Learning Outcomes

After studying this Chapter, you shall be able to:

 Know the meaning of Journal and Journalizing.
 Understand the advantages and disadvantages of Journal.
 Learn the steps in journalizing.
 Learn Opening, Simple and compound Journal Entries.
 Know treatment of special transactions.

6.1 INTRODUCTION
All the business transactions that can be measured in terms of money are recorded in
the books of account. This is the first phase of accounting. Some evidences are
required to record these transactions, called as source documents. These source
documents include vouchers, invoices for sales, bills of purchases, debit note, credit
note, etc. The book in which the transactions are recorded in chronological order, for
the first time, is called as journal. Since, journal records transactions initially, it is also
called as “Book of Original entry” of “book of Prime entry”.In this chapter, the
methodology of recording transactions in journal has been discussed.

6.2 METHODS OF RECORDING

The oldest form of recording the business transactions is Accounting Equation
approach, which has been discussed in chapter 4. In addition, there are basically two
broad methods of recording transactions in the books of accounts:

(a) Traditional System

(b) Modern /Practical System/ subsidiary books.

(a) Traditional System: Under traditional approach, all the transactions are recorded
in a single book called as journal (explained in detail in Para 5.3). This journal
forms the basis for ledger posting. But, if the number of transactions is large in
number, this journal book becomes voluminous. In order to avoid this limitation,
subsidiary book approach is followed.
(b) Subsidiary books: It is nothing but the sub-division of journal only. The basic rules
and principles governing the recording (i.e. double entry Book Keeping System)
remain the same. Under this system, the books are divided into following eight
parts to record the specific transactions of similar nature. These are as follows:
 Cash Book (to record cash/bank transactions)
 Purchases Book (To record credit purchase of goods)
 Sales book (To record credit sales of goods)

Basic Accounting for Non-Commerce students (GMC) CA. (Dr.) K. M. Bansal

Chapter 6 2 Journal

Recording of Transactions

Traditional Approach Modern Approach

(Subsidiary Books)

Journal

Cash Transactions Non-Cash Transactions

Cash Book 1. Purchases Book

2. Sales Book
3. Purchases Return Book
4. Sales Return Book
5. Bills Receivable Book
6. Bills Payable Book
7. Journal Proper

Note: This chapter 6 discusses the traditional approach of recording the transaction.

6.3 JOURNAL
The journal is the Primary Book of Accounts where the transactions are first recorded in
a chronological order. The chronological order means the order or sequence of their
occurrence.
In the words of Rowland, “The basic book of accounting is called Journal. Precisely it
is the book of prime entry which means-day book. Trader records his total daily
transactions in it. The process of recording the transactions into journal is called
Journalizing.”
As per M. J. Keeler, “A journal is a chronological record of financial transactions of a
business.”
According to Cropper, “A Journal is a book, employed to classify or sort out
transactions in a form convenient for their subsequent entry in the ledger.”

Did You Know TERMS RELATED TO JOURNAL

Books of Prime or Original Entry: It is another name of Journal as the transactions
are first recorded in this book and thereafter posted into the ledger accounts.
Journal Entry: When a business transaction is entered in Journal, the recorded entry
is called as Journal Entry.
Journalizing: The process of recording a transaction in a journal is known as
Journalizing.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 3 Journal

6.4 FEATURES OF JOURNAL

The following are the characteristics of Journal:
1. The transactions are recorded in the sequence of their occurrence. i.e. in a
chronological order.
2. It is book of original entry in which transactions are written before any further
accounting treatment.(i.e. Before they are posted in the ledger account)
3. It is a basis of double entry system of book keeping. The Journal records both
the aspects of a transaction (i.e. Debit and Credit).
4. The entries are recorded in such a manner that it incorporates the complete
transaction.
6.5 ADVANTAGES OF JOURNAL
The journal gives the following advantages:
1. It provides a chronological record of all transactions.
2. It reduces the possibility of error of omission as the transactions are recorded
immediately.
3. It provides the basis for classification and preparation of ledger accounts.
4. The entries are written with brief description called as narration. It helps in
understanding the meaning and purpose of transaction at any time.

6.6 LIMITATIONS OF JOURNAL

The journal is the Primary Book of Accounts where the transactions are first
recorded in a chronological order. The chronological order means the order or
sequence of their occurrence.

1. Suitable for Small Business only: The recording of all the transactions in a
single book does not create any problem if the number of transactions is limited
in number. Otherwise, in case of large number of transactions, the journal will
become bulky and voluminous and it will become inconvenient to maintain such
book.
2. Scattered Information: The transactions are recorded as they take place. In
journal, it is not possible to keep a special type of transactions separately. For
example: Credit purchases of goods will not be recorded at one place rather
they must be appearing date wise. Therefore, it is difficult to locate a
particular transaction unless the date of occurrence is known.
3. No Division of work: Since, all the transactions are recorded in one book; the
accounting work cannot be divided. If more than one person has been appointed
even then only one person do the work at a particular point of time.
4. No Specialized Information: When all the transactions are recorded in one book
viz. journal, the searching for the specific information becomes time
consuming. The information related to a particular field cannot be ascertained
directly.

6.7 FORMAT OF JOURNAL

The format of the journal is as follows:
JOURNAL
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(1) (2) (3) (4) (5)
…………….Account Dr. XXX
To …………….Account
(Being ………………………………..) XXX
The journal is divided into five columns:

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 4 Journal

(1) DATE: This column incorporates the date of transaction.

(2) PARTICULARS: This column gives the two aspects of transactions duly giving
the name of the accounts to be debited or credited. A brief description of
the transaction is also given in statement called as narration.
(3) L.F.: It stands for ledger folio. This shows the page number of the ledger to
which the amount is posted where the corresponding account appears.
(4) DEBIT AMOUNT: In this column, the amount debited is written.
(5) CREDIT AMOUNT: In this column, the amount credited is written.

