry
is called a ‘compound journal entry’. It may be recorded in the following three
ways:
a) by debiting one account and crediting two or more accounts; or
b) by debiting two or more accounts and crediting one account; or
c) by debiting several accounts and crediting several accounts.
Take, for example, the following transactions:
21
Accounting Process a) Paid cash to Ganesh Rs. 490. He allowed Rs. 10 as discount and
settled his account. This transaction involves three accounts: (i) Ganesh’s
Account, (ii) Cash Account, and (iii) Discount Received Account. The journal
entry will be:
Rs. Rs.
Ganesh’s Account Dr. 500
To Cash Account 490
To Discount Received Account 10
(Being cash paid to him in full settlement of the account)
b) Sold goods to Rao & Sons Rs. 800 and Sharma Bros. Rs. 500, on
May 5, 2018.
These two transactions are of the same nature and have taken place on the
same date. Their entries can be combined by passing the following compound
journal entry.
Rs. Rs.
Rao & Sons Account Dr. 800
Sharma Bros. Account Dr. 500
To Sales Account 1,300
(Being sale made)
c) A running business with the following assets and liabilities was
purchased from Tularam for Rs. 64,000
Building Rs. 40,000 Furniture Rs. 12,000
Stock Rs. 20,000 Creditors Rs. 8,000
The journal entry will be: Rs. Rs.
Building Account Dr. 40,000
Furniture Account Dr. 12,000
Stock Account Dr. 20,000
To Creditors 8,000
To Tularam’s Account 64,000
(Being assets and liabilities taken over)

5.7 OPENING ENTRY

When a new accounting year begins, the previous year’s balances in different
accounts are brought forward to the new books of accounts. This is done by
means of a journal entry called ‘opening entry’. In this entry, all assets accounts
are debited and liabilities accounts (including owner’s capital account) are
credited. If, however, capital account balance is not given, it can be worked
out by deducting other liabilities from the total assets. This will become clear
from illustration 11.
22
Illustration 11 Journal and Ledger

Mr. Avinash has the following balances of assets and liabilities on December 31,
2018.
Cash in hand Rs. 2,500 Stock of goods Rs. 22,500
Furniture Rs. 5,000 Bank Loan Rs. 10,000
Pass the opening entry on January 1, 2019.
Solution:
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2019 Rs. Rs.

June. 1 Cash Account Dr. 2,500
Stock Account Dr. 22,500
Furniture Account Dr. 5,000
To Bank Loan Account 10,000
To CapitalAccount (Being 20,000
balances brought forward from
the previous year)

Check Your Progress D

1. What is a Compound entry ?
..............................................................................................................
..............................................................................................................
..............................................................................................................
2. Complete the following sentences:
a) A compound entry is passed for transactions involving …………
b) A compound entry is passed if there are more transactions of same
nature on…………………………………
c) A compound entry can be passed by debiting one account and
crediting……………..
d) A compound entry can be passed by crediting one account and
debiting…………
e) In opening entry, all assets are debited and all are credited … ………
3. On December 31, 2018, the assets and liabilities of Chemico Industries
were as follows:
Machinery Rs. 11,000 Furnitur Rs. 3,000
Stock Rs. 24,000 Debtors Rs. 17,000
Cash Rs. 3,000 Creditors Rs. 29,600
Loan Rs. 5,400
Calculate the capital of M/s Chemico Industries as on January 1, 2019 to
enable you to pass an opening entry. 23
Accounting Process
5.8 CASTINGAND CARRY FORWARD
Journal is totalled periodically (daily or weekly), depending upon the volume of
business and the number of transactions. Totalling is called ‘casting’. You have to
total both the debit amount column and the credit amount column. Since every debit
has an equal and corresponding credit, the totals of the two columns should always
be equal. If, however, they do not tally, it implies that there is some error. In that
case, you must go through the entire work and locate the error and get the correct
total.

When the transactions during a particular period are many and cannot be journalised
in the same page, then it would be necessary to total the two amount columns on
that page and carry forward the total to the next page. This is done by writing ‘Total
c/f’ against the totals in the particulars column and entering the amount in both amount
columns. These totals are then brought forward on the next page by writing ‘Total b/
f’ in the particulars column and entering the amount in both the amount columns. You
must draw a line in the particulars column before making the remaining entries in the
journal.

Illustration 12

Enter the following transactions in the journal:

2018

April 1 Bought an almirah for Rs. 450, and paid Rs. 30 for cartage.

“ 2 Proprietor took away goods worth Rs. 200 for personal use.

“ 3 Gave goods worth Rs. 100 in charity.

“ 4 Sold an old machine for Rs. 2,000.

“ 5 Paid insurance premium Rs. 90.

“ 6 Purchased goods worth Rs. 5,000 for cash less 20 trade discount.

“ 7 Received Rs. 980 from Kisan Chand, and allowed him Rs. 20 cash
discount.

“ 8 Rs. 500 were due to Ghanshyam. Paid Rs. 480 in full settlement of his
account.

“ 9 Cash of Rs. 560 was stolen from the cash box.

“ 10 Han Singh, a debtor became insolvent. He owed Rs. 400. A final

composition of 50 paise in a rupee was received.

“ 11 Sold goods to Karim Rs. 800.

“ 12 Paid into bank Rs. 400.

