9 Journal, Subdivision of Journal and Ledger Posting

S.S Narta

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AIMS AND OBJECTIVES

  1. To understand the meaning of journal and ledger.
  2. To study the advantages and important point of journal.
  3. To know the rules and sub-division of ledger.
  4. To study the distinguish between journal and ledger.

 

JOURNAL

 

The word „Journal‟ has been derived from the French word „JOUR‟ meaning daily records. Journal is a book of prime record for small firms. When the business transactions take place, the first step is to record the same in the books of original entry or subsidiary books or books of prime or journal. Thus journal is a simple book of accounts in which all the business transactions are originally recorded in chronological order and from which they are posted to the ledger accounts at any convenient time. Journaling refers to the act of recording each transaction in the journal and the form in which it is recorded, is known as a journal entry.

 

Different Author View:

 

“The journal as original used, is a book of prime entry in which transactions are copied in order of date from a memorandum or waste book. The entries as they are copied are classified into debits and credits, so as to facilitate their being correctly posted, afterwards in the ledger”.Professor Cartor

 

ADVANTAGES OF JOURNAL

 

The following are the inherent advantages of using journal, though the transactions can also be directly recorded in the respective ledger accounts:

  1. As all the transactions are entered in the chronologically order, a date wise record can easily be maintained;
  2. All the necessary information and the required explanations regarding all transactions can be obtained from the journal; and
  3. errors can be easily located and prevented by the use of journal or book of prime entry.
  4. Both the aspects (i.e., debit and credit) of a transaction are recorded in the Journal.

 

Limitations of Journal:

  1. The system of recording all the transactions in a Journal required (i) the writing down of the name of the account involved as many time as the transactions occur.
  2. Such a system does not provide the information on prompt basis.
  3. The Journal becomes bulky and voluminous.

 

The specimen journal is as follows:

 

 

The journal has five columns, viz. (1) Date; (2) Particulars; (3) Ledger Folio; (4) Amount (Debit); and (5) Amount (Credit) and a brief explanation of the transaction by way of narration.

 

Let us discuss each column in detail:

 

There is a chronological record of all the transactions that occur in a firm. In other words, transactions will be recorded as and when they occur and in the order in which they occur. The account to be debited is written first. It is written close to the line starting the particulars column. The amount is to be written in column 4. Then in the next line the account to be credited is written. It is always preceded by the word „To‟ and must be written in the credit column, i.e., column no.5. A full explanation of why the entry has been made is given just below the entry. This explanation is known as „narration‟. A journal entry without narration will not be meaningful.

 

SUB-DIVISION OF JOURNAL

 

When countless number of transactions takes place, the journal, as the sole book of the original entry becomes inadequate. Thus, the number and type of journals required are determined by the nature of operations and the volume of transactions in a particular business. The Journal is subdivided in such a way that a separate book is used for each category of transaction which is repetitive in nature and are sufficiently large in number. There are different types of journals and the following are the important ones:

  1. Sales Day Book– A book in which all transactions related to credit sales are recorded.
  2. Purchases Day Book– A book in which all transactions related to credit purchases are recorded.
  3. Cash Book– It is also called as special book as all the transactions related to cash are recorded in it.
  4. Sales Returns Day Book– A book which records the goods returned by customers on credit.
  5. purchases Returns Day Book– to record the return of goods purchased from suppliers on credit.
  6. Bills Receivable Book- A book which record the details of all the bills received.
  7. Bills Payable Book– A book which record the details of all the bills accepted.
  8. Journal Proper– A book which record all residual transactions which do not find place in any of the above mentioned books of original entry.

 

LEDGER

 

Ledger is a main book of account in which various accounts of personal, real and nominal nature, are opened and maintained. In journal, as all the business transactions are recorded chronologically, it is very difficult to obtain all the transactions pertaining to one head of account together at one place. But, the preparation of different ledger accounts helps to get a consolidated picture of the transactions pertaining to one ledger account at a time. Thus, a ledger account may be defined as a summary statement of all the transactions relating to a person, asset, expense, or income or gain or loss which have taken place during a specified period and shows their net effect ultimately. From the above definition, it is clear that when transactions take place, they are first entered in the journal and subsequently posted to the concerned accounts in the ledger.

 

Posting refers to the process of entering in the ledger the information given in the journal. In simple words posting means the process of transferring the entries from Journal to Ledger. In the past, the ledgers were kept in bound books. But with the passage of time, they became loose-leaf ones and the advantages of the same lie in the removal of completed accounts, insertion of new accounts and arrangement of accounts in any required manner.