Did You Know The timing of Filling particulars in Journal

Since, journal records transactions in a chronological order, all the
columns, except the L.F. column, are completed at the date of transaction
itself i.e. at the time of journalization. The Ledger Folio column is filled in
second phase of accounting i.e. at the time of ledger posting.

6.8 RULES OF JOURNALISING

Before discussing further about steps in journalizing, it would be better to
understand the three golden rules of accounting. In fact, on the basis of these
rules, the accounts to be debited or credited shall be determined. These have been
explained in chapter 4 under double entry system, but in order to understand the
journalisation process easily, let us recapitulate the rules.

All the three types of accounts have separate and unique rules of accounting. Each
account has two rules, one related to debit and other related to credit. These rules
are called as golden rules of accounting as the entries are recorded on the basis of
these rules and it forms the basis of double entry book keeping system.
Type of Account Related Rule of Accounting
Personal Accounts Debit the Receiver and Credit the Giver
Real Accounts Debit what comes in and Credit what goes out
Nominal Accounts Debit all expenses and losses and credit all incomes and gains

6.9 STEPS IN JOURNALISING

Before discussing further about steps in journalizing, it would be better to
understand the three golden rules of accounting. In fact, on the basis of these
rules, the accounts
The process of recording a business transaction is called as journalizing. The following steps are
involved:
Step 1 ----- Find out the accounts involved and their respective nature.
Step 2 ----- Ascertain the rule of debit and credit applicable for each of the
account involved.
Step 3 ----- Decide whether the account to be debited or credited as per rule
ascertained in above step.
Step 4 ----- Pass the journal entry in standard format in journal in following
manner:
(a) Record the year at the top (Date Column) and also write the month
and date of the transaction, after year.
(b) The accounts to be debited and credited are written in “Particular
Column.” The abbreviation “Dr.” is written against the Account to
be debited. In next line, the word “To” is written as a prefix to the
account which is to be credited. This starts after leaving few

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 5 Journal
spaces. For example, if Cash Account is to be debited and Capital
A/c is to be credited, then under “Particulars Column”, it will look
like as:
Particulars Dr. (Rs.) Cr.(Rs.)
Cash Account Dr. XXX
To Capital Account XXX
(c) The brief description of the transaction is written within brackets,
immediately in the line next to the line where the Account to be
credited is written. This brief description is called as Narration.
(d) A line is drawn across the Particular Column horizontally just to
separate the journal entries from one another.
(e) The amounts are written correspondingly under Dr. and Cr. Column.

Example of Journal Entry (imaginary)

Page 54
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
2019 Cash A/c Dr. 7 10,000
May, 8 To Sales A/c 11 10,000
(Being Cash Sales of Rs. 10,000)
Note:
(i) The above Journal Entry appears on page number 54 of Journal.
(ii) The Cash A/c, where posting of Rs. 10,000 is made, is appearing on page
number 7 of Ledger

6.10 Totaling of Journal

The transactions are recorded in journal on daily basis, which involves number of
pages in journal. When, in a particular period, we move to next page, usually
totaling is made, in the following manner:
(a) In ‘Particulars Column’, the words “Total Carried Forward” are written.
(b) The debit and credit columns are totaled and this total is written
corresponding to the words “Total carried forward” written in particulars
column.
(c) On the next page, in particulars column, again the amount brought forward,
the words “Total brought forward” are written.
In ensures correctness in recording the amounts.
Did You Know Meaning and Classification of Goods
In accounting, “Goods” are those items/things which are purchased for resale. This
term is very important and is a key factor in determination of the Account to be
debited or credited. Because if goods are purchased, then “Purchases A/c” is
debited whereas corresponding “Asset A/c” is debited in case of purchase of asset.
Similarly, “Sales A/c” is credited for sale of goods and “Asset A/c” is credited when
asset is disposed off.
For example, if furniture is purchased by a furniture dealer, then it will be treated
as purchase of goods and Purchases A/c shall be debited. On the other hand, if the
same furniture is purchased by an entity, which is not in furniture business, then
this acquisition of furniture will NOT BE treated as purchases of goods as it is not
qualifying the definition of goods for this entity. Therefore, now, “Furniture A/c”
will be debited.
The Goods Account is classified into following:
(1) Purchases Account: The “Purchases Account” is debited when goods are
purchased.
(2) Sales Account: The sales A/c is credited when goods are sold on cash/Credit

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 6 Journal

sales.
(3) Purchases Return A/c: When goods are returned to the supplier, the
Purchases Return Account is credited and not Purchases A/c. It facilitates in
knowing the total value of goods returned by the firm. It may be noted that at
the time of preparing the final accounts, the Purchases Return A/c is
deducted from Purchases A/c. As documentary evidence, “Debit Note” is
issued to the supplier indicating the fact that his A/c has been debited with
this amount.
(4) Sales return A/c: This account is also named as “Returns Inward” A/c and is
debited when the goods earlier sold are now returned by the customer. This
Account deducted from Sales A/c at the time of preparing Final Accounts. As a
voucher, “Credit Note” is issued to the customer.
(5) Stock A/c: The value of goods remaining unsold at the end of the year appears
as closing stock. This becomes opening stock in the next year. It is valued at
lower of cost and net realisable value.

