What Is A Journal?
Journal is a book in which financial transactions of a company’s business are recorded in the order in which they occur. Journal is also called as the book of prime entry because all the financial transactions of a business are recorded first in this book. The process of recording the financial transactions in the journal is called as journalizing and the entries made in the journal are called as journal entries.
Example Of Journal:-
Pass the necessary journal entries to record the following transactions:-
– Started business with cash rs 500000 on April 2, 2014
– Purchased goods worth rs 40000 on April 6, 2014
– Sold goods worth rs 50000 on May 1, 2014
– Purchased goods from XYZ co Pvt Ltd worth rs 60000 on May 25, 2014
– Sold goods to ABC co Pvt Ltd worth rs 75000 on June 5, 2014
– ABC co Pvt Ltd returned goods worth rs 15000 on June 10, 2014
– Returned goods to XYZ co Pvt Ltd worth rs 10000 on June 12, 2014
– Received cash from ABC co Pvt Ltd rs 55000 and allowed them discount of rs 5000 on July 6, 2014
– Paid cash rs 44000 to XYZ co Pvt Ltd and received discount of rs 6000 from them on July 14, 2014
– Withdrawn rs 10000 for personal use on August 3, 2014
– Paid salary to Mr D an employee of the company rs 8000 on August 30, 2014
– Paid rent to Mr R the landlord rs 5000 on September 10, 2014
– Paid into bank rs 25000 for opening current account on September 20, 2014
– Withdrawn from bank rs 2000 on October 10, 2014
– Withdrawn from bank rs 1000 for personal use on October 15, 2014
– Purchased goods from BCD co Ltd worth rs 30000 and payment made by cheque on November 2, 2014
– Loan taken from bank of rs 200000 on November 10, 2014
– Goods distributed as free samples worth rs 4000 on November 25, 2014
– Goods destroyed by fire worth rs 7000 on December 1, 2014
– Purchased machinery for rs 75000 on December 5, 2014
– Opened a fixed deposit account by transfer from current account rs 15000 on December 20, 2014
– Charge depreciation on machinery @ 10% p.a for one month January 5, 2014
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What Is A Ledger?
Ledger is a principal book which contains all the accounts to which the transactions recorded in the journal are transferred. Ledger is the
ultimate destination of all transactions so it is also called as the book of final entry. The process of transferring the transactions recorded in journal to the respective accounts opened in ledger is called as posting.
Example Of Ledger:-
We will post the journal entries passed in the above example into the
respective accounts by opening the required accounts in the ledger.
Balancing Of Ledger Accounts:-
The process of ascertaining the difference between the total of debits and total of credits appearing in an account is known as balancing of an account. Balancing of an account is necessary to ascertain the net effect of all transactions posted to that account during a given period. After balancing , an account may have a debit balance or a credit balance or nil balance depending upon whether the debit or credit total is higher. If the debit side total of an account exceeds the credit side total, it is said that the account has a debit balance and the words ‘by balance c/d’ are written on the credit side of that account in the particulars column and also the amount by which the debit side is heavier than the credit side. If the credit side total of an account exceeds the debit side total, it is said that the account has a credit balance and the words ‘to balance c/d’ are written on the debit side of that account in the particulars column and also the amount by which the credit side is heavier than the debit side. If the total of debit side and the total of credit side of an account is equal, then it is said that the account does not have any balance or the account has nil balance.
Difference Between Journal And Ledger:-
|Journal is the book of prime entry||Ledger is the book of secondary entry|
|Journal is prepared on the basis of source documents of transactions||Ledger is prepared on the basis of journal|
|Recording in journal is the first stage in the accounting process||Recording in ledger is the second stage in the accounting process|
|Journal does not serve as basis for preparation of final accounts||Ledger serves the basis for preparation of final accounts|
|The process of recording in journal is called as journalizing||The process of recording in ledger is called as posting|