Ch. 2 Journal Entry P a g e | 2.

Journal Entry
Learning Objectives First Phase in the Accounting Process

 History of Double Entry Book Keeping System

 Advantage of Double Entry Book Keeping System
 Important terms
 Classification of Accounts under traditional approach
 Classification of Accounts under Modern approach
 Procedure of recording transactions and events
 Various ways of forming (making) a double entry

Practical Questions

Q 1: Classify the following Items on the Basis Traditional Approach as well as Modern
Approach.

Item Item Item

1 Capital 26 Loan from SBI 51 Freight
2 Purchases 27 Wages 52 Royalty on Production
3 Sales 28 Drawing 53 Carriage Inward
4 Advertisement 29 Rent 54 Discount Received
5 Sundry Expenses 30 Salaries 55 Discount Allowed
6 Trade Charges 31 Interest Received 56 Bad Debts
7 Miscellaneous Receipts 32 Insurance 57 Gas and Fuel
8 Office Expenses 33 Carriage Outwards 58 Patent and Trade Makes
9 Charity 34 Interest Paid 59 Repairs
10 Electric Fittings 35 Rent Received in Advance 60 Investment
Honorarium to
11 Plant and Machinery Cash in Hand
Secretary 36 61
12 Sundry Creditors 37 Land and Building 62 Motor Cycle
13 Sundry Debtors 38 Furniture 63 Commission Received.
14 Goodwill 39 Fixtures and Fitting 64 Equipment
15 Software 40 Bank Charges 65 Power
16 Websites 41 Knowhow 66 Fines & Penalties
17 Audit Fees 42 Donation 67 General Expenses
Ch. 2 Journal Entry P a g e | 2.2

18 Stationery 43 Stamp charges 68 Bank Overdraft

19 Bad Debts Recovered
20 Bills Receivable
21 Dividend Received
22 Electricity Charges
23 Commission Allowed
24 Loan & Advances
25 Export Duty
44 Horse and Carts
45 Accrued Income
46 Computer
47 Postage & Telegrams
48 Subscription Received
49 Depreciation
50 Fixed Deposit
69 Prepaid Insurance
70 Bills Payable
71 Tea for Customers
72 Outstanding Salaries
73 Cash at Bank
74 Subscription Paid
75 Salary

Q 2: Show necessary journal entries.

July 1: Purchased machinery for cash Rs. 20,000.
July 1: Purchased furniture for Rs. 60,000
July 2: Purchased filing cabinet for cash Rs. 15,000
July 3: Sold old Machinery for cash 2,000
July 5: Paid Salary Rs. 5,000
July 7: Cash paid for Rent Rs. 1,500

Q 3: Show necessary journal entries.

July 8: Paid Electricity and telephone bill for Rs. 4,000
July 9: Paid repair expenses Rs. 500
July 10: Paid for advertising 500
July 13: Salary paid in cash 3,150
July 14: Paid wages Rs. 2000
July 15: Dividend received Rs. 500 through cheque

Q 4: Show necessary journal entries.

1. Started business with cash Rs. 50,000
2. Ram Invested Rs. 1,00,000 into business
3. Rahim introduced capital through bank Rs. 1,50,000
4. Started business with cash Rs. 10,000 and furniture Rs 15,000
5. Started business with cash Rs. 5,000 and Building Rs 15,000 and stock Rs. 25,000
6. Ram and Shyam started business with cash Rs. 25,000 each.

Q 5: Show necessary journal entries.

Ch. 2 Journal Entry P a g e | 2.3

July 1: Purchased goods Rs. 60,000

July 2: Purchased goods for cash Rs. 30,000
July 3: Purchased goods from John Rs. 15,000
July 5: Purchased goods from Harry and payment made by cheque Rs. 20,000
July 7: Purchased goods from Gita on credit Rs. 18,000
July 8: Goods purchased from John returned being defective Rs. 2,000
July 9: Goods purchased from Harry returned being defective Rs. 1,500
July 13: Balance amount paid to John
July 14: Balance amount paid to Gita who allowed us cash discount of 5%
July 15: Goods of Rs. 20,000 purchased from Vivek who allowed us trade discount @
10% and Cash Discount @ 2.5%. Payment made immediately
July 16: Purchase of goods from Naveen of the list price of Rs. 2,00,000. He allowed 10%
trade discount, Rs. 5,000 cash discount was also allowed for quick payment.
July 16: Purchased Office Furniture and paid by cheque Rs. 5,680

Q 6: Show necessary journal entries.

