# Journal is a means. It is not the end to be achieved

We had been carrying out all this exercise of building the journal in a specific format. The target is to collect all the information relating to an element at a single place.

## Does the Journal take us to the Target?

The Journal does not take us there.

In preparing the journal, we have taken a transaction and presented it as a statement in a specific format debiting an account and crediting another account. This gives us a list of journal entries in place of the transactions.

If we stop with preparing the journal and if we are to find the information relating to an element we have to conduct a heavy exercise, similar to the one that we conducted when there were no special accounting records and the transactions were recorded in a book in the form of a diary.

## Ascertaining the Net amount due to or due from Mr. Shyam Rao

To ascertain the amount due from or due to a particular person (an element in accounting), we have to conduct the following exercise
• Mark the entries where the element/account head is either debited or credited.
• Note the debits with amounts at a place.
• Note the credits with amounts at another place.
• Add up all the debit amounts.
• Add up all credit amounts.
• Set off the sum of debits against the sum of credits to obtain the net balance.
Date S. No Amount
20_5 June 10th 04. 45
11th 09. 25
12th 02. 102
... ... ...
... ... ...
20_5, Dec 8th 06. 76
10th 05. 56
8,125
Date S. No Amount
20_5, June 11th 05. 50
12th 11. 75
14th 15. 25
... ... ...
... ... ...
20_5, Dec 6th 12. 125
8th 05. 55
8,006

This would give us the required information relating to the element Mr. Shyam Rao.

## Net Balance

Since debits and credits are acts of opposing nature, we can set off the two totals and obtain the net balance. Here it is 119 debit ( 8,125 debit − 8,006 credit).

We can say that Mr. Shyam Rao, has received a net benefit of 119 (since we debit his account when he receives a benefit from us) which implies he is still due to us to that extent.

# Set Off » To obtain the Net information

Debit amounts and Credit amounts are amounts of opposing nature.

Setoff implies cancelling the amounts of opposing nature against each other. It is like adding up a negative and a positive amount.

It would be convenient to assume that a smaller amount is being setoff against (deducted from) the larger amount. The balance is the difference between the two amounts being set off. The balance left would always carry the nature of the larger amount.

Eg : If a debit amount of 5,00,000 and a credit amount of 4,00,000 are being set off, we assume that the credit amount of 4,00,000 is being deducted from the debit amount of 5,00,000, thereby leaving a balance of 1,00,000 ( 5,00,000 − 4,00,000) debit.

# LEDGER » information relating to an element at a single place

The journal in itself does not collect the information relating to an element at a single place. But it enables the preparation of another record called the ledger which provides all the information relating to an element at a single place.

# Ledger

A LEDGER is an accounting record (book) with each element or Account Head having its own allotted place. It is a collection of all the ledger accounts in the accounting system.

# Ledger Account

Each element or accounting head in the organisational accounting system has a unique identity and distinct presence in the ledger and is called a LEDGER Account. It contains all the information relating to the element it represents.

# No Journal » No Ledger

A ledger account is a derivative. It has no independent existence. It is derived from the journal. The Ledger is prepared by carrying the information in the journal to it. There is no other way a Ledger Account can be prepared. Therefore we say "No Journal No Ledger".

# No Journal » No Accounting

At the starting stage, we learnt that the target to be achieved through this method being adopted for writing the journal is to collect all the information relating to an element at a single place. Accomplishing that target is achieved by preparing the LEDGER. Thus we can say that the target to be achieved through this exercise is preparation of the LEDGER.

Since a Ledger cannot be prepared without the journal, we cannot achieve the target without the Journal. Thus, we can say "No Journal No Accounting"

# Writing the Ledger » Posting

The task of writing up the ledger based on the entries in the Journal is called POSTING. We Post information into the Ledger.

# Posting

• Cause to be directed or transmitted to another place.
• putup
• send

Once a Journal is prepared, posting would involve just replicating the information into the ledger.