Example: In order to understand the recording, let us consider the following

transactions:
(1) Mr. Shiv started business with cash Rs. 2,00,000:
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Cash Real DebitCash is coming into business and will be debited
A/c according to the rule of real account, i.e., “Debit
What comes in.”
Capital Personal Credit The proprietor (Mr. Shiv) is giver, who is
A/c contributing Capital. Therefore, Capital A/c will
be credited as per rule of personal A/c, i.e.,
“Credit the Giver.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Cash A/c Dr. 2,00,000
To Capital A/c 2,00,000
(Being the business started with Rs.
2,00,000 as Capital.)
(2) Goods purchased for Rs. 20,000 for cash:
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Purchases Nominal DebitThe firm has purchased the goods. The Purchases
A/c A/c (Nominal A/c) will be debited, following the
rule, “Debit all expenses and losses.”
Cash A/c Real Credit The firm has paid in cash resulting into outflow of
cash. Cash A/c (Real A/c) is credited because of
the rule of “Credit what goes out.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Purchases A/c Dr. 20,000
To Cash A/c 20,000
(Being the purchase of goods for
cash.)
(3) Paid wages Rs. 5,000:
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Wages Nominal Debit The expense (Wages) has been incurred. So,
A/c Wages A/c is debited following the rule, “Debit

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 7 Journal

all expenses and losses.”

Cash A/c Real Credit The firm has paid in cash resulting into outflow of
cash. Cash A/c (Real A/c) is credited because of
the rule of “Credit what goes out.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Wages A/c Dr. 5,000
To Cash A/c 5,000
(Being wages paid in cash.)
(4) Goods purchased on credit from Vinod Rs. 30,000.
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Purchases Nominal Debit Purchases A/c is debited as per the rule of
A/c Nominal A/c (Debit all expenses and losses).
Vinod’s Personal Credit Vinod is supplier (Giver) of goods and hence the
A/c account of Vinod will be credited as per the rule
of Personal A/c i.e., “Credit the Giver.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Purchases A/c Dr. 30,000
To Vinod’s (Creditor) A/c 30,000
(Being goods purchased on credit for
Rs. 30,000)
(5) Furniture purchased for Rs. 15,000, paid in cash:
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Furniture Real Debit Furniture A/c is debited because firm has
A/c purchased the Asset (not the goods). Furniture
A/c is a Real A/c with the rule,” Debit what
comes in.”
Cash A/c Real Credit Cash A/c is credited because firm has paid in
cash. Cash A/c is a Real A/c with the rule, “Credit
what goes out.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Furniture A/c Dr. 15,000
To Cash A/c 15,000
(Being Furniture purchased for Rs.
15,000 on cash basis.)
(6) Paid to Vinod (Creditor) Rs. 30,000
Affected Nature Debit Reason for Debit and Credit
Accounts /Credit
Vinod’s Personal Debit The creditor’s A/c is debited as the firm has paid
A/c to Vinod. (Debit the receiver)
Cash A/c Real Credit Cash A/c is credited. Cash A/c is a Real A/c with
the rule, “Credit what goes out.”
The following will be the journal entry:
Date Particulars L.F. Dr. (Rs.) Cr.(Rs.)
Vinod’s A/c Dr. 30,000
To Cash A/c 30,000
(Being Rs. 30,000 paid to Vinod
(creditor).)

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
 Chapter 6 8 Journal

Note: The readers are advised to go through the following illustrations to comprehend
the journalisation process.

Illustration 6.1: [Introductory]

Analyze the following transactions as per Traditional approach:
(1) Mohan started business with cash Rs. 4,00,000.
(2) Purchased Furniture for Rs. 30,000 in cash from Naresh Furniture House.
(3) Purchased goods for cash from Kamal Rs. 20,000.
(4) Goods purchased from Suman on credit Rs. 40,000.
(5) Machinery purchased for cash Rs. 21,000.
(6) Sold goods for cash to Raman Rs. 12,000.
(7) Sold goods to Sunder on credit Rs. 15,000.
(8) Cash paid to Suman (Creditor) Rs. 40,000.
(9) Paid wages Rs. 18,000.
(10) Cash received from Sunder (Debtor) Rs. 15,000.
(11) Sold goods for cash Rs. 25,000.
(12) Cash paid to Shyam towards salary Rs. 8,000.

Solution:
Analysis of Transactions

Transaction Accounts Nature of How Affected Debit Credit

Involved Account (Rs.) (Rs.)
(1) Mohan started Cash Real Cash is coming in 4,00,000
business with cash Capital Personal Mohan is the giver 4,00,000
Rs. 4,00,000.
(2) Purchased Furniture Real Furniture is coming 30,000
Furniture for Rs. in
30,000 in cash
Cash Real Cash is going out 30,000
from Naresh
Furniture House.
(3) Purchased goods Purchases Nominal Goods are coming 20,000
for cash from in. Purchase is an
Kamal Rs. 20,000. expense.
Kamal Personal Kamal is the giver 20,000
(4) Goods purchased Purchases Goods are coming 40,000
from Suman on in. Purchase is an
credit Rs. 40,000. expense.
Suman Personal Suman is the giver 40,000
(5) Machinery Machinery Real Machinery is coming 21,000
purchased for cash in
Rs. 21,000. Cash Real Cash is going out 21,000
(6) Sold goods for Cash Real Cash is coming in 12,000
cash to Raman Rs. Sales Nominal Sales in a revenue 12,000
12,000. (income)
(7) Sold goods to Sunder Personal Sunder is the 15,000
Sunder on credit receiver
Rs. 15,000. Sales Nominal Sales in a revenue 15,000
(income)
(8) Cash paid to Suman 40,000
Suman (Creditor) Cash Real Cash is going out 40,000
Rs. 40,000.
(9) Paid wages Rs. Wages Nominal Wages is an expense 18,000
18,000. cash Real Cash is going out 18,000
(10) Cash received Cash Real 15,000
from Sunder sunder Personal Sunder is the giver 15,000
(Debtor) Rs.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
 Chapter 6 9 Journal
15,000.
(11) Sold goods for Cash Real Cash is coming in 25,000
cash Rs. 25,000. Sales Nominal Sales in a revenue 25,000
(income)
(12) Cash paid to Salary Nominal Salary is an expense 8,000
Shyam towards Cash Real Cash is going out 8,000
salary Rs. 8,000.