24
Solution: Journal and Ledger
JOURNAL
Date Particulars L.F. Dr. Amount Cr. Amount

2018 Rs. Rs.

June.1 Furniture A/c Dr. 480
To Cash A/c (Being Purchase of 480
an almirah for Rs. 450, Cartage
paid Rs. 30)
“ 2 Drawings A/c Dr. 200
To Purchases A/c (Being goods 200
taken away by the proprietor for
personal use)
“ 3 Charity A/c Dr. 100
To Purchases A/c (Being goods 100
given in charity)
“ 4 Cash A/c Dr. 2,000
To Machinery A/c (Being sale of 2,000
old machinery)
“ 5 Insurance A/c Dr. 90
To Cash A/c (Being payment of 90
insurance premium)
“ 6 Purchase A/c Dr. 4,000
To Cash A/c
(Being purchase of goods) 4,000
“ 7 Cash A/c Dr. 980
Discount Allowed A/c Dr. 20
To Kishan Chand 1000
(Being cash received from him,
discount allowed Rs. 20)
“ 8 Ghanshyam Dr. 500
To Cash A/c
To Discount Received A/c 480
(Being cash paid to him, discount 20
received Rs. 20)
“ 9 Loss by Theft A/c Dr. 560
To Cash A/c (Being loss by theft) 560
“ 10 Cash A/c Dr. 200
Bad Debts A/c Dr. 200
To Hari Singh (Being cash 400
received from him, discount
allowed Rs. 20)
“ 11 Karim Dr. 800
To Sales A/c (Being credit sales) 800
“ 12 Bank A/c Dr. 400
To Cash (Being cash paid 400
into bank)
10,530 10,530
25
Accounting Process
The following clarifications with regard to Some transactions will help you to
understand their journal entries.
Transaction 1. Rs. 30 paid as cartage have been included in the cost of the
furniture purchased and debited to Furniture Account. You know, furniture is a
fixed asset. Any expenditure incurred in relation to the purchase of a fixed asset
is included in the cost of the fixed asset and as such debited to that asset itself.
Transaction 2. When goods are taken away by the proprietor for his personal
use, it is treated as his drawings and so debited to Drawings Account. Further,
the proprietor can be charged with only the cost of the goods taken and not the
selling price. Hence, it is considered appropriate to reduce the purchases of the
business by the amount of goods taken by him, as if the goods were purchased
partly for the business and partly for the proprietor.
Transaction 3. The argument applicable to transaction 2 also holds good for the
goods given in charity.
Transaction 5. Note that the amount paid as insurance premium is debited to
Insurance Account and not to Insurance Premium Account. The premium is just
an instalment for an insurance policy taken to cover the risk. The head of account
is insurance.
Transaction 6. The entry has been made for the net amount only. Nothing has
been debited to Discount Account. You have learnt that debit to Discount Account
is needed only in case of cash discount and not in case of trade discount.
Transaction 10. Hari Singh became insolvent. Only half the amount due could
be recovered from him. The balance is bad debt. It is a loss to the business and
so has been debited to Bad Debts Account.
You would observe a few more points in the above illustration
a) Instead of writing full word ‘Account’ its abbreviation ‘A/c’ has been used.
This is what we normally do. In fact the current practice is not to write
anything, just the name of the account is enough.
b) The word ‘Account’ or its abbreviation ‘A/c’ has not been used against
personal names. This again is a common practice. Writing ‘A/c’ is confined
to real and nominal accounts only.
c) While carrying forward the total from one page to another, no lines have
been drawn below the totals. A line is drawn only in the particulars column
after writing ‘Total b/f’.

5.9 WHAT IS LEDGER?

Ledger is a book which contains all accounts affected by various transactions in
a business. Ledger can be termed as a classified and summarised record of
business transactions relating to all personal, real and nominal accounts.
All transactions which are first recorded in the journal, must invariably be posted
into the concerned accounts in the ledger. This is necessary because Journal is just
a chronological record of transactions, identifying the accounts to be debited and
credited. It does not help us to know the net effect of various transactions
26 affecting a particular account. This can only be achieved by recording the effect
of all transactions on each account at one place. Let us illustrate this. Suppose, Journal and Ledger
Mohan Brothers have been selling goods on credit to Suresh. Suresh is allowed
to make part payments and make further purchases even before the old balance
is cleared. No doubt, all transactions relating to the goods sold to him and the
amounts received from him would be duly recorded in the journal (or its sub-
divisions). But the journal, by itself, will not be in a position to readily provide
information as to whether Suresh, at a given point of time, owes them any money
and if so, how much. This is because the entries for transactions with him have
been made at different places in the journal and you will have to go through all
entries to obtain the required information. If however, all sales made to Suresh
and the amounts received from him are shown at one place, say, in Suresh’s
Account in the ledger, the required information would be readily available. This
is true of all accounts, be they personal accounts, real accounts or nominal
accounts.
Ledger, thus is a book where all accounts are maintained and into which all
journal entries are posted. As all transactions must ultimately be recorded in the
respective accounts, the ledger is called the ‘Book of Final Entry’. it is also called
the ‘Principal Book of Accounts’. In fact transactions can even be directly recorded
into various ledger accounts. But, normally, this is not done because in that case
we will not have any date wise record of all transactions and the details thereof.
Such record is necessary for future reference.
To sum up (i) the ledger contains all the personal, real and nominal accounts, (ii)
the ledger is a permanent, ultimate and up-to-date record of all transactions, and
(iii) the ledger provides a means of easy and ready reference.
The ledger is a bound volume with the pages numbered consecutively. Alphabetical
index is also shown at the beginning so that the page in which an account appears
can be easily ascertained. In certain modern business, loose-leaf ledgers are
maintained, instead of one bound volume. Banks maintain loose-leaf ledgers for
customer’s deposit accounts.

5.10 FORM OF A LEDGER ACCOUNT

As stated earlier, an account is the summarised record of all the transactions
relating to a particular person or an item. The form of an account is given below:

NAME OF THE ACCOUNT

Dr. Cr.

Date Particular Folio Amount Date Particular Folio Amount

Rs. Rs.