July 1: Sold goods Rs. 4,000
July 1: Sold goods for cash Rs. 8,000
July 2: Sold goods to Shyam Rs. 60,000
July 3: Sold goods to Parul on credit Rs. 1,850
July 5: Sold goods and payment received through cheque Rs. 40,000
July 7: Sold goods to Arvind and allowed him trade discount Rs. 50,000
@10%
July 8: Received cash from Parul 1,800 Allowed him discount 50
July 9: Goods returned by Shyam Rs. 5,000
July 10: Payment received by Shyam through cheque and allowed him discount of 5%
July 13: Sold furniture to Vikram for cash Rs. 4,000
July 14: Sold Machinery Rs. 4,500
July 15: Payment from Arvind received in cash and allowed him discount @ 3% in full
settlement

Q 7: Subhash was carrying on business as a cloth dealer. On 1st April, 2006 his assets were:
Cash Rs. - 1800, Opening Stock - Rs. 25,000; Furniture and Office Equipment- Rs. 2,560,
Bank Balance - Rs. 8,500, Amount due from John- Rs. 1,200, Amount due from Harry - Rs.
Ch. 2 Journal Entry P a g e | 2.4

1,500. On that date he owed Rs. - 2,000 to Manoj and Rs. 1,450 to Palmer. His transactions
during April 2006 were as follows.
April
1 Sold cloth on credit to Ganesh 500
2 Purchased cloth from Amit on credit 2,000
3 Paid rent for April by cheque 300
4 Cash purchase of cloth (paid by cheque) 800
Cash sales 450
5 Received cheque from John 1,180
Allowed him discount 20
6 Paid for stationery and postage 50
8 Drawn cash for private use 250
10 Drawn cash from Bank for office 1,500
12 John’s cheque returned dishonored by Bank which charges Rs. 5 for
expenses
13 Purchased goods on credit from Manoj 2,500
15 Sent cheque to Manoj in full settlement of amount due on April 1 1,950
Sent cheque to Palmer 1,450
16 Sold goods on credit to Harry 1,800
17 Paid Telephone STD charges 80
18 Cash Sales 300
Paid for advertising 350
19 Received letter from Palmer saying that he has not received the cheque,
canceled that cheque and paid cash
21 John becomes insolvent; only 50% received from his full estate.
22 Cash purchases 900
24 Purchased filing cabinet and paid by cheque 500
27 Purchased Government Securities 3,000
31 Paid salaries for the month 800

Q 8: Give Journal entries for the following:

(a) Interest, Rs. 250 charged by the bank.
(b) Interest Rs. 600 due but not paid on a loan taken by the firm.
(c) Goods worth Rs. 1,500 lost by theft, Insurance company admits claim in full.
Ch. 2 Journal Entry P a g e | 2.5

(d) Delivery van repaired at a cost of Rs. 600

(e) Cash stolen by the peon Rs. 400, insurance company admits claim for Rs. 350 only.
(f) Good worth Rs. 600 lost by accident. Insurance company does not admit claim.
(g) Furniture purchased for Rs. 2,000 on 1st April, is valued at Rs. 1,800 on 31st march.
(h) Salaries paid to clerks, Rs. 250
(i) Received claim for Rs. 1,000 from a supplier for late supply of goods; claim admitted for
Rs. 600
(j) Purchased machinery for Rs. 15,000 from M/s Machinery Mart on monthly installments of
Rs. 1,000 each.
(k) Entered into an agreement with Mehta & Co. to purchase all raw materials from their
company from next year.
(L) Hired an employee as sales manager of the north wing.
(m) One of our debtor agreed to pay his dues to Mr. C who is a creditor of the company with
the same amount being due to him.