Tutorial Note: Points to be kept in mind while recording a transaction through entry
(1) When the cash or credit aspect is given in the transaction, there is no
confusion and journal entry can be passed easily. But, when it is not
mentioned clearly, the following standard rules are followed:
(a) When the name of the supplier/customer is given (without mentioning cash
or credit), it is assumed as if goods have been purchased or sold on credit.
(b) When the name of supplier/customer is not given (cash/credit aspect is
also not given), then it will be treated as cash purchases /cash sales.
Consider the following for more clarity:
S.N. Transaction Treated as (Given/Standard Assumption)
1 Goods purchased for cash Cash Purchases (Given)
2 Goods purchased for on credit Credit Purchases (Given)
3 Goods purchased for from Ritu Credit Purchases (Assumption)
4 Goods purchased Cash Purchases (Assumption)
5 Goods Sold for cash Cash Sales (Given)
6 Goods Sold for on credit Credit Sales (Given)
7 Goods Sold for to Mohan Credit Sales (Assumption)
8 Goods Sold Cash Sales (Assumption)
(2) The name of the supplier or customer is not relevant in case of cash purchases
or sales.
(3) Purchases A/c can be used only for purchase of goods for resale and not for
purchase of Asset.
(4) The Sales A/c can be used only for sale of goods in ordinary course of business
and not for sale of Asset.

Illustration 6.2
Give journal entries for the following transaction:
2019 (Rs.)
April 1 Started business with cash 1,50,000
April 2 Goods purchased against cash 25,000
April 4 Sold goods for cash 11,000
April 6 Sold goods to Varad 6,000
April 8 Goods purchased from Hari 41,000
April 10 Paid Wages (Rs. 1,000) & Salaries (Rs. 2,400)
April 11 Paid insurance premium on insurance of stock 600
April 16 Received cash from Varad (Discount allowed Rs. 200) 5,800
April 17 Paid to Hari (Discount received Rs. 1,000) 40,000
April 21 Goods sold to Sujit 10,000
April 24 Goods returned by Sujit 1,500
April 25 Goods purchased from Popat 24,000
April 26 Cash received from Sujit 8,500
April 27 Goods returned to Popat 4,200
April 29 Paid to Popat (Discount received rs. 800) 19,000

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 10 Journal
Solution:
Journal of Rahul
Date Particulars L Amount Amount
2019 F (Dr.) (Cr.)
April 1 Cash A/c Dr. 1,50,000
To Capital A/c 1,50,000
(Being business started with cash)
April 2 Purchases A/c Dr. 25,000
To Cash A/c 25,000
(Being purchase of goods for cash)
April 4 Cash A/c Dr. 11,000
To Sales A/c 11,000
(Being business started with cash)
April 6 Varad Dr. 6,000
To Sales A/c 6,000
(Being goods sold for cash)
April 8 Purchases A/c Dr. 41,000
To Hari 41,000
(Being business started with cash)
April 10 Wages A/c Dr. 1,000
Salaries A/c Dr. 2,400
To Cash A/c 3,400
(Being expenses paid)
April 11 Insurance Premium A/c Dr. 600
To Cash A/c 600
(Being business started with cash)
April 16 Cash A/c Dr. 5,800
Discount Allowed A/c 200
To Varad 6,000
(Being cash received from Varad and discount
allowed)
April 17 Hari Dr. 41,000
To Cash A/c 40,000
To Discount Received A/c 1,000
(Being cash paid to Hari and discount
received)
April 21 Sujit Dr. 10,000
To Sales A/c 10,000
(Being goods sold to Sujit)
April 24 Sales Return A/c Dr. 1,500
To Sujit 1,500
(Being goods returned by Sujit)
April 25 Purchases A/c Dr. 24,000
To Popat 24,000
(Being goods purchased on credit)
April 26 Cash A/c Dr. 8,500
To Sujit 8,500
(Being cash received)
April 27 Popat Dr. 4,200
To Purchases Return A/c 4,200
(Being returned to supplier)
April 29 Popat Dr. 19,800
To Cash A/c 19,000
To Discount Received A/c 800

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 11 Journal
(Being business started with cash)

6.11 Simple and compound Entries

The entries passed in a journal are of two types namely Simple and Compound
Entries:
Simple Journal Entry
It is a usual entry wherein only two accounts are affected, i.e., one account is
debited and another account is credited with an equal amount. For example: when
goods are purchased for cash, then in journal entry Purchases A/c will be debited
and Cash account will be credited.

