WHAT IS JOURNAL & LEDGER?

OPENING ENTRY

Business firms close their books of accounts at the end of each year and start a new set of books in the beginning of each new year. The first entry in the Journal is to record the closing balances of individual assets and liabilities of the previous year. These balances become the opening balances of the new year. The entry passed to record the closing balance of the previous year is called the Opening Entry.

The Balance Sheet prepared at the end of the year reflects the closing balances of each asset and liability and forms the basis for this opening entry. While passing an Opening Entry, all Assets Accounts are debited and all Liabilities Accounts are credited. The following example will make it clearer:

BALANCE SHEET

as at 31st March, 2011

Now, based on the above Balance Sheet, the Opening Entry will be:

Illustration 17. Journalise the following transactions in the books of a trader:

1st April, 2012

Debit Balance: Cash in Hand—₹ 18,000; Cash at Bank—₹ 25,600; Stock of Goods ₹ 50,000; Furniture—₹ 10,000; and Building—₹ 4,51,400.

Debtors: Vijay—₹ 2,700; Anil—₹ 1,500; Ashwani—₹ 2,000; Anupan—₹ 1,800; and Madhu—₹ 5,000.

Creditors: Anand—₹ 5,400; Arya & Co.— ₹ 77,000 and Balwant Rai— ₹ 52,000; Mrs. Anita’s Loan—₹ 1,00,000.

Solution:

JOURNAL

Advantages of a Journal: Advantages of a Journal are:

(i) Journal Reduces the Possibility of Error: The possibility of errors is reduced as the amounts to be debited and credited are written side by side and the two can be compared to see that they are equal. If the accounts are written up directly, it is possible that a wrong amount may be written or the amount written on the debit side may be more or less than on the credit side.

(ii) Journal Provides an Explanation of the Transaction: Along with the entry in the Journal, a complete explanation (narration) is written so that it is possible to understand the entry properly later.

(iii) Journal Provides a Chronological Record of All Transactions: Transactions are entered in the Journal in a chronological order, hence, the order in which they occur enters the record permanently.