Module 2 FBA

Introduction to journal
 The word Journal is derived from the French word called ‘JOUR’,
which means day. So Journal means daily recording of transaction.
 Meaning of Journal: - Journal is a book in which day to day
transactions are recorded in a chronological order. (In the order of
occurrence of transaction).
 Meaning of Journalizing: -
It is a process of recording transactions in the book of
journal is known as journalizing.
 Meaning of Journal Entry:-
The transaction which is recorded in the book of journal
is known as Journal Entry, it split accounting transaction into debit
and credit.
Objectives or Need or Advantages of Journal
1. Record of daily transaction.
2. Complete records at one place.
3. Avoids the Mistake.
4. Basis for Posting.
Classification of Accounts
 English System
 American System
Classification of English system of Accounting

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 Personal Accounts: Theses are the accounts relating to persons,

firms, companies, institutions, etc with whom a business man deals
Ex: Debtors, creditors, bankers, capital, drawings, etc
 Real Accounts: These are the accounts relating to properties,
assets and possessions with which we carry on business
Ex: cash, stock, land, buildings, goodwill, copyrights, etc
 Nominal Accounts or Fictitious Accounts: These are the
accounts of various expenses or losses and incomes and gains.
They are neither personal or real. They cannot be seen or touched.
Ex : Wages, rent, salary, interest, advertising, dividend, carriage,
freight, commission, repairs, depreciation, lotteries, depreciation,
postage and telegrams, etc.
Classification under American System
 Assets : They are the properties, rights and resources owned by the
business for conducting its operation
Ex: land, building, machinery, plant, vehicles, patents, licence,
fittings etc. These are the same as Real accounts under English
System
o Liabilities: These are the amount of debt owned by the business to
outsiders. They represent personal accounts of creditors and
lenders.
Ex: loan from bank, Bank overdraft, sundry creditors / creditors, bills
payable, outstanding expenses, etc
 Capital ( Owners Equity): Capital refers to the proprietors claim
on the assets of the business

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 Incomes: Incomes are the amount received or receivable from the

sale of goods or by rendering service
EX : Commission, fees, interest, dividend, rent, etc These accounts
are the same as the Nominal Accounts
 Expenses: Expenses are the amounts paid or payable for the
services obtained for carrying out the business operations
EX: salary, rent, wages, carriage, interest, postage and telegram,
discount allowed, etc. These accounts are also the same as the
nominal accounts under English System
Rules of Debit and Credit under English System
 Personal Accounts : Debit the Receiver
Credit the giver
 Real or property Accounts: Debit what comes in
Credit What goes out
 Nominal or Fictitious Accounts:
Debit expenses or losses
Credit Incomes or gains
Rules of Debit and credit under American System
1. In case of Assets:
Debit increase in assets
Credit decrease in assets
2. In case of Liabilities:
Debit decrease in liabilities
Credit increase in liabilities

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3. In the case of Capital:

Debit decrease in capital
Credit increase in capital
4. In the case of expenses ( or losess):
Debit increase in expenses
Credit decrease in expenses
5. In case of incomes( or profits or gains):
Debit decrease in incomes
Credit increase in income

Proforma of Journal

Date Particulars L.F Debit Credit

(DR) (CR)

 Column – 1 Date: - In this column the DATE on which transaction

has taken is written, in chronological order
 Column - 2 Particulars: - In this column the name of the account
debited is written in first line and the name of the account credited
is written in second line, it always begins with the word ‘To’. In
addition to this narration is written in next line, it always starts
with the word ‘Being’, between the brackets. After this a parallel
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line is to be drawn, it indicates that a particular transaction is

completed.
 Column – 3 L.F:- Here L.F represents Ledger Folio. In this
column the page number of the ledger is written, where the amount
of each entry has been transferred.
 Column – 4 Debit: - In this column the amount of transaction is
written opposite to the name of account is debited.
 Column – 5 Credit:- In this column the amount of transaction is
written opposite to the name of account is credited.
 Meaning of Narration: - It is a short summary of transaction
which explains the reason for debiting and crediting of a particular
account. In other words it is short explanation about why particular
account is debited and why particular account is credited. Journal
entry will not complete without writing the narration.
 Meaning of Posting:- It is a process of transferring entries from
journal to the respective account in the ledger is known as Posting.