# Journal : Recording :: Ledger : Posting

The act of writing down the journal is called recording and the act of writing down the ledger is called posting. The nature and the activity involved in the two acts is different.
• Preparing the Journal involves considering the proof an accounting transaction, analysing it, deciding the two accounts affected by the transaction, deciding which account is to be debited and which to be credited and then writing down the journal entry.
• Preparing the ledger involves just replicating the information in the journal into the ledger in a specified manner and format. There is no analysis involved.

We should be able to identify the intended book/record, based on the term in use.

• Recording ⇒ Writing in the Journal and
• Posting ⇒ Writing in the ledger.

# Mechanised/Computerised Accounting

The fact that the information in the ledger is derived from the Journal has made it possible to mechanise/automise the preparation of the ledger. In computerised accounting, once a Journal entry is recorded, the ledger posting is accomplished automatically without any manual effort.

# Format of the Ledger Account

A ledger account has a format which in its simplest form is known as the "T" Format as it looks like a large "T".
Debit Side Credit Side

## Debit & Credit Sides

The total space is divided into two equal sides vertically. One on the left called the "Debit Side" of the account and the other on the right called the "Credit Side" of the account.

The row just above the "T" is the header for the Ledger Account. It carries the words "Dr" (read debit) to the left most end and "Cr" (read credit) to the right most end. The name of the account head (element name) whose data/information is present in that ledger account, is written in the center.

## Sub Divisions of a Side

Each side of the ledger account is further sub divided into four columns – Date, Particulars, J/F and Amount. Both the sides of the account look similar and the account and is vertically symmetrical about the center.

A ledger account with headings for columns and no data in it would look as below:

Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

# Information in the Ledger

Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
15/05/_6 To Bank a/c

20,000 12/06/_6 By Furniture a/c 18,000

## Date : Transaction date

Since the data in the journal is brought into the ledger, the date here is the date of the transaction as recorded in the journal.

Every accounting transaction has its effect on two elements (Dual Entity Concept). Thus, when an account is affected, there will always be a second account that is affected along with it.
Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
Particulars L/F Amount
(Dr)
Amount
(Cr)
June 12th Furniture a/c
To Cash a/c
Dr
18,000
18,000

The account head that appears in the particulars column is the account (other than the one represented by the Ledger Account) that is affected in the transaction whose data is being posted here.

## J/F : Journal Folio

The page number of the Journal Record/Book where the transaction which is being posted here appears. This serves as a reference to go back to the Journal if needed.

## Amount

The amount of the transaction.

# Writing & Reading a Ledger Posting

Based on the Dual Entity Concept, we can say that every transaction has its effect on two elements. Each element or Ledger Account has its own place in the Ledger. Thus each transaction effects two ledger accounts.

Preparing the ledger involves posting the information in the journal to the two Ledger Accounts (elements/account heads) effected by the transaction. Ledger posting can be understood from the manner in which a journal entry is read.

Consider the following accounting transaction and its journal entry

June 15th: Bought Furniture for cash 12,000.

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
No.
Particulars L/F Amount
(Dr)
Amount
(Cr)
June 15th Furniture a/c
To Cash a/c
Dr
12,000
12,000
[ Being the amount paid towards Furniture purchased from M/s ____ vide bill no:___ dated:__ ]

The Journal entry can be read in two different ways.

• ## Normal Order

Furniture a/c "Debtor (pronounced detor) To" Cash a/c.

We begin reading with the debits in the entry.

• ## Reverse Order

Cash a/c "Credited By" Furniture a/c.

We begin reading with the credits in the entry.

## Order of Reading helps posting

The two accounts involved in the transaction are "Furniture a/c" and "Cash a/c". Thus, the information in the Journal entry is to be posted into these two accounts.

Each of the two orders of reading can be related to one of the postings to be made.