Purchases A/c Dr. 15,000

To Cash 15,000

Compound Journal Entry

In this type of journal entry, more than two accounts are affected. Hence, one or
more accounts are debited and/or one or more accounts are credited or vice versa.
When transactions of similar nature take place on the same date, they may be
combined while they are journalized. For example, a debt of Rs. 10,000 due from
Mukesh (Debtor) has been discharged by receipt of Rs. 9,600 in cash and Rs. 400
allowed as discount. The entry for this transaction is a Compound Entry, which may
be passed as follows:

Cash A/c Dr. 9,600

Discount A/c Dr. 400
To Mukesh 10,000

6.12 Discount
The discount is an allowance given by the seller of goods out of the List Price/
Catalogue Price. This reduction in amount may be in the nature of trade or cash
discount.
(a) Trade Discount: In order to promote the sales or as a trade practice, a
reduction is allowed by the seller from the list price. This reduction is called as
trade discount. Although it is reflected in invoice but is not disclosed in the
books of account and as such no trade discount account is opened. For
example: If a trader sells goods of the List Price of Rs. 40,000 at 10% Trade
Discount for cash, the entry will be:
Cash A/c Dr. 36,000
To Sales A/c 36,000
It is clear that journal entry will never include Trade Discount A/c.
(b) Cash Discount: In order to encourage the buyer to make prompt payment in
cash, a reduction is granted from the invoice price called as Cash Discount. It is
calculated on the net amount. i.e. after deducting trade discount from the List
Price. In accounting books, cash discount account is opened.
Tutorial Note:
1. Cash discount is allowed when payment is received and cash discount is
received when payment is made.
2. Discount Allowed Account is debited and cash discount received account is
credited.
3. If both trade and cash discount are allowed, trade discount is allowed first
and thereafter, cash discount is allowed.

Distinction between Trade Discount and Cash Discount

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 12 Journal

Basis Trade discount Cash Discount

Meaning It is allowed on purchased of It is allowed when payment is
goods in specified quantity. made before the due date.
Nature It is allowed on purchase as well It is allowed on account of
as on sale of goods. prompt payment in cash.
Deduction The amount of trade discount is It is not deducted from invoice.
from deducted from invoice.
Invoice
Recording It is not recorded separately in It is recorded separately in the
the books of account. books of account.
Relation This discount is related with sale This discount is related with
and purchase of goods. payment.
Objective It is allowed to increase the It is allowed to encourage quick
quantity of sales. or prompt payment.

Illustration 6.3 Pass the journal entries for the following transactions:
(a) Purchased goods for cash from Sanjay with MRP of Rs. 20,000 at terms 10% trade
discount.
(b) Goods purchased for cash having list price Rs. 40,000 at 10% trade and 5% cash
discount.
(c) Sold goods to Raja for cash for Rs. 25,000, allowed him trade discount 20% and
5% cash discount. Received the total due amount by cheque.
(d) Sold goods for cash for Rs. 50,000, allowed him trade discount 10% and 5% cash
discount. Half of the amount was received in cash immediately.

Solution
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(a) Purchases Account Dr. 18,000
To Cash Account 18,000
(Being goods purchased for cash)
(b) Purchases A/c Dr. 38,000
To Cash Account 36,100
To Discount Received Account 1,900
(Being goods purchased at trade discount
10% and cash discount 5 %.)
(c) Bank Account Dr. 19,000
Discount Allowed Account 1,000
Dr. 20,000
To Sales Account
(Being goods sold at cash discount @ 5% )
(d) Debtors A/c Dr. 22,500
Cash A/c Dr. 21,375
Discount Allowed A/c Dr. 1,125
To Sales Account 45,000
(Being goods sold for cash at cash
discount 5%. Half of the amount is
received in cash.)

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 13 Journal

6.13 Special Transactions relating to Goods

The usual outflow of goods may be in the form of sales or purchases returns. The
Sales A/c and Purchases A/c are credited respectively. But, there are few special
transactions wherein there is outflow of goods but it is neither sales nor purchases
returns. In these cases, Purchases A/c is credited. The following are the relevant
points:
a) It is debited to relevant account. For example: goods taken by the owner for
personal use should be debited to Drawings A/c.
b) The Purchases Account is credited.
c) It is always recorded at cost.

The following are the important such transactions relating to goods:

(1) Drawings in Goods: Proprietor usually withdraws in cash. The Drawings a/c is
debited with corresponding credit to Cash A/c. When owner withdraws goods
from the business for personal use, the following entry is passed:
Drawings A/c Dr. XXX
To Purchases A/c XXX
(Being goods taken for personal use)
(2) Goods Donated: The charity is a business expense and is a charge against profit.
When goods are given as charity or are donated, the amount of purchases to be
debited to Trading a/c is reduced with the cost of such goods donated. The
following is the entry:
Donation A/c Dr. XXX
To Purchases A/c XXX
(Being goods given away as donation.)
(3) Goods Distributed as Free Sample: In order to encourage sale and to increase
the market share and more acceptability of the product, free samples are
distributed. It is treated as advertisement expense.
Advertisement Expense A/c Dr. XXX
To Purchases A/c XXX
(Being goods distribute as free sample)
(4) Goods used in Furnishing the Office: In that case, it is treated as Capital
expenditure and should be debited to Office Furniture A/c in the following
manner:
Office Furniture A/c Dr. XXX
To Purchases A/c XXX
(Being goods used for furnishing)
(5) Loss of Goods by Theft/Fire, etc.: It is not a business expense but is a loss to
the business.
a) When Goods are lost due to fire/theft, etc.
Loss by Fire/Theft A/c Dr. XXX
To Purchases A/c XXX
(Being goods lost due to abnormal
reasons)
b) If Goods are insured and claim is accepted by the Insurance Company:
Insurance Company A/c Dr. XXX
Profit & Loss A/c Dr. XXX
To Loss by Fire/Theft A/c XXX
(Being claim accepted and balance is
charged as loss in Profit and Loss a/c)

c) When Insurance claim is received:

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 14 Journal

Bank A/c Dr. XXX

To Insurance company A/c XXX
(Being claim received from Insurance
company)
d) When Insurance Company does not admit any claim:
Profit & Loss A/c Dr. XXX
To Loss by Fire/Theft A/c XXX
(Being loss transferred to Profit & Loss
A/c.)

The following illustration explains these special transactions relating to goods.

