What. Is journal entry ? Why is prepared ?
Answers
the journal entry is also known as diary entry. it is prepared to show our views and keep it as your memories.
Answer:
The word 'Journal' is derived from the French word "jour" meaning 'a day'. Journal, therefore, means a 'daily record'. Transactions are first entered in a book called 'Journal' to show which accounts should be debited and which credited along with an explanation of the entry (called 'narration'). Journal entry is any transaction that is recorded in the journal. The process of recording the transactions in the journal is termed as journalizing the entries.
All transactions are first recorded in the journal as they occur in a chronological order. This is the first step in the accounting process. The journal is called 'Book of original entry' as all transactions that occur are first recorded here.
The form of the journal is given below:
JOURNAL
Date Particulars L.F Debit amount Credit amount
Date is the date of the transaction
Particulars: Here the names of the account involved are written. First the account to be debited is written and on the next line the account to be credited is written preceded by the word "To". Then in the next line the explanation for the entry together with necessary details is given (called 'narration')
"L.F" indicates "Ledger Folio" where in the page number in the ledger on which the account is written up is recorded.
Preparation of journal entries:
All the accounting transactions must be first recorded in Journal. The recording of transactions in the journal is called journal entry. Preparation of journal entries involves certain steps that are explained below:
Analyze the transactions and identify the accounts that are affected by the transaction
Ascertain the nature of the accounts involved as real, personal or nominal.
Determine the rule of debit or credit applicable to each of the accounts involved.
Ascertain the account to be debited and the account to be credited.
Now, write the date of transaction in the 'Date' column
Write the name of the account to be debited and the amount to be debited in debit amount column against the name of the account.
Write the name of the account to be credited in the next line preceded by the word "To" at a few spaces towards the right in particular column, and the amount to be credited in the credit amount column against the name of the account.
Write narration (brief description of the transaction) within brackets in the next line in particular column.
Example:
Let us consider the following transactions and prepare journal entries in the format shown above.
Purchased goods on credit from Mr. X for $200,000 on 4 Jan 2009
Sold goods to Mr. Y for cash $100,000 on 12 Jan 2009
Purchased furniture for office purpose $ 20,000 on 25 Jan 2009
Paid $100,000 to Mr. X in full settlement of his dues on 30 Jan 2009