You are already familiar with ‘T’ form of an account. A page is folded vertically in
the middle to make it into two halves. Actually, folding is not necessary as usually
pre-printed books are available. Sometimes, two pages are taken together as a unit.
In that case, the entire page on the left hand side is considered as the debit side and
the other page on the right hand side is treated as the credit side.
27
Accounting Process The columns in ledger account are very much similar to those in journal. In the
journal, you have two amount columns because the dual aspect of each transaction
has to be analysed and presented side by side. In the ledger account, the first
three columns of the journal, viz., date, particulars and folio, appear on both the
debit and the credit side and so also the amount column. However, the column
meant for entering the page number in ledger is merely called .‘folio’, whereas in
the journal it is called ‘ledger folio’. It is important to note this similarity at the
outset, as it would make ledger posting an easy task.
Let us look at the form of ledger account once again. In the middle of the top
of the account, the ‘Name of the Account’ is given. It will be written as ‘Shyam’s
Account’, or ‘Furniture Account’ or ‘Rent Account’, as the case may be. You
also find that Dr. and Cr. appear at the two extreme ends of the top line of the
account. The left hand side is designated as debit side and is indicated by writing
‘Dr.’ on the left hand top corner. Similarly, ‘Cr.’ is written on the right hand top
corner to indicate the credit side. When an account is to be debited, the entry is
made on the debit side and when it is to be credited, the entry is made on the
credit side.

5.11 POSTING IN TO LEDGER

The journal entries form the basis for recording in the ledger accounts, and the
process of entering transaction in the ledger is called ‘Posting’. When a journal
entry has to be posted in the concerned ledger accounts, the following procedure
is adopted.
1. Every journal entry will have to be posted into all those accounts which have
been debited and credited in the journal entry. For example, for cash sales,
Cash Account is debited and Sales Account is credited in the journal. When
this entry is posted in the ledger, it must be posted in Cash Account as well
as in Sales Account.
2. Posting will be made on the debit side of the account which has been debited
in the journal, and the credit side of the account which has been credited in
the journal. In case of above example of the cash sales, posting will be made
on the debit side of Cash Account, as it has been debited in journal and the
credit side of Sales Account, as it had been credited in the journal.
3. Whether the posting is made on the debit side or the credit side, first of all
the date of the transaction (as given in the journal) will be entered in the date
column. The method of recording the date in the ledger account is the same
as in journal.
4. While posting on the debit side of an account, in the particulars column, we
shall write the name of the account which had been credited in the journal
and add the word ‘To’ before the name. Similarly while posting on the credit
side of an account, we shall write the name of the account which has been
debited in the journal and add the word ‘By’ before the name. In case of
the above example, we shall write ‘To Sales A/c’ in particulars column on
the debit side of Cash Account and ‘By Cash A/c’ in particulars column on
28 the credit side of the Sales Account.
5. The journal entries contain ‘narration’. But it is not required in the ledger Journal and Ledger
accounts. Similarly, there is no need to draw a line between the two entries
in an account as is done in the journal. Note that posting in the ledger
account is considered complete only when both the debit and the credit
aspects of all journal entries have been posted.
6. In the folio column, we shall mention the page number of the journal where
the concerned journal entry appears. At the same time, the page number of
the ledger accounts will be entered in the ‘L.F.’ column in the journal so as
to complete the cross reference.
7. The amount involved in the journal entry shall be entered in amount columns
of both the accounts.
Now let us take a transaction, Journalise it, and then show how the posting is
done in the ledger.
Illustration 13
Purchased machinery for cash, Rs. 50,000 on April 4, 2018. This transation will
appear in the journal and the ledger as under:

JOURNAL

Date Particulars L. F. Dr. Cr.

Amount Amount

2018 Rs. Rs.

Apr.4 Machinery A/c Dr. 50,000
To Cash A/c 50,000
(Being machinery purchased)

LEDGER
Machinery Account
Dr. Cr.

Date Particulars Folio Amount Date Particular Folio Amount

2018 Rs. Rs.

April 4 To Cash A/c 50,000

Cash Account
Dr. Cr.
Date Particulars Folio Amount Date Particular Folio Amount

2018 Rs. 2018 Rs.

April 4 By 50,000
Machinary

Now we take a few more transactions and illustrate further the ledger posting aspect
of the transactions, from the journal entries.

29
Accounting Process Illustration 14
Journalise the following transactions and post them into the ledger.
2018 April Rs.
2" Cash Sales 15,000
2" Paid Salaries 6,000
6" Sold goods to Pankaj 10,000
10" Cash purchases 5,000
13" Paid for stationery 100
18" Goods taken by proprietor for personal use 1,000
23" Bought goods from Manoj 13,000
25" Received from Pankaj on account 4,000
27" Sold goods for cash 4,000
30" Received interest on investments 1,400

Date Particulars L. F. Dr. Cr.

Amount Amount

2018 Rs. Rs.

April 2 Cash Account Dr. 15,000
To Sales Account 15,000
(Being cash sales)
“ 2 Salaries Account Dr. 6,000
To Cash Account 6,000
(Being salaries paid)
“ 6 Pankaj’s Account Dr. 10,000
To Sales A/c 10,000 10,000
(Being goods sold to Pankaj
on credit)
“ 10 Purchases Account Dr. 5,000
To Cash Account 5,000
(Being cash purchase)
“ 13 Stationery Account Dr. 100
To Cash Account 100
(Being stationery purchased)
“ 18 Drawings Account Dr. 1,000
To Purchases Account 1,000
(Being goods taken for
personaluse)
“ 23 Purchases Account Dr. 13,000
To Manoj’s Account (Being goods 13,000
purchased fromManoj on credit)
30
 Journal and Ledger
“ 25 Cash Account Dr. 4,000 4,000
To Pankaj’s Account
(Being the amount received)
“ 27 Cash Account Dr.
To Sales Account 4,000 4,000
(Being cash sales)
“ 30 Cash Account Dr.
To Interest Account (Being interest 1,400 1,400
received on investments)

LEDGER
Cash Account
Dr. Cr.
Date Particular Folio Amount Date Particular Folio Amount
2018 Rs. 2018 Rs.
April 2 To Sales A/c 15,000 April 2 By Salaries A/c 6,000
“ 25 To Pankaj’s A/c 4,000 “ 10 By Furniture A/c 5,000
“ 27 To Sales A/c 4,000 “ 13 By Stationery A/c 100
“ 30 To Interest A/c 1,400
Sales Account
2018 Rs.
April 2 By Cash A/c 15,000
“ 6 By Pankaj’s A/c 10,000
“ 27 By Cash A/c 4,000