Ledger
Introduction To Ledger
In business enterprise number of transactions will take
place every day; these all transactions are recorded in the
book of journal in chronological order. In the book of
journal the business transactions of similar nature are
recorded at different places, if they are occurred on
different dates, due to this journal is not able to give or
provide the actual result of the business.

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Until and unless recording the transactions of similar nature at

one place, it is very difficult to ascertain the profitability or
status of the business. Therefore transactions of similar nature
are brought together at one place to know the financial result of
the business; this is done through by preparing ledger accounts.
MEANING AND FEATURES OF LEDGER
Meaning of Ledger: -
It is a book in which transactions of similar
nature are recorded at one place in order to ascertain the
financial result of the business.
Features of Ledger:-
1. It is a book of final entry, all business transactions are
recorded in journal and finally those are transferred to
ledger.
2. It is prepared with the help of journal.
3. It is a base for preparation of Trial Balance.
4. It gives information about particular person or thing at one
place.
5. It is having systematic format, which is divided into two
sides viz, Debit side and Credit side.
Difference Between Journal and Ledger

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Journal Ledger
1. It is a book of first entry 1 It is a book of final entry
2 It is a subsidiary book 2 . It is a principal book
(Not Compulsory)
3 It is a book where 3 In this book transactions are
transactions are recorded recorded periodically
4 In this book narration is 4 In this book narrations are
written for every not written for any entry
transaction
5 The process of recording 5 The process of recording
transactions in the book of transactions in the book of
journal is known as ledger is known as posting
journalizing
6 It will not provide 6 It provides complete
complete information information of a particular at
about a particular aspect one place
at one place
7 It is a base for preparation 7 It is a base for preparation of
of Ledger account. trial balance and final accounts
8 Both the aspects of each 8 Only one aspect of each
transaction are recorded at transaction is recorded in this
on place. book

Format of Ledger

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Date Particulars j/f Amount Date Particulars j/ Amount

f
1 2 3 4 1 2 3 4
To ----- **** By ----- a/c ****
a/c

To **** By ****
Balance Balance
c/d ( c/d (
Balancing Balancing
Figure) Figure)
**** ****

To By
Balance Balance
b/d b/d

Steps or Procedure for Balancing of an account

Step – 1:- Total up the Debit side or Credit side of an account
whichever is higher.
Step – 2:- Write the same figure (Amount) on the other side
of an account.
Step – 3:- Determine the balancing figure between two
sides of an account and write in particulars column the
Balance Carried Down using word “TO” if it is debit side
or use word “By” if it credit side.

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Step – 4:- Write the balancing amount on opposite side of

an account below the total amount, write in particulars
column Balance b/d with word “To” if it is Debit side or
with word “By” if it is credit side.
Posting
It is a process of transferring entries from the book of
Journal to the respective account in the book of Ledger is
known as Posting.

Trial balance
It is a statement which is prepared with the help of Debit and Credit balance of ledger
accounts to know the arithmetic accuracy of books of accounts.

Objectives

1. To know the arithmetic accuracy of books of accounts.

2. To provide base for preparation of Final Accounts.

Features

1. It is a statement which is prepared with the help of debit and credit balances of
ledger accounts.
2. It is base for preparation of final accounts.
3. It indicates the arithmetic accuracy of books of accounts.
4. Total of both debit and credit column must be same.

Format of Trial Balance

Sl.No Name of The Account LF Debit (Rs) Credit (Rs)

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Hints for preparation of Trial Balance

1. All the Assets, Expenses, losses and Drawings always shows Debit Balance.
2. All the Liabilities, Incomes, gains , capital and reserves always shows Credit
balance.
3. Closing stock does not appears in trail balance.

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