Journal - Book of Prime Entry, Journalising

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Need for the Journal

Let us recollect what we were going through

» What is the basic purpose of accounting??

Derivation of Information

» What is targeted to be achieved through the accounting process?

Collecting all the information relating to an element at a single place.

» What were we trying to do?

To achieve the target i.e. to collect all the information relating to an element at a single place, we need a system of accounting. We have been learning the steps in constructing that system of accounting.

» What did we learn till now?

We learnt about three concepts of accounting, "Money Measurement Concept", "Separate Entity Concept" and "Dual Entity Concept".

We also learnt about elements, and their nature.

We learnt about the principles of debit and credit and deciding which account is to be debited and which account is to be credited in relation to a transaction.

» What next?

On our journey to achieve the target i.e. constructing the accounting system that provides us all the information relating to an element at a single place, we next learn the first step (the beginning) of the actual process of accounting which is the the most important one. It is writing the journal entry.

After analysing a transaction, we identify the two elements affected by the transaction, we identify the nature of the elements, we decide which element is to be debited and which is to be credited by applying the rules of debit and credit. Writing the Journal entry forms the next step.

Proof of a Transaction

In actual practice in accounting, we do not come across statements like "Purchased Furniture for cash Rs. 20,000", "Received cash from Mr. Imran on account Rs. 12,000", "Bought goods on credit from M/s Shyam & Co.", etc. We only find proofs for these transactions. The interpretation of these statements sounds/reads like these sentences. We do not write down the interpretation. We only do it orally so that it would aid our accounting effort.

We interpret

  • The payment voucher for Rs. 20,000 towards Furniture purchases as "Purchased Furniture for cash Rs. 20,000"
  • The cash receipt for Rs. 12,000 from Mr. Imran as "Received cash from Mr. Imran on account Rs. 12,000"
  • The purchase invoice received from M/s Shyam & Co., as "Bought goods on credit from M/s Shyam & Co.",

• Actual Proofs of Accounting Transactions

Whenever a transaction takes place, there is a relevant document prepared as a proof of the transaction. A "Receipt" when cash is received, a "Voucher" when payment is made, a "Sales Invoice" when sales are made on credit, etc. Documents such as these form proof of transactions.

They are records which aid the accounting process. They should only be considered as proofs of transactions and not the actual accounting records.

In the initial stages of the learning process, we use the analytical statements in writing only to aid our learning process.

Writing the Journal » Recording » Journalising

By analysing a transaction (i.e. its proof), we identify the two elements affected by the transaction and then the nature of the elements. We then decide which element is to be debited and which is to be credited by applying the rules of debit and credit.

In actual practice, accounting starts with writing the journal. This act of writing the Journal is called RECORDING or JOURNALISING.

• Journalising ≡ Recording

Journalising (or Recording) is writing down the information relating to an accounting transaction that is relevant in accounting into the accounting records (generally in a specific format) based on the principles of debit and credit.

• Journal

A Journal is a book in which an accounting transaction is written in accounting terms. This is the first (accounting) record for a transaction.

» Meaning

1. A daily written record of (usually personal) experiences and observations
2. A book in which transactions are recorded as they occur

• Journal Entry

A recording in the Journal relevant to an accounting transaction is what is called a Journal Entry.

A single journal entry in most cases pertains to a single transaction, though it may not be so always.

It contains a set of information relating to the transaction presented in a specific format

Journal » A book of Prime Entry

Since an accounting transaction relating to business is entered in the accounting records (in accounting terms) for the first time in a journal, it is also called a Book of Prime Entry.

» Prime (Meaning)

1. First in rank or degree
2. Important

• Every Accounting Transaction has to be Journalised

Every accounting transaction is brought into the accounting records through the Journal. For every accounting transaction there would be a relevant Journal entry

• No Journal » No Accounting

The importance of the Journal can be assessed from the fact that "There would be no accounting without a journal".

That is the reason it called a book of prime entry meaning both the "First Book" as well as an "Important Book".