Salaries Account
2018 Rs.
April 2 To Cash A/c 6000

2018 Rs. 2018 Rs.

April 6 To Sales A/c 10,000 April 25 By Cash A/c 4,000

Purchase Account
2018 Rs. 2018 Rs.
April 10 To Cash A/c 5,000 April 18 By Drawings A/c 1,000
“ 23 To Manoj’s A/c 13,000
Stationery Account
2018 Rs.
April 13 To Cash A/c 100
Drawings Account
2018 Rs.
April 18 To Purchases A/c 1,000

31
Accounting Process Manoj’s Account
2018 Rs.
April 23 By Purchase A/c 13,000

Interest Account
2018 Rs.
April 30 By Cash A/c 1,400

5.12 POSTING A COMPOUND JOURNAL ENTRY

Normally we post a journal entry into two accounts, on the debit side of one
account and the credit side of the other account. This is because most journal
entries have only two accounts. But it is not so in case of a compound journal
entry which involves more than two accounts. A compound entry will be posted
on the debit side of two or more accounts and the credit side of one account,
or on the debit side of one account and credit side of two or more accounts. This
will depend upon the number of accounts that have been debited and credited in
the journal entry. Take, for example, a journal entry for the following transactions:
On May 31, 2018 Mohan, a customer, paid cash Rs. 950 in settlement of
his account of Rs. 1,000.
The journalentry for this transaction will be:
2018 Rs. Rs.
May 31 Cash A/c Dr. 950
Discount Allowed A/c Dr. 50
To Mohan (Being amount 1,000
received in full settlement)
In this journal entry, two accounts have been debited and one account has been
credited. It will be posted in the debit side of both Cash Account and Discount
Allowed Account, and the credit side of Mohan’s Account. In the Particular column
of the debit side of Cash Account and Discount Allowed Account we shall write ‘To
Mohan’. On the credit side of Mohan’s Account, in Particulars column we shall
write ‘By Cash A/c’, and then in the next line ‘By Discount Allowed A/c’ and show
the respective amounts in the Amount column. See the posting of this compound
journal entry as given below:
Cash Account
2018 Rs.
May 31 To Mohan 950
Discount Allowed Account
2018 Rs.
May 31 To Mohan 50
Mohan’s Account
2018 Rs.
May 31 By Cash A/c 950
“ 31 By Discount Allowed A/c 50
32
Alternatively, in Mohan ‘s Account we can simply write ‘By Sundries’ in Particulars Journal and Ledger
column and show full amount in the Amount column.
The above example should help you to also correctly post a compound journal
entry where one account has been debited and two or more accounts have been
credited, or where many accounts have been debited and many accounts have been
credited.
Check Your Progress E
1. What is Ledger?
.................................................................................................................
.................................................................................................................
.................................................................................................................
2. What is posting?
.................................................................................................................
.................................................................................................................
.................................................................................................................
3. State whether each of the following statements is True or False.
a) Posting is done in the journal.
b) Posting will be made on the debit side of an account which had been
debited in the journal.
c) The word ‘To’ is used with the name of an account while making posting
on the credit side of an account.
d) No narration is written while posting into ledger accounts.
e) Every journal entry will be posted only into those accounts which have
been debited in the journal.
f) Compound journal entry is posted to more than two accounts.

5.13 BALANCING LEDGER ACCOUNTS

In the above illustration, you have seen that many transactions are likely to involve a
particular account, and there are a number of entries on both sides of an account. At
the end of a day, a week or a month, it would be necessary to know the net effect of
various transactions entered in an account. For example, it would be important and
useful to know as to what is still due from a customer. We can get this information by
working out the difference between the total of debit entries and the total of credit
entries in customer’s account. This process is termed as ‘balancing of an account.
For example, look at the Pankaj’s Account in illustration 14. You find that there are
two transactions, one on each side. Pankaj has been debited with Rs. 10,000 for
credit sales to him, and credited by Rs. 4,000 for the amount paid by him. The
difference between the amount debited and the amount credited is Rs. 6,000. This
amount of Rs. 6,000 is the ‘balance’ in his account which he still owes to the business.
Where the debit side total is more than the credit side total, as in this case, it is called
a debit balance. It is shown, in particulars column, on the credit side by writing ‘By 33
Accounting Process Balance c/d’ and totals on both sides made equal. After totaling the two sides of the
account, the same balance is shown on the debit side, on the next date, by writing
‘To Balance b/d’ in particulars column. The term c/d is an abbreviation for carried
down and b/d is for brought down. Such balancing of accounts is done periodically,
say, daily (as in the case of cash account), weekly, monthly or at any other convenient
time, as and when needed.
Let us see the balancing of Pankaj’s Account.
Pankaj’s Account
Dr. Cr.
Date Particulars L.F. Amount Date Particulars L.F. Amount
Rs. Rs.