Q 9: Journalise the transaction given below.

(a) Ram krishan who owes Rs. 1,850 pays Rs. 1,775 in full settlement.
(b) A cheque for 950 is sent to Mohan, a creditor, in full settlement of the amount Rs. 1000.
(c) Amount due from Puri & Co. Rs. 450; written off as a bad debt.
(d) M/s Sohan & Co. who owes Rs. 900 becomes insolvent only 30% of the amounts due is
recovered.
(e) A sum of Rs. 200 is received from M khan & co., against a debt previously written off.

Q 10: Make journal entries for the following:

(1) Sold goods costing Rs. 5,000 for Rs. 7,000
(2) Salaries paid to Mohan Rs. 5,000
(3) Loan Installment (including interest Rs. 1,000) paid Rs. 8,000
(4) Paid to ZA after availing a discount of 5% Rs. 950
(5) Outstanding Rent Rs. 2,000
(6) Paid interest on Loan Rs. 500
(7) Bad debts Recovered Rs. 400 out of old bad debts written off Rs. 700.

Q 11: Pass journal entries for the following transactions in the books of Gamma bros.
(i) Employees had taken inventory worth Rs. 10,000 (Cost price Rs. 7,500) on the eve of
Deepawali and the same was deducted from their salaries in the subsequent month.
Ch. 2 Journal Entry P a g e | 2.6

(ii) Wages paid for erection of machinery Rs. 8,000

(iii) Income tax liability of proprietor Rs. 1,700 was paid out of petty cash.
(iv) Purchase of goods from Naveen of the list price of Rs. 2,000. He allowed 10% trade
discount, 5% cash discount was also allowed for quick payment.

Q 12: Some of the transaction of a firm are given below. Against each transaction the accounts
to be debited and credited are given. There are some obvious errors. Point out the errors and
given correct answers.
(i) Cash received from Ali: Debit cash; Credit Ali
Debit Goods or Purchases; Credit
(ii) Purchased goods from Rao for Cash;
Rao
(iii) Money sent from office to Bank: Debit bank Credit cash
(iv) Paid salary to Krishna: Debit Krishna Credit cash
(v) Cash Sales: Debit cash; credit goods or Sales
Debit Goods or purchases, Credit
(vi) Purchased Furniture for cheque:
Bank
(vii) Received cash as damages from a supplier: Debit cash; credit Supplier
(viii) Sold old machinery to khan on credit: Debit Khan; credit goods or Sales.
Mohan the proprietor takes goods for private
(ix) Debit Mohan; credit or Sales
use:
(x) Bill for stationery received; bill not yet paid Debit stationery; credit cash.
Answers: Wrong entries: (ii) Credit cash; (iv) Debit Salaries; (vi) Debit Furniture; (vii) Credit
Damages Received; (viii) Credit Machinery; (ix) Debit Drawings or Capital; (x) Credit Supplier.

Q 13: State with reasons whether the following statements are ‘True or ‘False’.
(1) When we buy furniture for cash, we debit cash Account.
(2) Patent right is in the nature of Normal Account.
(3) Goodwill is not fictitious asset.
(4) Sale of Machinery should be credited to Sales Account
(5) Goodwill is in the nature of personal Account
(6) Good taken out by the proprietor from business for his personal use are credited to Sales
Account.
(7) Double entry system is based on dual aspect concept.
(8) Withdrawal of cash from business should be credited to capital Account.
(9) Allowance made for prompt payment is called trade discount.
Ch. 2 Journal Entry P a g e | 2.7

(10) Trade Discount is not recorded in the books.

(11) Sales of office furniture should be credited to Sales Account.
(12) Goodwill is a current Asset.
(13) Outstanding Expenditure is a normal account.
(14) Wages paid for erection of new machinery are debited to machinery Account.