Book Journal

Traders are required to maintain different books for keeping accounts relating to business which are as under:

(I) Journal

(2) Ledger (it shall be explained in another article)

Journal



In order to study the journal, certain related terms along with the procedure of accounting must be studied, which are as follows :

The Account

Transactions involving receipts and payments of cash affect the cash balance. Receipts increase the cash balance and payments decrease the cash balance. Instead of increasing or decreasing the balance after every transaction we may put all increases together in one column and all decreases together in another column and find the balance only when required. It will be much convenient and time saving.

In accounting, the device called an account is used for this purpose. The simple form of account is called a T account is shown below. Increases of cash have been listed on the left hand side and the decreases on the right hand side, the closing balance has been ascertained by deducting the total payments from the total of the left-hand side.

Debit and Credit in Accounting

As is clear from the form of account given above it is divided in two parts: Left-hand side is known as 'debit side' and right hand side is known as 'credit side'.

Amounts entered on the debit side (left hand side) are called debits and amounts on the credit side right-hand side) are called credits. 'To debit' means to make an entity in the left-hand side of an account' and 'To credit' means to make an entry in the right-hand side of an account.

The words debit and credit have no other meaning in accounting.

Abbreviation used for debit is Dr. and for credit Cr.

Rules of Debit and Credit (Equation Based)

Dual aspect concept in accounting implies that every accounting transaction would be expressed by a debit amount and an equal and opposite credit amount. Thus, the rule that for each transaction debit amount must equal the credit amount has absolutely no exception. The equality of debits and credits may be expressed in the form of an equation:

Debit = Credit

In the previous article we discussed accounting equation:

A-L = P

i.e., Assets-Liabilities = Proprietor's Funds or Capital

If each account was to be considered in isolation it would make no difference whether increases were recorded on the debit side or on the credit side but since the accounts are inter-dependent therefore a system of recording increases and decreases on the two sides had to be fixed. Traditionally or conventionally increases in asset accounts are recorded on the debit side while increases in liabilities and capital are recorded on the credit side. The above rule ensures that when account balances are totaled will confirm to the accounting equation discussed above.

It gives rise to the following rules: .

1. Increases in asset accounts are debits, decreases are credits.

2. Increases in liability accounts are credits, decreases are debits.

3. Increases in Owner's equity accounts are credits, decreases are debits.

Total classes of accounts maintained by any business will include the accounts relating to expenses, losses, revenues and profits in addition to assets, liabilities and proprietor's funds. Rules of debit and credit regarding assets, liabilities and capital have been stated above and the rules for expenses / losses and revenues/ profits can be derived from the same.

4. Increases in expenses/ losses accounts are debits.

Since the expenses and losses when incurred and suffered lead to reduction in the capital and ecreases in owner's equity accounts are debits, therefore increases in expenses and losses accounts are Debits.

5. Increases in revenues/ profit accounts are credits.

Since the revenues and profits when earned will lead to increase in the capital and increase in owner's equity accounts are credits, therefore increases in revenue and profits accounts are credits.

The rules of debit and credit discussed above are based on accounting equation technique. Traditional rules of debit and credit are based on classification of accounts. These rules in practice give the same

results and operate in the same manner. These merely stale the position in a different way.

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