2018 2018
April 6 To Sales A/c 10,000 April 25 By Cash A/c 4,000
“ 30 By Balance c/d 6,000
10,000 10,000
May 1 To Balance b/d 6,000
In another situation, the total of the credit side may be more than the total of the
debit side. In that case, it will be called credit balance. It will be shown on the debit
side by writing ‘To Balance c/d’ in particulars column and the totals of the two sides
made equal. After totalling the two sides of the accounts, the same balance will be
shown on the credit side on the next date, by writing ‘By Balance b/d’ in particulars
column.
Let us now explain the procedure of balancing an account stepwise.
1. Total both the amount columns (debit and credit) and ascertain the difference
in two totals (use a separate rough sheet for this purpose). If there is no difference
between the totals of the two sides, it means there is nil balance on this account.
This means, the account is closed. However, if there is some difference in the
two totals, such difference is called the ‘balance’. If the debit side total is
more than the credit side total (as in Pankaj’s Account), the difference
is called debit balance. If, on the other hand, the total of the items on
the credit side is greater than the total of the debit side, the difference
is called credit balance.
2. Put the difference between the two sides on the side showing a smaller total.
3. Enter the date on which balancing is being done, in the date column. Note that
balancing is not a transaction, as this does not involve any transfer between
two accounts.
4. If the balance is entered on the debit side, then write in particulars column ‘To
Balance c/d’. In case, the balance is entered on the credit side, write in particulars
column ‘By Balance c/d’ (c/d stands for carried down).
5. Now total both the amount column. There might be more entries on one side,
as compared to the other. Even then, the totals must be written on the same
horizontal line. Draw one line across both the amount columns, on the same
horizontal line. Draw one line across both the amount columns, on the same
34
 horizontal line. Put the totals on both the sides, which will now be identical and Journal and Ledger
then draw line immediately beneath the totals.
6. The closing balance (which was carried down) has now to be brought down
on the side which was showing the bigger total. In other words, at the beginning
of the next period, the debit balance is shown on the debit side and credit
balance on the credit side of the account. It is called opening balance, The
balance brought down is usually given the date following the balance date.
After entering the date in the date column, if the balance brought down is on the
debit side, write ‘To Balance b/d’ in particulars column. Similarly, if the balance
brought down is on the credit side, write ‘By Balance b/d’ (b/d stands for
brought down), particulars column. Suppose an account was balanced on June
30, and the closing balance was entered on the credit side as ‘By Balance c/d’.
On July 1, this balance would be entered on the debit side as ‘To Balance b/d’
below the total.
You have now understood the method of balancing an account. Usually a page is
allotted to an account and all transactions affecting that account are posted there.
Sometimes, when transactions are numerous, more number of pages can be set
apart for such an account. When the balance is proposed to be brought down on
the same page, then the abbreviations, c/d and b/d are used. However, when there
is not much space in the same page, and the balance has to be carried forward either
to the next page, or some other page, the abbreviations ‘c/f’ (carried forward) and
‘b/f’ (brought forward) are used in place of ‘c/d’ and ‘b/d’. The page numbers are
entered in the Folio columns to show as to where the balance has been carried
forward and from where it has been brought forward.
Sometimes, there may be no difference between the totals of the two sides. In such
cases, there will be no closing balance and no opening balance. However, to signify
that the balancing has been done, totals are entered on both the sides and the account
is closed.
Now let us take up comprehensive illustration and reinforce what you have learnt so
far regarding journalising, posting into ledger and balancing the accounts.
Illustration 15
Journalise the following transactions, post them into ledger and balance the accounts:
2018 Rs.
March 1 Ashok commenced business with cash 1,20,000
“ 2 Purchased furniture for cash 24,000
“ 2 Purchased goods from Vijay 36,000
“ 3 Sold goods 4,800
“ 4 Paid rent 3,000
“ 6 Sold goods to Arun 9,000
“ 7 Arun returned goods 450
“ 10 Bought goods from Dinesh 24,000
“ 11 Returned goods to Dinesh 600
“ 14 Paid for advertising 1,500
35
Accounting Process “ 15 Paid for stationery 300
“ 17 Drew for personal use 2,400
“ 20 Cash Sales 9,600
“ 21 Received from Arun 2,550
“ 23 Paid to Vijay 12,000
“ 24 Sold goods to Sanjay 15,000
“ 28 Cash sales 6,000
“ 31 Paid salaries 6,000
“ 31 Paid municipal taxes 1,200
“ 31 Paid printing charges 1,500
Solution:
JOURNAL
Date Particulars L. F. Dr. Cr.
Amount Amount

2018 Rs. Rs.

March 1 Cash Account Dr 1,20,000
To Capital Account 1,20,000
(being Capital brought in)
“ 2 Furniture Account Dr. 24,000
To Cash Account 24,000
(Being furniture purchased)
“ 2 Purchases Account Dr. 36,000
To Vijay’s Account 36,000
(Being credit purchases)
“ 3 Cash Account Dr. 4,800
To Sales Account 4,800
(Being cash sales)
“ 4 Rent Account Dr. 3,000
To Cash Account (Being rent paid) 3,000
“ 6 Arun’s Account Dr. 9,000
To Sales Account 9,000
(Being credit sales)
“ 7 Returns Inwards Account Dr. 450
To Arun’s Account 450
(Being goods returned by Arun)
“ 10 Purchases Account Dr. 24,000
To Dinesh’s Account 24,000
(Being credit purchases)
“ 11 Dinesh’s Account Dr. 600
To Returns Outwards Account 600
36 (Being goods returned to Dinesh)
 Journal and Ledger
“ 14 Advertising Account Dr. 1,500
To Cash Account (Being the 1,500
amount paid for advertising)
“ 15 Stationary Account Dr. 300
To Cash Account 300
(Being the payment for stationery)
“ 17 Drawings Account Dr. 2,400
To Cash Account (Being cash 2,400
withdrawn for Personal use)
“ 20 Cash Account Dr. 9,600
To Sales Account 9,600
(Being cash sales)
“ 21 Cash Account Dr. 2,550
To Arun’s Account (Being the 2,550
amount received from Arun)
“ 23 Vijay’s Account Dr. 12,000
To Cash Account 12,000
(Being the amount paid to Vijay)
“ 24 Sanjay’s Account Dr. 15,000
To Sales Account 15,000
(Being credit sales)
“ 28 Cash Account Dr. 6,000
To Sales Account 6,000
(Being Cash sales)
“ 31 Salaries Account Dr. 6,000
To Cash Account 6,000
(Being salaries paid)
“ 31 Municipal Taxes Account Dr. 1,200
To Cash Account 1,200
(Being municipal taxes paid)
“ 31 Printing Charges Account Dr. 1,500
To Cash Account 1,500
(Being Printing charges paid)

LEDGER
Cash Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount

2018 Rs. 2018 Rs.

March 1 To Capital A/c 1,20,000 March 2 By Furniture A/c 24,000
March 3 To Sales A/c 4,800 March 4 By Rent A/c 3,000
March 20 To Sales A/c 9,600 March 14 By Advertising A/c 1,500
March 21 To Arun A/c 2,550 March 15 By Stationery A/c 300 37
Accounting Process
“ 28 To Sales A/c 6,000 “ 17 By Drawings A/c 2,400
“ 23 By Vijay A/c 12,000
“ 31 By Salaries A/c 6,000
“ 31 By Municipal Tax A/c 1,200
“ 31 By Printing Charges A/c 1,500
“ 31 By Balance c/d 91,050
1,42,950 1,42,950
Apr. 1 To Balance b/d 91,050

