Journal – Rules of Journalizing, Functions, Explanation & Example
Journal Introduction:- The word ‘Journal means’ a daily record. Journal is derived from French word ‘Jour’ which means a day. It is a book of original or prime entry written up from the various sources documents. Every transaction is recorded in the first instance and than it is posted to the ledger. The form in which it is recorded is called journal entry and recording or entering a transaction in the journal is known as Journalizing.
Journal: The transactions are recorded in Journal chronologically. A journal is often referred to as Book of Prime Entry or the book of original entry. In this book transactions are recorded in their chronological order. The process of recording transaction in a journal is called as ‘Journalisation’. The entry made in this book is called a ‘journal entry
Rules of Journalizing:- The process of passing an entry in a journal is called Journalizing. The rule for Journalizing is same as that of rules of debit and credit. It is based on two facts. First is accounting equation and other is accounting approach.
1.) Based on Accounting Equation:-
- a) Increases in assets are debits, decreases are credit.
- b) Increased in liability are credit, decreases are debits.
- c) Increases in capital are credits, decreases are debits.
- d) Increases in profits are credits, decreases are debits.
- e) Increases in expenses are debits, decreases are credits.
2.) Based on Traditional Approach:-
- a) Debit the receiver, credit the giver
- b) Debit what comes in, credit what goes out.
- c) Debit all expenses and losses, credit all income and gains
Functions of Journal
- (i) Analytical Function: Each transaction is analysed into the debit aspect and the credit aspect. This helps to find out how each transaction will financially affect the business.
- (ii) Recording Function: Accountancy is a business language which helps to record the transactions based on the principles. Each such recording entry is supported by a narration, which explain, the transaction in simple language. Narration means to narrate – i.e. to explain. It starts with the word – Being …
- (iii) Historical Function: It contains a chronological record of the transactions for future references.
Explanation of Journal
- (i) Date Column: This column contains the date of the transaction.
- (ii) Particulars: This column contains which account is to be debited and which account is to be credited. It is also supported by an explanation called narration.
- (iii) Voucher Number: This Column contains the number written on the voucher of the respective transaction. (iv) Ledger Folio (L.F.): This column contains the folio (i.e. page no.) of the ledger, where the transaction is posted.
- (v) Dr. Amount and Cr. Amount: This column shows the financial value of each transaction. The amount is recorded in both the columns, since for every debit there is a corresponding and equal credit.
All the columns are filled in at the time of entering the transaction except for the column of ledger folio. This is filled at the time of posting of the transaction to ‘ledger’.
Advantages of Journal
The following are the advantages of a journal:
- (i) Chronological Record: It records transactions as and when it happens. So it is possible to get a detailed dayto-day information.
- (ii) Minimizing the possibility of errors: The nature of transaction and its effect on the financial position of the business is determined by recording and analyzing into debit and credit aspect.
- (iii) Narration: It means explanation of the recorded transactions.
- (iv) Helps to finalize the accounts: Journal is the basis of ledger posting and the ultimate Trial Balance.