Format of the Journal

Conventionally, a Journal is prepared/written in a specific format as below.
Conventional Format of a Journal

In modern accounting using machines (computers), the journal entry is presented in various formats. Whatever may be format used, the information shown above in the conventional format is present in a journal.

Writing & Reading a Journal Entry

To understand how a journal entry is constructed, let us consider a transaction.

» Bought Furniture for cash Rs. 20,000

The analysis for the transaction forms the basis for recording the journal entry.

To record the journal entry, we need to know (a) the two elements effected, (b) which account is to be debited and which account is to be credited and (c) the amount of (or value involved in) the transaction.

Furniture a/c

Tangible aspect/Asset

Real a/c

Coming in

[Debit what comes in]
Cash a/c

Tangible aspect/Asset

Real a/c

Going out

[Credit what goes out]

• Reading the Journal entry

The detail relating to each transaction is called a Journal entry.

• Normal Order

Furniture a/c "Debtor (pronounced detor) To" Cash a/c.
        [Begin reading with the debited account]

• Reverse Order

Cash a/c "Credited By" Furniture a/c.
[Begin reading with the credited account]

In the initial stages of learning accounting, please concentrate on reading the entry whenever you write one. It would make the process of preparation of the ledger (the next step) easy.

• Writing/Recording the Journal entry

Once we decide which account is to be debited and which to be credited, writing the journal entry amounts to placing each element in its place within the format and recording the relevant amount.

Journal in the books of M/s __ for the period from ____ to _____
Date V/R
L/F Debit Amount
(in Rs)
Credit Amount
(in Rs)
June 15th Dr

» Recording

The process of writing a transaction in the journal is called recording.

"Recording" in accounting is a term relevant to the Journal.

Information in the Journal


• Heading

The heading gives the following information:
  • The organisation whose accounting transactions are being recorded
  • The period relating to which the journal entries are recorded.

• Date

Date of recording the transaction.

To ensure that the accounting system is functional and useful, transactions are recorded as and when they happen (at least on the date on which they occur).

Therefore assume that the date here is the date of the transaction and not the date of recording the transaction.

• V/R No » Voucher/Receipt Number

  • A Voucher is a document which is made when a payment is made
  • A Receipt is a document which is made when an amount is received.
Vouchers and receipts form proof of transactions. [There may be other forms of documents like sales invoices, debit notes, credit notes etc., which also form proof of transactions. Please ignore them for now.]

They are generally numbered and have identifications like voucher number, receipt number etc., on them. These numbers are entered in this column to have a cross reference to the proof of the transaction based on which that journal entry is being recorded.

Note that we do not find statements like "Paid cash to Mr. Shyam" etc. in the accounting records. The documents which form proofs of transactions are the ones which enable to interpret the transactions in such a way.

• Particulars

This is the column where the actual account heads (the one to be credited and the one to be debited) are written.

» Debit Account :

The account to be debited is shown on the first line and is aligned to the left of the column. The element name i.e Account Head starts with a Capital Letter and is succeeded by the letters "a/c".

The word "Dr" (read as detor {debtor - b silent}) is written on the same line, aligned to the right.

» Credit Account :

The account to be credited is shown on the second line preceded by the word "To" and is succeeded by the letters "a/c".

The line starting with "To" is indented (i.e. the first letter of the name of the Account that is Debited and the letter "T" do not fall in the same vertical line). "T" always lies to the right of the first letter of the account head that is debited.

We do not find the use of the letters "Cr" on this line or anywhere in the entry.

• Narration

[ Being the amount ....]

The sentence that appears below the lines containing the Account Heads that are Debited and Credited is called the narration for the journal entry.

The narration is a brief explanation for the entry. It includes certain details in relation to the transaction. The purpose of the narration is to enable anyone who reads it to get a preliminary idea of why the entry is being recorded. If the information in the narration does not provide the required detail, one can always refer the Voucher/Receipt (which is the actual proof for the transaction journalised through that entry) using the relevant voucher/receipt number recorded relating to that entry.