Sales Account
2018 Rs. 2018 Rs.
Mar. 31 To Balance c/d 44,400 Mar.3 By Cash A/c 4,800
“ 20 By Arun A/c 9,000
“ 24 By Cash A/c 9,600
“ 28 By Sanjay A/c 15,000
44,400 By Cash A/c 6,000
44,400
Apr. 1 To Balance b/d 44,400

Arun’s Account
2018 Rs. 2018 Rs.
Mar. 6 To Sales A/c 9,000 Mar. 7 By Returns Inwards 450
“ 21 By Cash A/c 2,550
“ 31 By Balance c/d 6,000
9,000 9,000
Apr. 1 To Balance b/d 9,000

Return Inward Account

2018 Rs. 2018 Rs.
Mar. 7 To Arun A/c 450 Mar. 31 By Balance c/d 450
Apr. 1 To Balance b/d 450

Dinesh Account
2018 Rs. 2018 Rs.
Mar.11 To Return Outward A/c 600 Mar. 10 By Purchase A/c 24,000
“ 31 To Balance c/d 23,400 24,000
24,000 Apr. 1 By Balance b/d 23,400
Return Outward Account
2018 Rs. 2018 Rs.
Mar.31 To Balance c/d 600 Mar.11 By Dinesh’s 600
Apr. 1 By Balance b/d 600
38
 Advertising Account Journal and Ledger

2018 Rs. 2018 Rs.

Mar.14 To Cash A/c 1,500 Mar. 31 By Balance c/d 1,500
Apr. 1 By Balance b/d 1,500

Capital Account
2018 Rs. 2018 Rs.
Mar. 31 To Balance c/d 1,20,000 Mar. 1 By Cash A/c 1,20,000
Apr. 1 By Balance b/d 1,20,000
Furniture Account
2018 Rs. 2018 Rs.
Mar. 2 To Cash A/c 24,000 Mar. 31 By Balance c/d 24,000
Apr. 1 To Balance b/d 24,000

Purchase Account
2018 Rs. 2018 Rs.
Mar. 2 To Vijay’s A/c 36,000 Mar. 31 By Balance c/d 60,000
“ 10 To Dinesh’s c/d 24,000
60,000
Apr. 1 To Balance b/d 60,000

Vijay’s Account
2018 Rs. 2018 Rs.
Mar. 23 To Cash A/c 12,000 Mar. 2 By Purchase A/c 36,000
“ 31 To Balance c/d 24,000 36,000
36,000 Apr. 1 To Balance b/d 24,000
Rent Account
2018 Rs. 2018 Rs.
Mar. 4 To Cash A/c 3,000 Mar. 31 By Balance c/d 3,000
Apr. 1 To Balance b/d 3,000

Stationery Account
2018 Rs. 2018 Rs.
Mar.15 To Cash A/c 300 Mar. 31 By Balance c/d 300
Apr. 1 To Balance b/d 300
Drawings Account
2018 Rs. 2018 Rs.
Mar.17 To Cash A/c 2,400 Mar. 31 By Balance c/d 2,400
Apr. 1 To Balance b/d 2,400

39
Accounting Process Sanjay’s Account
2018 Rs. 2018 Rs.
Mar.24 To Sales A/c 15,000 Mar.31 By Balance c/d 15,000
Apr. 1 To Balance b/d 15,000
Salaries Account
2018 Rs. 2018 Rs.
Mar.31 To Cash A/c 6,000 Mar.31 By Balance c/d 6,000
Apr. 1 To Balance b/d 6,000
Municipal Taxes Account
2018 Rs. 2018 Rs.
Mar.31 To Cash A/c 1,200 Mar.31 By Balance c/d 1,200
Apr. 1 To Balance b/d 1,200
Printing Charges Account
2018 Rs. 2018 Rs.
Mar.31 To Cash A/c 1,500 Mar. 31 By Balance c/d 1,500
Apr. 1 To Balance b/d 1,500

Note :Nominal Accounts are balanced for the purpose of preparing the Trial Balance
which is being explained in the next section.

5.14 SIGNIFICANCE OF BALANCE

You have learnt that the ‘balance in an account signifies the net effect of all transactions
related to it during a given period. It may be a debit balance or a credit balance or a
nil balance depending upon whether the debit or the credit total is higher. Let us now
understand the significance of a balance in respect of the various types of accounts
in the ledger.
Personal Accounts
Personal accounts are more frequently balanced as compared to any other class of
accounts. Balance in a personal account indicates whether the party concerned
owes to the business or the other way round. When it shows a debit balance, it
means that the party owes that amount to the business. In other words, he is a
debtor to the business. Similarly, when it shows a credit balance, it would mean that
the business owes that amount to him i.e., he is creditor of the business if however,
the account shows a nil balance, it means that the account has been cleared, nothing
is due to him or due from him.
Real Accounts
Real accounts are normally balanced at the end of the accounting period primarily
for the purpose of preparing the final accounts. The cash account, however, is balanced
everyday because the actual cash is to be verified and confirmed with the closing
balance shown by CashAccount. All real accounts show a debit balance as there
are assets (property) accounts.
Nominal Accounts
40
Nominal accounts are not usually balanced, but closed by transfer to Profit and Journal and Ledger
Loss Account, at the time of preparing the final accounts (at the end of the accounting
period). However, to start with, for the purpose of understanding the procedure
involved, nominal accounts have also been balanced. Even otherwise, the difference
between the debit side and credit side totals have to be worked out for preparing
the trial balance (you will learn about the trial balance later). The accounts which
relate to expenses or losses will show a debit balance; whereas those relating to
incomes and gains will have a credit balance. This is because all expenses and losses
are debited and all incomes and gains are credited.