Illustration 6.4 Pass Journal Entries for the following:

(1) Goods worth Rs. 50,000 were destroyed by fire. Insurance Company admitted a
claim for 70% only and paid the same.
(2) Goods costing Rs. 15,000 (Sales Value Rs. 20,000) were distributed as Free
sample.
(3) Goods costing Rs. 40,000 (sales Value Rs. 45,000) were taken by proprietor for
personal use.
(4) Received a V.P.P. from Sunder for Rs. 5,400. Sent a peon to collect it who paid
Rs. 100 as cartage.
Solution
Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(1) Loss by Fire A/c Dr. 50,000
To Purchases Account 50,000
(Being goods destroyed by fire.)
Insurance Company A/c Dr. 35,000
To Loss by Fire A/c 35,000
(Being claim lodged with and accepted by
the insurance company.)
Bank A/c Dr. 35,000
To Insurance Company A/c 35,000
(Being claim lodged with the insurance
company.)
Profit & Loss A/c Dr. 15,000
To Loss by Fire A/c 15,000
(Being claim lodged with the insurance
company.)
(2) Advertisement Expense A/c Dr. 15,000
To Purchases Account 15,000
(Being goods distributed as free sample.)
(3) Drawings A/c Dr. 40,000
To Purchases Account 40,000
(Being goods taken for personal use)
(4) Purchases A/c Dr. 5,400
Cartage A/c Dr. 100
To Cash A/c 5,500
(Being V.P.P. received and cartage paid.)

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 15 Journal

Did You Know Meaning of V.P.P.

As per the definition posted at www.indiapost.gov.in, “The value payable system
(V.P.P.) is designed to meet the requirements of persons who wish to pay for
articles sent to them at the time of receipt of the articles or of the bills or
railway receipts relating to them, and also to meet the requirements of traders
and others who wish to recover, through the agency of the Post Office the value
of article supplied by them.” It may be noted that, the Central Government shall
not incur any liability in respect of the sum specified for remittance to the
sender in respect of a value payable postal article unless and until that sum has
been received from for remittance to the sender in respect of a value
payable within six months from the date of posting of the article.
In simple terms, under V.P.P., the seller sends the goods through Post Office and
buyer takes delivery of the goods after making payment to Post Office. Thus, from
accounting point of view:
 The person, who is sending goods through V.P.P., is the seller.
 The person receiving the V.P.P. is the buyer.
 Such purchases or sales are always on cash basis.

Illustration 6.5 Journalize the following transactions in the books of Mr. Nikhil:
(a) Goods costing Rs. 1,200 given as charity (Sale price Rs. 1,800)
(b) Goods destroyed by fire (Sale price Rs. 5,000, costing Rs. 4,000)
(c) Goods withdrawn for personal use (Sale price Rs. 6,000, Cost Rs. 4,500)
(d) Goods costing Rs. 2,000 distributed as free sample.
(e) Goods used in furnishing the office costing Rs. 4,000.
(f) Goods costing Rs. 2,500 stolen in transit
Solution
Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(a) Charity A/c Dr. 1,200
To Purchases A/c 1,200
(Being goods distributed as charity)
(b) Loss due to Fire A/c Dr. 4,000
To Purchases A/c 4,000
(Being goods destroyed by fire)
(c) Drawings A/c Dr. 4,500
To Purchases A/c 4,500
(Being goods withdrawn for personal use)
(d) Free Sample A/c Dr. 2,000
To Purchases A/c 2,000
(Being goods distributed as free sample)
(a) Office Furniture A/c Dr. 4,000
To Purchases A/c 4,000
(Being goods used in furnishing the office)
(a) Loss in Transit A/c Dr. 2,500
To Purchases A/c 2,500
(Being goods stolen in transit)

6.14 Transactions related with Fixed Assets

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 16 Journal

When business purchases the item in which it deals in ordinary course of business, it
is treated as purchase of goods. This Purchases A/c is maintained for all purchase of
goods made by the firm. When fixed asset is purchased, the “Asset Account” is
debited individually and is not debited to purchases account because the business
has not purchased it for sale. The examples of Fixed Assets are Machinery, Building,
car, Furniture, etc. When any fixed asset is sold, it is not credited to sales account
rather respective asset account is credited. The following are the relevant entries:
(a) When Asset is purchased on cash basis:
Asset A/c Dr. XXX
To Cash or Bank A/c XXX
(Being the asset purchased on cash basis)

(b) When Asset is purchased on credit:

Asset A/c Dr. XXX
To Vendor’s A/c XXX
(Being the asset purchased on cash basis)

(c) When Depreciation is charged:

Depreciation A/c Dr. XXX Please refer Chapter 11
To Asset A/c XXX (Depreciation) for detail
(Being the asset purchased on cash basis)

(d) When Asset is sold on cash basis:

At the time of sale, profit or loss on such sale is calculated by the comparison of
written down value and sale price.
 In case sale price exceeds the book value, it is a profit and to be
recorded in the following manner:
Cash or Bank A/c Dr. XXX
To Asset A/c XXX
To Profit on Sale A/c XXX
(Being the asset sold on cash basis)
 If sale price is less than the book value, it is a loss, to be recorded as
follows:
Cash or Bank A/c Dr. XXX
Loss on sale A/c Dr. XXX
To Asset A/c XXX
(Being the asset sold on cash basis)

(e) When Asset is sold on credit basis:

If asset is sold on credit, same entries will be passed as above with the
exception that cash/ bank will be replaced by Vendor’s Account.