 

RULING OF LEDGER ACCOUNT

 

The ruling of a ledger account is as follows:

 

 

Ledger Account Type 1 is followed in almost all the business concerns, whereas Type 2 is followed only in banking institutions to save space, time and clerical work involved.

 

SUB-DIVISION OF LEDGER

 

In a big business, the number of accounts is numerous and it is found necessary to maintain a separate ledger for customers, suppliers and for others. Usually, the following three types of ledgers are maintained in such big business concerns.

  1. Ledger for Debtor’s: It contains accounts of all customers to whom goods have been sold on credit. From the Sales Day Book, Sales Returns Book and Cash Book, the entries are made in this ledger. This ledger is also known as sales ledger. Creditors‟
  2. Ledger for Creditor’s: It contains accounts of all suppliers from whom goods have been bought on credit. From the Purchases Day Book, Purchases Returns Book and Cash Book, the entries are made in this ledger. This ledger is also known as Purchase Ledger.
  3. General Ledger: It contains all the residual accounts of real and nominal nature. It is also known as Nominal Ledger.

 

BOTTOM LINE DIFFERENCE BETWEEN JOURNAL AND LEDGER

 

Journal Ledger
1.It is a book of prime entry It is a book of final entry
2.Transactions are recorded daily Transactions are recorded periodically.
3.Information about a particular account is not found at one place Information about a particular account is found at one place only.
4.Recording of transactions in the journal is called  journalizing Recording of transactions in the ledger is called posting
5.A journal entry shows both the aspects debit as well as credit Each entry in the ledger shows only one aspect
6.Narration is written after each entry No narration is given in the ledger

 

Example

 

Journalize the following transactions in the books of Gautam & Co.

 

2015 Rs.
June 1 Started business with a capital of 60,000
June 2 Paid into bank 30,000
June 4 Purchased goods from Kamal on credit 10,000
June 6 Paid to Shiram 4,920
June 6 Discount allowed by him 80
June 8 Cash Sales 20,000
June 12 Sold to Hameed 5,000
June 15 Purchased goods from Bharat on credit 7,500
June 18 Paid Salaries 4,000
June 20 Received from Prem 2,480
June 20 Allowed him discount 20
June 25 Withdrew from bank for office use 5,000
June 28 Withdraw for personal use 1,000
June 30 Paid Hira by cheque 3,000

SOLUTION:

 

Example

 

Journalize the following transactions in the books of Raj:

 

June 1 Purchased  goods  worth  Rs.300  from  Vimal  and  Rs.500  from  Kamal  on June 1 credit.
June 3 Sale of goods worth Rs.1,000 to Balram and Rs.700 to Dhanram.
June 5 Cash of Rs.900 received from Ramasamy and Rs.800 from Krishnasmy
June 7 Paid Rs.800 to Pradeep and Rs.500 to kuldeep.
June 9 Withdrawn from bank Rs.600 for office use and Rs.300 for personal use.

SOLUTION

 

Example:

 

Journalize the following transactions, post the same in relevant ledger account and balance the same.

 

 

SUMMARY

 

Business transactions are first entered in the records in the form of journal. As per the double entry system of accounting we have to classify the accounts and apply the double accounting rule accordingly. Then in order to summaries the accounts, posting should be done through ledger. Ledger is a main book of account in which various accounts of personal, real and nominal nature, are opened and maintained. When more than two accounts are involved in a transaction is recorded by means of a single journal entry instead of passing several journal entries, such single journal entry is termed as „Compound Journal Entry‟. A compound entry may also be passed if there are more transactions of the same nature taking place on the same date.

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Few Suggested Readings to Learn More:

  • Juneja Mohan .C & Singh Baljindar (2008) “Accountancy- I” Kalyani Publishers, B-15, Sector 8 Noida
  • Mukherjee A & Hanif M (2003) “Financial Accounting”. Tata Mc Graw Hill Education Private Limited NewDelhi.
  • Singh Baljinder & Mahajan R.K (2014), “Accountancy-I”. New Delhi- 110 002: Kalyani Publishers.
  • Siddiqui A.S”(2002) “Comprehensive Financial Accounting” Laxmi Publications Ltd, 22, Golden House, Daryaganj, New Delhi.
  • Tulsian . P.C (2014) “Financial Accounting”. Dorling Kindersley Pvt Ltd., licenses of Pearson Education in South Asia.