Check Your Progress F

1. Why do you balance an account ?

.................................................................................................................

.................................................................................................................

.................................................................................................................

2. Explain the procedure for balancing a ledger account.

.................................................................................................................

.................................................................................................................

.................................................................................................................

3. Name the types of accounts that are balanced.

.................................................................................................................

.................................................................................................................

.................................................................................................................

5.15 POSTING AN OPENING ENTRY

So for, you have learnt about the opening entry which is passed in the journal for all
assets and liabilities brought from the previous year. The posting of the opening
entry is very different from the posting of other journal entries. We open the concerned
accounts in the new ledger for all items that appear in the opening entry. Then, in the
accounts which have been debited in the opening entry we shall write ‘To Balance
b/f in the Particulars column on the debit side of those accounts and show the
respective amount in the Amount column. Similarly, in the accounts that have credited
in the opening entry, we shall write ‘By Balance b/f in the particulars column on the
credit side of those accounts and show the respective amount in the Amount column.
Thus, the posting is complete.

As a matter of fact, the account which have been debited or credited in the opening
entry merely represent the closing balances of various personal and real accounts
from the previous year. These are now entered in the ledger accounts of the current
year as opening balances through the opening entry. Illustration 16 should help you
to understand the posting of the opening entry.
41
Accounting Process Illustration 16
Post the following opening entry into ledger:
2018 Rs. Rs.
Jan. 1 Cash A/c Dr. 5,000
Stock A/c Dr. 20,000
Furniture A/c Dr. 2,000
Shah & Co. Dr. 2,000
Prem Chand Dr. 1,500
To Ramesh Lal 3,000
To Rakesh 1,000
To Capital A/c 26,500
(Being and opening entry for assets
and liabilities b/f from last year)

Solution :
Cash Account
2018 Rs.
Jan. 1 To Balance b/f Rs.5,000

Stock Account
2018 Rs.
Jan. 1 To Balance b/f 20,000

Furniture Account
2018 Rs.
Jan. 1 To Balance b/f 2,000

Shah’s Account
2018 Rs.
Jan. 1 To Balance b/f 2,000

Prem Chand’s Account

2018 Rs.
Jan. 1 To Balance b/f 1,500

Ramesh Lal’s Account

2018 Rs.
Jan. 1 By Balance b/f 3,000
Rakesh’s Account
2018 Rs.
Jan. 1 By Balance b/f 1,000
Capital Account
2018
Jan. 1 By Balance b/f 26,500
42
 Journal and Ledger
5.16 LET US SUM UP
1. The journal is the book of prime entry in which all business transactions must
be carried first. Each transaction is analysed so that the two-fold aspect of
each transaction is clearly presented in the form of a ‘Journal Entry’.
2. While journalising the transaction, it is necessary to remember the difference
between the treatment of cash and credit transaction, as it is necessary to decide
whether the personal account of the party concerned is to be involved or not.
3. Entries relating to Goods Account are made in five separate accounts depending
upon the nature of the transactions. These accounts are:
(i) Purchase Account, (ii) Sales Account, (iii) Purchase Returns Account, (iv)
Sales Returns Account, and (v) Stock Account.
4. A compound journal entry is one where two or more accounts receive the
debit (or the credit, as the case may be) and the corresponding credit (or the
debit, as the case may be) is given to the other account (or accounts).
5. An opening entry is one which is passed at the beginning of the year to bring
forward the previous year’s balances of assets and liabilities.
6. Ledger’is a book which contains all the accounts affected by various
transactions.
7. Journal by itself does not help us to know the net effect on the various
transactions affecting a particular account. Hence, all journal entries are posted
into ledger accounts.
8. Posting is made on the debit side of the accounts which have been debited in
the journal, and the credit side of the accounts which have been credited in the
journal.
9. As various transactions are posted to different accounts during a particular
period of time, it is necessary to ascertain the net effect of all the posting made.
This is done by balancing an account.

5.17 KEY WORDS

Balance: The difference between the total of debits and total of credits appearing
in an account. It signifies the net effect of the transactions posted to that account.
Compound Entry: A journal entry involving more than two accounts.
Journal: A book of original entry where achronological record of transactions is
first made.
Journal Entry: An entry made in the journal.
Journalising: The process of recording the business in the journal.
Ledger: A book which contain all accounts affected by various transactions in
business.
Opening Entry: A journal entry passed at the beginning of the year to bring forward
the previous year’s assets and liabilities.
Posting: A process of entering transactions into ledger accounts. 43
Accounting Process
5.18 ANSWERS TO CHECK YOUR PROGRESS
A 1. a) True b) True c) False d) False e) True

B 2. a) Credit b) Cash c) Credit d) Cash e) Credit f) Cash g) Credit h) Cash

C 2. a Capital A/c

b) Furniture A/c

c) Returns Outwards A/c

d) Wages A/c

e) Loan from Krishna A/c

f) Bank A/c

g) Discount Allowed A/c

h) Bad Debts A/c

5. Credit to Bad Debts Recovered A/c

D 2. a) More than two accounts

b) the same date

c) two or more accounts

d) two or more accounts

e) liabilities

3. Rs. 23,000

E 3. a) False b) True c) False d) True e) False f) True

5.19 TERMINAL QUESTIONS/EXERCISES

Questions

1. Give the form of journal.

2. What is a journal entry?

3. Explain the steps to be followed in journalising.

4. What is narration?

5. Explain as to why the journal is called a book of original entry.

6. What is a compound journal entry? Give examples.

7. What is an opening entry? Show how is it recorded?

8. Explain the rules regarding posting of journal entries into ledger accounts.

9. What is Balancing an Account? Explain how an account is balanced?

44
Exercises Journal and Ledger

1. Journalise the following transactions:

2018 Rs.
Feb. 1 Purchased goods for cash 18,000
“ 2 Purchased goods on credit from Mithun 37,000
“ 5 Sold goods to Mahesh 10,000
“ 8 Cash sales 8,000
“ 9 Cash sales to Jayant 7,000
“ 11 Returned goods to Mithun 4,000
“ 12 Mahesh returned goods 1,000