In the above example, to post the entry into

1. Furniture a/c

Read the journal entry starting with "Furniture a/c", which is the normal order

 Furniture a/c debtor (read detor) to Cash a/c (1) (2) (3)
Furniture a/c (1)
Dr (2)
Date Particulars J/F Amount Date Particulars J/F Amount

To Cash a/c   (3)

The account other than the account being dealt with here is "Cash a/c". It is prefixed by "To" and written in the particulars column on the debit side of the Furniture a/c.

2. Cash a/c

Read the journal entry starting with "Cash a/c", which is the reverse order

 Cash a/c credited by Furniture a/c (1) (2) (3)
Cash a/c (1)
(2) Cr
Date Particulars J/F Amount Date Particulars J/F Amount

By Furniture a/c   (3)

The account other than the account being dealt with here is "Furniture a/c". It is prefixed by "By" and is written in the particulars column on the credit side of the Cash a/c.

The date of the transaction and the amount of the transaction are also recorded on the same side in the relevant columns, taking the information from the journal. The Ledger accounts with all the information filled would look as below:

Furniture a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
15/05/_5 To Cash a/c 12,000

Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount

By Furniture a/c 12,000

# One Element » One Ledger Account

All the information relating to an account is posted into the same account whatever may be the number of journal entries in which it appears. Each time the account is affected, it is either debited or credited based on the transaction.

## An account with a number of postings

Cash a/c
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
15/06/_5
19/06/_5
24/06/_5
24/06/_5
To Capital a/c
To Goods/Stock a/c
To Mr. Natekar a/c

2,00,000
12,000
2,000
500
17/06/_5
17/06/_5
18/06/_5
18/06/_5
21/06/_5
By Furniture a/c
By Rent Paid a/c
By Bank a/c
By Goods/Stock a/c
By Wages Paid a/c

20,000
5,000
1,50,000
10,000
5,000

For paucity of space we may eliminate using a/c at the end of each posting. It is implied that each posting relates to another ledger account or account head and as such using a/c does not provide any other additional information or serve any other purpose.

Cash
Dr Cr
Date Particulars J/F Amount Date Particulars J/F Amount
15/06/_5
19/06/_5
24/06/_5
24/06/_5
To Capital
To Goods/Stock
To Mr. Natekar

2,00,000
12,000
2,000
500
17/06/_5
17/06/_5
18/06/_5
18/06/_5
21/06/_5
By Furniture
By Rent Paid
By Bank
By Goods/Stock
By Wages Paid

20,000
5,000
1,50,000
10,000
5,000

Eliminating a/c would make each posting look like general information rather than pure accounting informration. By Rent Paid sounds good to all while By Rent Paid a/c sounds good to an accountant only.

# Writing the Journal from the Ledger !!

The journal is a book of prime entry. It is the first and important book that is written in accounting. The information in the ledger flows from the journal and therefore we cannot think of the ledger without the journal.

In many problem solving tasks we straight away prepare the ledger, as we find it easier doing so. Because we are able to prepare the ledger directly we cannot say that we can prepare it without the journal. What we do is, assume the presence of the journal and prepare the ledger directly.

If we are required to prepare the journal in situations where we have prepared the ledger directly, we may write back the journal based on the ledger.

Read the postings and you get the journal entries from which these postings have been made.

• Normal Entry

June 15th : Cash a/c debtor To Capital a/c

• Reverse Entry

June 17th : Cash a/c credited By Furniture a/c

⇒ Furniture a/c debtor To Cash a/c.

Please practice reading the journal starting with both the debited account as well as the credited account till you get accustomed to it.

# Double Entry System of Accounting

The process of accounting that we are dealing with is based on the dual entity concept -"Every transaction has its effect on two accounts/elements" and is aptly called the "Double Entry System of Accounting".

One another interpretation being - every transaction has its effect on two Ledger Accounts i.e. it has got two entries in the ledger.

This is the accounting system that is predominantly in use in most parts of the world.