Jounalising of household transactions for a month
Answers
Accounting is the art of recording, classifying and summarising financial transactions
and interpreting the results therefore. Thus, the accounting process or cycle involves
the following stages:
1. Recording of transactions. This is done in the book termed as ‘Journal’.
2. Classifying the transactions. This is done in the book termed as ‘Ledger’.
3. Summarising the transactions. This includes preparation of the trial balance,
profit and loss account and balance sheet of the business.
4. Interpreting the results. This involves computation of various accounting
ratios, etc., to know about the liquidity, solvency and profitability of business.
The recording of transactions in the Journal is being explained in this unit.
2.1 UNIT OBJECTIVES
After going through this unit, you will be able to:
Identify the stages of the accounting cycle
Appreciate the role of the Journal in recording business transactions
Understand the rules of debit and credit applicable to different types of business
transactions
Describe the various categories of accounts
Pass appropriate entries for recording transactions in the Journal
2.2 JOURNAL
The Journal records all daily transactions of a business in the order in which they
occur. A Journal may therefore be defined as a book containing a chronological record
of transactions. It is the book in which the transactions are recorded first of all
under the double entry system. Thus, the Journal is the book of original record.
A Journal does not replace but precedes the Ledger. The process of recording transactions
in a Journal, is termed as Journalising. A pro forma of a journal is given below:
JOURNAL
Date Particulars L.F. Debit Credit
Rs Rs
(1) (2) (3) (4) (5)
36 Self-Instructional Material
Journalising Transactions
NOTES
1. Date. The date on which the transaction was entered is recorded here.
2. Particulars. The two aspects of transaction are recorded in this column,
i.e., the details regarding accounts which have to be debited and credited.
3. L.F. It means Ledger Folio. The transactions entered in the Journal are later
on posted to the ledger. The relevant ledger folio is entered here. Procedure regarding
posting the transactions in the Ledger has been explained in the next chapter.
4. Debit. In this column, the amount to be debited is entered.
5. Credit. In this column, the amount to be credited is shown.
2.3 RULES OF DEBIT AND CREDIT
The transactions in the Journal are recorded on the basis of the rules of debit and
credit. For this purpose 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
On this basis, it becomes necessary for the business to keep an account of:
(i) Each person with whom it deals
(ii) Each property or asset which the business owns
(iii) Each item of income or expense
The accounts falling under the first heading are called as ‘Personal Accounts’. The
accounts falling under the second heading are termed as ‘Real Accounts’. The accounts
falling under the third heading are termed as ‘Nominal Accounts’. The classification
of the accounts, as explained above, can be put in the form of the following chart:
ACCOUNTS
PERSONAL REAL NOMINAL
EXPENSES INCOMES
NATURAL ARTI- REPRESEN- TANGIBLE INTAN- AND AND
FICIAL TAT IVE GIBLE LOSSES GAINS
Each of the above categories of accounts and the relevant rule for ‘debit and
credit’ have been explained in detail in the following pages:
Personal accounts. Personal accounts include the accounts of persons with whom
the business deals. These accounts can be classified into the three categories:
1. Natural Personal Accounts. The term ‘Natural Persons’ means persons who
are the creation of God, e.g., Mohan’s Account, Sohan’s Account, Abha’s Account
etc.
2. Artificial Personal Accounts. These accounts include accounts of corporate
bodies or institutions which are recognised as persons in business dealings, for example,
the account of a Limited Company, the account of a Co-operative Society, the account
of a Club, the account of Government, the account of an Insurance Company etc.
3. Representative Personal Accounts. These are accounts which represent a certain
person or group of persons. For example, if the rent is due to the landlord, an outstanding
rent account will be opened in the books. Similarly, for salaries due to the employees
(not paid), an outstanding salaries account will be opened. The outstanding rent account
represents the account of the landlord to whom the rent is to be paid while the
outstanding salaries account represents the accounts of the persons to whom the
salaries have to be paid. All such accounts are therefore termed as ‘Representative
Personal Accounts’.
Self-Instructional Material 37.