Did You Know About Expenditure on Repairs, etc. relating to Fixed Asset
When the expenditure is Capitalized:
Any expenditure incurred on the carriage, cartage and installation of Machinery or
other fixed assets is treated as Capital expenditure and is debited to Asset A/c.
When the expenditure is treated as Expense:
The repair charges incurred on existing asset (already appearing in the books) is
treated as business expenditure and is debited to Repair A/c.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 17 Journal
Illustration 6.6 Journalize the following transactions:
(1) Purchased a Machinery by giving a cheque for Rs. 2,45,000 and paid Rs.
15,000 in cash as wages on its installation.
(2) Purchased an old Machine for Rs. 1,05,000 and spent Rs. 7,000 on its
carriage and Rs. 16,000 on its immediate repairs. (Carriage and repair paid
in cash, rest by cheque)
(3) Purchased Building for Rs. 40,00,000 and paid 2% brokerage on its
purchase. Also incurred Rs. 4,00,000 on its registration. Payment for
Building was made by cheque whereas brokerage and registration charges
were paid in cash.
(4) Purchased Machinery for Rs. 1,75,000 by cheque and installation charges of
machine Rs. 4,000 paid in cash.
(5) Purchase Filing Cabinet for office use for Rs. 11,000.
Solution
Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(1) Machinery A/c Dr. 2,60,000
To Bank Account 2,45,000
To Cash Account 15,000
(Being Machinery purchased for Rs.
2,45,000 and wages for Rs. 15,000 paid for
its installation)
(2) Machinery A/c Dr. 1,28,000
To Bank Account 1,05,000
To Cash Account 23,000
(Being Machinery purchased for Rs.
1,05,000 and spent Rs. 7,000 on its carriage
and Rs. 16,000 on its repairs.)
(3) Building A/c Dr. 44,80,000
To Bank Account 40,00,000
To Cash Account 4,80,000
(Being Building purchased for Rs. 40,00,000
and paid brokerage at 2% and registration
charges of Rs. 4,00,000 on it.)
(4) Machinery A/c Dr. 1,79,000
To Bank Account 1,75,000
To Cash Account 4,000
(Being Machinery purchased for Rs.
1,75,000 and installation charges of Rs.
4,000 paid in cash.)
(5) Office Equipment A/c Dr. 11,000
To Cash A/c 11,000
(Being filing cabinet purchased.)

6.15 Accounting entries for other Specific Transactions

Consider the accounting entries for the following specific transactions:

(a) Drawings in cash

Drawings refer to the amount of cash withdrawn by the proprietor for personal
use. It may also be in kind. The usual entry to be passed is to debit the amount
to “Drawings” Account. It may be noted that it is a temporary account, which is
ultimately transferred to Capital Account.
Drawings A/c Dr. XXX

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 18 Journal
To Cash XXX
(Being cash withdrawn for personal use)

(b) Bad Debts

In a business, the goods are also sold on credit basis. The amount to be
recovered from such customers is recorded as debtors. If this amount is not
realized or is partially realized, the unrecovered amount is called as bad debts.
It is definitely a loss for the firm. The following journal entries are passed in
this regard.
(a) When the amount is not recovered:
Bad Debts A/c Dr. XXX
To Debtor’s Personal A/c XXX
(Being the amount not recoverable written off as bad debt)
(b) When a part of debt is not recovered:
Cash or Bank A/c Dr. XXX
Bad Debts A/c Dr. XXX
To Debtor’s Personal A/c XXX
(Being the amount received and balance written off as bad debt, not
recoverable)

(c) Bad Debts Recovered

As discussed above, the unrecovered amount is debited to Bad Debt Account.
Sometimes a debtor, whose account had been written off earlier as bad debt,
pays some amount. This recovery is called as bad debts recovered. In the year
of recovery, it is a gain to the business. The entry to be passed is:
Cash A/c Dr. XXX
To Bad Debts Recovered A/c XXX
(Being recovery of amount earlier written off as bad debt.)

Illustration 6.7 Journalize the following transactions:

(1) Rakesh who owed Rs. 12,000 is declared as insolvent. A dividend of 40 paise in a
rupee is received in full and final settlement.
(2) Received Rupees 2,500 from a debtor whose account has been earlier written
off as bad debt.
Solution
Date Particulars L. F. Dr. (Rs.) Cr.(Rs.)
(a) Cash Account Dr. 4,800
Bad Debt Account Dr. 7,200
To Rakesh’s Account 12,000
(Being cash dividend of 40 paise received
from debtor)
(b) Cash A/c Dr. 4,000
To Bad Debts Recovered Account 4,000
(Being cash received on account of
recovery of a debt earlier written off as
bad.)

(d) Sundry Expenses: A business may incur petty expenses like postage,
conveyance, miscellaneous expenses, etc. These expenses are normally debited
to single account, i.e., Sundry Expenses. The following is the usual entry:
Sundry Expenses A/c Dr. XXX
To Cash A/c XXX
(Being Misc. Expenses incurred)

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 19 Journal
(e) Outstanding Expenses: These refer to those expenses which are related to the
current year but have not been paid till year end. These are accounted as
outstanding expenses if the accounts are prepared on accrual basis. For example
salaries for the current year amounted to Rs. 1,20,000, out of which Rs. 5,000
has not been paid. The adjustment entry for this outstanding Rs. 5,000 would
be:
Salaries A/c Dr. 5,000
To Outstanding Salaries A/c 5,000
(Being the outstanding salaries accounted)

(f) Prepaid Expenses: These are the expenses like insurance premium, rent of the
shop, etc. and are paid in advance. It means a portion of benefit would be
received in next period. These are called as prepaid expenses. For example the
portion of insurance premium that pertains with the next year will be accounted
as follows:
Prepaid Insurance Premium A/c Dr. XXX
To Insurance Premium Account XXX
(Being amount transferred to prepaid insurance premium account)

(g) Opening Entry: At the time of preparation of final accounts, all nominal
accounts are closed by transferring them to Trading and Profit & Loss account.
The real and personal accounts appear in the Balance sheet. These are carried
forward to next year when they become opening balances. At the beginning of
the year, the first entry in the journal is passed to record these balances. This
Journal Entry is called as Opening Entry.

