How to make Journal Entries in Accounting – Explanation

Journal-Entries-Feature-Image

Journal Entries in Accounting is the process of analyzing and recording of business transactions in chronological (day to day) order. In which book these all transactions are recorded is known as Journal Day book. It is also called the Book of Prime or Original Entry book. The journal entries are the foundation of the accounting system and it is also a first step of the accounting cycle.

Definition of Journal:

“The process of recording a transaction in a journal is called journalizing the transactions.”

—Meigs and Meigs and Johnson

The standard format for Journal Entries in Accounting:-

Format of Journal Entry 1 1 - How to make Journal Entries in Accounting - Explanation Journal-Entry-Format[/caption]

Explanation of all column of the format of journal entries: –

1. Date column:-

In the Date column, we have to enter the date of the transaction. Like: Owner start the business with Rs. 5,00,000/- on 21/02/2018. So, we have to enter the 21/02/2018 in the date column.

2. Particulars:

In the particulars column, We have to write three things.

  1. Debit Accounts: – Name of all accounts which will be debited in the transaction
  2. Credit Accounts: – Name of all account which will be Credited in the transaction
  3. Narration: – Description of the transaction in short for future reference.
3. Ledger Folio:

In the Ledger Folio column, We have to note the page number of the Ledger where this transaction is posted in the ledger.

4. Debit Amount:

In the Debit Amount Column, We have to enter the amount related to debit account individually in the transaction.

5. Credit Amount:

In the Credit Amount Column, We have to enter the amount related to Credit account individually in the transaction.

Rules of Debit and Credit:

In Journal we record all day to day Financial transaction of business. We have to record these with some standard rules/principle of accounting, With the help of rules, we know that which of the item/account will be credited or debited. these are explained in following topics you can check these out from the following links.

Golden rules of Accounting 1 - How to make Journal Entries in Accounting - Explanation

Modren rules of accounting 1 1 - How to make Journal Entries in Accounting - Explanation Examples for the Journal Entries:

Here, We will explain it With the following Examples of the Journal Entries. We have treated all the examples with golden rules of account. you can use modern rules of accounting.

Example No. 1: –

Date 01/02/2018: Purchase Furniture for Rs. 10,000/-

Solution:-

First, get the affected account. we have highlighted them with red colour.

Date 01/02/2018: Purchase Furniture for Rs. 10,000/-

Select affected Accounts from the transaction  Select the nature of Account Select Rule which will be Applied on these accounts Affect of a transaction on these accounts The condition of Rule applied According to Rule, get know which account will be Dr./Cr.
Cash -> Assets -> Real Account -> Cash paid for the purchase of asset -> Goes out Credit
Furniture -> Assets -> Real Account -> Furniture purchased so, it Comes In the business -> Comes In Debit

We got to be Debit account name = Furniture Account

and Credit account name = Cash Account

So, We will put it into the format of Journal Entries shown as the Following: –

Journal Entry Example No 1 - How to make Journal Entries in Accounting - Explanation Journal-Entry-Example-No-1

Example No. 2: –

Date 05/02/2018: Purchase Furniture for Rs. 10,000/- From Aman on Credit

Solution:

Date 05/02/2018: Purchase Furniture for Rs. 10,000/- From Aman on Credit

Select affected Accounts from the transaction  Select the nature of Account Select Rule which will be Applied on these accounts Affect of a transaction on these accounts The condition of Rule applied According to Rule, get know which account will be Dr./Cr.
Aman-> Person -> Personal Account -> Aman supplied furniture -> Giver Credit
Furniture -> Assets -> Real Account -> Furniture purchased so, it Comes In the business -> Comes In Debit

We got to be Debit account name = Furniture Account

and Credit account name = Cash Account

So, We will put it into the format of Journal shown as the Following: –

Journal Entries Example No 2 - How to make Journal Entries in Accounting - Explanation Journal-Entries-Example-No-2

Example No. 3: –

Date 05/02/2018: Salary paid to Employees Rs 5000/-

Solution: –

Date 05/02/2018: Salary paid to Employees Rs 5000/-

Select affected Accounts from the transaction  Select the nature of Account Select Rule which will be Applied on these accounts Affect of a transaction on these accounts The condition of Rule applied According to Rule, get know which account will be Dr./Cr.
Cash -> Assets -> Real Account -> Cash paid for salary -> Goes out Credit
Salary-> Expenses-> Nominal Account -> Expenses for the business -> All Expenses Debit

We got to be Debit account name = Salary Account

and Credit account name = Cash Account

So, We will put it into the format of Journal shown as the Following: –

Journal Entries Example No 3 - How to make Journal Entries in Accounting - Explanation Journal-Entries-Example-No-3

Check out the Basic Journal Entries for the following: –

  1. Capital account
  2. Drawing
  3. Purchase of Goods/Inventories
  4. Sale of Goods
  5. Purchase of Assets
  6. Sale of Assets
  7. Expenses
  8. Incomes

Other Important Journal Entries: –

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