2. Give journal entries to record the following transactions:

2018 Rs.
March 1 Purchased furniture from Jay for cash 38,000
“ 2 Bought plant and machinery on credit from Satish 1,10,000
“ 5 Sale of old furniture 1,800
“ 6 Paid to Raman 3,700
“ 8 Received from Suresh 2,500
“ 11 Paid salaries 1,500
“ 13 Purchased stationery 250
“ 15 Paid rent 2,250
“ 17 Received commission 400

3. Journalise the following transactions :

2018 Rs.
April 1 Tarun started business with Cash 8,00,000
“ 2 Bought plant and machinery 1,00,000
“ 2 Bought furniture from Naveen 50,000
“ 3 Purchased typewriter 3,000
“ 4 Purchased goods 70,000
“ 6 Paid wages 8,000
“ 8 Bought loose tools 3,000
“ 9 Cash Sales 15,000
“ 10 Sales to Anil 20,000
“ 12 Paid wages 8,000
“ 13 Purchased goods from Uday 40,000
“ 15 Returned goods to Uday 2,000
“ 18 Purchased stationery 400
“ 20 Bought postage stamps 150
“ 23 Paid insurance premium 600
“ 25 Paid miscellaneous charges 600
“ 26 Paid printing charges 500
“ 29 Paid salaries 20,000
“ 30 Paid to Naveen 25,000

45
Accounting Process 4. The following are the transactions of Gurunath for the month of January.
Journalise the transactions:
2018 Rs.
Jan 1 Cash paid into bank 20,000
“ 2 Bought stationery 100
“ 3 Bought goods for cash 8,500
“ 4 Sold goods for cash 4,500
“ 5 Bought office furniture from Pramod & Bros. and 2,500
paid Rs. 100 as cartage
“ 6 Sold goods to Maneesh 3,000
“ 8 Received cheque from Maneesh 3,000
“ 9 Paid Pramod & Bros. by cheque 1,500
“ 11 Sold goods to Anil 2,500
“ 15 Bought goods from Sinha & Co. 3,000
“ 16 Bought goods for cash 1,000
“ 19 Sold goods to Praveen 1,300
“ 22 Received from Praveen Rs. 1,250 in full
ettlement of his account 1,250
“ 24 Paid salaries 2,000
“ 26 Drew for private expenses 1,000
“ 31 Paid rent 1,000
5. Journalise the following transactions and post them into the Ledger.
2018 Rs.
Jan. 1 Manoj commenced business with cash 48,000
“ 2 Deposited into bank 36,000
“ 3 Purchased goods for cash 2,000
“ 4 Bought furniture for office use 5,600
“ 10 Drew from Bank for office use 4,000
“ 13 Goods sold to Rahul 2,400
“ 15 Bought goods from Anil 1,600
“ 18 Paid trade expenses 400
“ 19 Received cash from Rahul 2,400
“ 25 Paid wages 200
“ 28 Paid Anil in full settlement 1,590
“ 30 Paid rent 400
“ 31 Interest on capital 400
6. Enter the following transactions in the journal of Harnath and post them into the
Ledger.
2018 Rs.
Feb. 1 Commenced business with cash 60,000
“ 2 Bought goods from Madhan 30,000
“ 2 Purchased fittings for cash 4,800
“ 2 Sold goods to Chetan 9,600
“ 3 Paid Madhan on account 18,000
“ 4 Sold goods to Pradeep 12,000
“ 5 Received cheque from Chetan in full
settlement of his account 9,550
“ 6 Paid wages 480
46
 “ 8 Bought goods for cash 3,600 Journal and Ledger
“ 9 Sold goods to Ravi 20,400
“ 10 Purchased goods from Promod 15,600
“ 11 Paid Madhan in final settlement 12,000
“ 12 Paid carriage on goods sold 240
“ 13 Paid wages 480
“ 14 Bought goods from Mahesh 18,000
“ 16 Sold goods to Shyam 21,600
“ 17 Shyam paid on account 24,000
“ 18 Purchased goods from Hareesh 9,000
“ 19 Sold goods for cash 9,600
“ 20 Paid wages 480
“ 21 Sent cheque to Hareesh 9,000
“ 22 Sold goods to Sunil 15,600
“ 23 Bought goods from Amar 28,800
“ 24 Bought goods for cash 8,400
“ 25 Sent cheque on account to Amar 28,000
“ 26 Received from Sunil on Account 15,600
“ 27 Paid wages 500
“ 28 Paid rent 1,100
7. Enter the following transactions in journal, and post them into the ledger.
2018 Rohan commenced his business with the following assets. Rs.
Mar. 1 Plant and Machinery 1,00,000
Stock 36,000
Furniture 26,000
Cash 2,500
His transactions for the month were
“ 2 Sold goods to Sanjay 16,000
“ 3 Bought goods from Murari 26,000
“ 4 Sanjay paid cash 10,000
“ 6 Returned damaged goods to Murari 720
“ 10 Paid Murari on account 11,280
“ 15 Bought goods from Govind 21,600
“ 18 Sold goods to Krishna 30,000
“ 20 Received cash from Krishan 24,000
“ 20 Krishna returned damaged goods 1,600
“ 26 Paid to Govind 14,400
“ 31 Paid salaries 3,000
“ 31 Paid rent 1,000
5.20 SOME USEFUL BOOKS
Grewal T.S. Double Entry Book-Keeping (New Delhi: Sultan Chand & Sons, 2018)
Maheshwari, S.N. Principles and Practice of AccountancyPart-I (New Delhi: Arya
Book Depot, 2018)
Patil, V.A. &Korlahalli, S. Principles and Practiceof Book-Keeping (Ne 36 Delhi:
R. Chand & Co., 2018 )

Note : These questions will help you to understand the unit better. Try to
write answers for them. But, do not submit your answers to the
University for assessment. These are for your own practice only.
47