Viva Voce Test

Wednesday, October 28, 2015

“Lecture on Journal Entries”

By – Anil Kumar Soni (M. Com, M. Phil, NET/JRF)

Before the
Interview Board
Odisha Public Service Commission, Cuttack
An Overview / Outlines

The Lecture divided in 5 parts –

Part 1: Introduction of Journal.

Part 2: Steps involved in Journal Entry.
Part 3: Types of Accounts.
Part 4: Golden Rules of Journal Entry.
Part 5: Summary.
Introduction of Journal (Part – 1)
 When the business transactions take place, the first step
is to record the same in the books of original entry or
day books or books of prime or journal. Thus journal is
a simple book of accounts in which all the business
transactions are originally recorded in chronological
order.
 Wherever money is involved, accounting is required to
account for it and Journal is the foundation of
accounting.
 The accounting record known as a journal is used to list
all the necessary information about a transaction in one
place.
 Format of Journal

 The Journal has five columns –

(1) Date.
(2) Particulars.
(3) Ledger Folio.
(4) Amount (Debit).
(5) Amount (Credit).
 (Narration as footnote in Particulars Colum to indicate the transaction)
 Steps involved in Journal Entries (Part -2)
 The Steps Involved for Preparation of Journal –
1. Analyze the Transaction (Source of Information).
2. Selection of Two Affected Accounts.
3. Selection the Types of Accounts.
4. Apply the Rules of Journal Entries.
5. Finally Entry in the Book.

 The process of recording transactions in the journal is known as

journalizing, or recording journal entries.

 Business transactions are first entered in the records in the form of

journal. As per the double entry system of accounting we have to
classify the accounts and apply the double accounting rule
accordingly.
 Types of Accounts (Part – 3)
 The object of book-keeping is to keep a complete record of all the
transactions that place in the business. To achieve this object, business
transactions have been classified into three categories –
(i) Transactions relating to persons.
(ii) Transactions relating to properties and assets.
(iii) Transactions relating to incomes and expenses.

 The accounts falling under the first heading are known as ‘Personal
Accounts’. The accounts falling under the second heading are known
as ‘Real Accounts’, The accounts falling under the third heading are
called ‘Nominal Accounts’.

 The accounts can also be classified as personal and impersonal.

Chart of Accounts
 The Above chart shows the types of account –
 (A) Personal Accounts –
 Accounts recording transactions with a person or group of persons are
known as personal accounts.

 Personal accounts are of the following types –

1. Natural person’s – An account recording transactions with an
individual human being is termed as a natural person’s personal
account. (Ram, Sita and Ravan).

2. Artificial or legal person’s – An account recording financial

transactions with an artificial person created by law or otherwise is
termed as an artificial person’s personal account. (Bank, Club and
College).

3. Representative personal – An account indirectly representing a person

or persons is known as representative personal account. (Capital,
Drawing , Prepaid Rent and Unpaid Salary).
 (B) Real Accounts –
 Accounts relating to properties or assets are known as ‘Real Accounts’,
A separate account is maintained for each asset.
 Real accounts can be further classified into tangible and intangible –

1. Tangible Real Accounts – These accounts represent assets and

properties which can be seen, touched, felt, measured, purchased and
sold. (Machinery, Cash, Furniture and Stock)
2. Intangible Real Accounts – These accounts represent assets and
properties which cannot be seen, touched or felt but they can be
measured in terms of money. (Goodwill, Patents and Trademarks)

 (C) Nominal Accounts –

 Accounts relating to income, revenue, gain expenses and losses are
termed as nominal accounts. These accounts are also known as
fictitious accounts as they do not represent any tangible asset. (Wages,
Rent and Commission)
Golden Rules of Journal Entries (Part – 4)
 Double Entry –
It this system every business transaction is having a two fold
effect of benefits giving and benefit receiving aspects. The
recording is made on the basis of both these aspects. Double
Entry is an accounting system that records the effects of
transactions and other events in at least two accounts with equal
debits and credits.

 Meaning of Debit and Credit –

The term ‘debit’ is supposed to have derived from ‘debit’ and the
term ‘credit’ from ‘creditable’. For convenience ‘Dr.’ is used for
debit and ‘Cr.’ is used for credit. Recording of transactions
require a thorough understanding of the rules of debit and credit
relating to accounts. Both debit and credit may represent either
increase or decrease, depending upon the nature of account.
Debit and Credit
Tools used for recording transactions –
Debit (Dr.)
Credit (Cr.)

Dr. refers to the LEFT and Cr. to the RIGHT side of the Account.

The debits must always equal the credits.

Debits = Credits
Rules For Journal Entry

 The rule for Personal Accounts –

Debit the Receiver
Credit the Giver

 The rule for Real Accounts –

Debit what Comes in
Credit what Goes out

 The rule for Nominal Accounts –

Debit all Expenses and Losses
Credit all Incomes and Gains
Summary (Part – 5)
 In an actual accounting system, transactions are initially recorded
in the Journal.
 Journal is known as the book of original record or entry.

Remember
:
Debits are Credits are
simply simply
entries on the entries on
left. the right.
End of Lecture

Thank You