• L/F » Ledger Folio

The Ledger is a record that follows the journal. Each element (Account Head) has its own distinct page (folio) in the ledger.

"Ledger Folio" is the page number in the ledger record, where the information shown in the journal entry has been carried to. This information is distinct for each account head.

The Ledger Folio information will enable tracking of flow of information from the journal to the ledger.

• Debit amount

This is the amount relating to the element (account head) that is being debited. This generally is the transaction value. The amount is written in the same line as Debit entry i.e. in vertical alignment with it. The currency related to the amounts is written in the column header itself.

• Credit amount

This is the amount relating to the element (account head) that is being credited. This generally is the transaction value. The amount is written in the same line as Credit entry i.e. in vertical alignment with it. The currency related to the amounts is written in the column header itself.

Journal in Computerised Accounting

Computers are tools that enable us to accomplish our tasks in an easier, speedier, economical and efficient manner.

• Computerised Accounting is also Accounting

Computerised Accounting is a software tool that is used to accomplish the task of organisational accounting. Just because you are accomplishing the task using a computer, the task itself does not become something new. Only the tools are new and you need to get accustomed to using it.

Thus Computerised accounting should be no different from manual accounting. Whatever you have been learning and will learn from hereon is the mechanics of accounting and will be relevant to all forms of accounting.

The fundamental difference being that the formats used in computerised accounting may be different from the ones used in manual accounting. That should not create an understanding that computerised accounting is something completely different from manual accounting.

• The Core Accounting information in a Journal Entry in Manual Accounting

The core information in a journal entry includes the date of the transaction, the account head and the amount to be debited, the account head and the amount to be credited. This is just the information that is used in the mathematics of accounting.
The Core information within a Journal Entry

All other information included in the journal entry is additional information that would aid the organisations need for information relating to an accounting transaction.

• The Core Accounting Information in Computerised Accounting

The format used in Computerised accounting looks a bit different from the one used in manual accounting. Moreover, all computerised accounting programs do not use the same format.

Thus when you start using a accounting software program, it would be appropriate to correlate the information being entered at the time of recording an accounting transaction with the core information relating to a journal entry in manual accounting.

Core Accounting information in Computerised Accounting

» Core Accounting Information in a ERP package's (SAP) Financials Component

Core Accounting information in SAP Financials Component

Why does Computerised Accounting seem alien

The specific format followed for recording a journal entry allows recording of information in addition to the core information.

• Manual Accounting » Limits/Limitations on additional data

Theoretically, the additional data is not really needed for the mathematics of accounting. Its purpose is to aid the organisations need for related information.

Because the additional data is useful, only a few related pieces of data like Voucher/Receipt number, Ledger Folio numbers, Narration etc within a journal entry are only collected. We can think of a lot of other related information that can be collected, it is seldom done for the reason that a lot of effort is needed in collecting the data as well as putting that data to use (analysing the data).

• Computerised Accounting » Breaks the barrier/limitation

The capability of computers in terms of collection, storage and processing of data has driven software programmers to expand the additional information that is collected with respect to each accounting transaction. The amount of data that is collected is only limited by the needs of the organisation.

One another variation that evolved out of computerisation is in the design of the forms used for collecting data, both core accounting data and additional data. This is especially seen in accounting softwares which work in tandem with software used for other functions within the organisation like in the case of ERP Packages.

• ERP Packages » Core Accounting data + A lot of Additional data

In dealing with accounting software that enables collection of lot of related data as in the case of ERP packages, one must be able to identify accounting transactions from within the business transactions.

Especially in case of ERP packages, collection of data is segregated into a number of different areas known as modules. There may be business transactions that are not exclusively handled by the accounting department. The additional information to be collected along with the core accounting data would require the transaction to be handled by personnel dealing with other modules.

Moreover the format used for collecting the data would be compatible to the understanding of the personnel using that module and may not be in a format that is easily understood by the accountants.

The only difficulty for a person dealing with the financial accounting aspect is that he/she should be able to search for accounting transactions from within all the business transactions handled from within all the other modules.

Author Credit : The Edifier ... Continued Page 16

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