Illustration 6.8
On 1st January, 2019, the position of M/s ABC Bros. was as follows:
Cash in hand Rs. 10,000, Cash at Bank (Canara bank) Rs. 15,000, Machinery Rs.
60,000, Furniture Rs. 22,000, stock Rs. 7,000, Debtor Rs. 21,000, Creditors Rs.
11,000, Loan from IDBI Rs. 29,000 and Bills Payable Rs. 6,000.
Pass the opening Journal Entry.
Solution
Date Particulars L. Dr. (Rs.) Cr.(Rs.)
F.
2019 Cash A/c Dr. 10,000
Jan. 1 Bank A/c Dr. 15,000
Stock A/c Dr. 7,000
Machinery A/c Dr. 60,000
Furniture A/c Dr. 22,000
Debtor A/c Dr. 21,000
To Creditors A/c 11,000
To Loan from IDBI A/c 39,000
To Bills Payable A/c 6,000
To Capital A/c (Balancing Figure) 79,000
(Being the balances of Assets, Liabilities
and Capital brought forward)

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 20 Journal

6.16 Comprehensive Illustrations for Practice

Illustration 6.9
Give journal entries for the following transaction:
2019
Jan. 8 Purchased goods from Suresh of the List Price Rs. 40,000 at 10% Trade
Discount.
Jan. 11 Cash paid to Rahul Rs. 5,000
Jan. 14 Cash received from Mohan Rs. 6,000, on behalf of Sanjay.
Jan. 16 Sold goods to Nalin (List Price Rs. 6,000) at 10% trade Discount.
Jan. 20 Paid cash to Suresh Rs. 36,000
Jan. 22 Received from Nalin Rs. 5,400
Jan. 28 Goods costing Rs. 900 given as charity (Sale price Rs. 1,500)

Solution:
Journal
Date Particulars L Amount Amount
2019 F (Dr.) (Cr.)
Jan. 8 Purchases A/c Dr. 36,000
To Suresh 36,000
(Being goods of the List Price of Rs. 40,000
purchased at 10% Trade Discount)
Jan. 11 Rahul Dr. 5,000
To Cash A/c 5,000
(Being cash paid to Rahul)
Jan. 14 Cash A/c Dr. 6,000
To Sanjay 6,000
(Being cash received from Mohan on
behalf of Sanjay)
Jan. 16 Nalin Dr. 5,400
To Sales A/c 5,400
(Being goods sold to Nalin with List Price
Rs. 6,000 at 10% Trade Discount)
Jan. 20 Suresh Dr. 36,000
To Cash 36,000
(Being cash paid to Suresh)
Jan. 22 Cash A/c Dr. 5,400
To Nalin 5,400
(Being cash received from Nalin)
Jan. 28 Charity A/c Dr. 900
To Purchases A/c 900
(Being goods given as Charity)

Illustration 6.10
Journalize the following (Narrations are not required).

(1) Paid Rs. 5,000 as Rent to Landlord.

(2) Withdrawn goods costing Rs. 6,000 for personal use.
(3) Sold goods to Mukesh for Rs. 20,000 at 10% Trade Discount and 5% Cash
discount.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 21 Journal
(4) Interest due but not received (Rs. 2,000)
(5) Wages due but not paid (Rs. 4,000)
(6) Salaries paid (Rs. 6,000)
(7) Out of Rent paid this year, Rs. 2,500 relates to the next year.
(8) Rs. 1,400 due from Manoj are bad debts and to be written off.

Solution:
Journal
Particulars L Amount Amount
F (Dr.) (Cr.)
(1) Rent A/c Dr. 5,000
To Cash 5,000
(2) Drawings Dr. 6,000
To Purchases A/c 6,000
(3) Bank A/c Dr. 17,100
Discount Allowed A/c Dr. 900
To Sales 18,000
(4) Accrued Interest Dr. 2,000
To Interest A/c 2,000
(5) Wages Dr. 4,000
To Outstanding Wages A/c 4,000
(6) Salaries A/c Dr. 6,000
To Cash 6,000
(7) Prepaid Rent A/c Dr. 2,500
To Rent A/c 2,500
(8) Bad Debts A/c Dr. 1,400
To Manoj 1,400

Illustration 6.11
Journalize the following in the books of Ritu Traders (Narrations are not
required).

(1) Received Rs. 10,000 from Vinod.

(2) Received Rs. 4,000 from Gupta, which were written off as bad debts
in the previous year.
(3) Paid Rs. 500 for repairing the Machinery.
(4) Salaries due to employees (Rs. 8,000)
(5) Provide 10% Depreciation on Furniture costing Rs. 40,000.
(6) Bought goods from Raju for cash Rs. 40,000. Also paid Rs. 3,000
towards carriage
(7) Paid stationery expenses.
(8) Paid for office cleaning.
(9) Sold goods to Madan for Rs. 30,000. Madan paid one-third amount in
cash immediately.
(10) Paid to Shashi Rs. 6,700 in full payment of her dues of Rs. 7,000.
(11) Uninsured goods costing Rs. 2,000 were destroyed by fire.
(12) Mr. Garib, who owed us Rs. 5,000 becomes insolvent and a final
dividend of 60 paise in a rupee is received from his estate by cheque.

Solution:
Journal in the books of Ritu Traders
Particulars L Amount Amount
F (Dr.) (Cr.)
(1) Cash A/c Dr. 10,000

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 22 Journal
To Vinod 10,000
(2) Cash A/c Dr. 4,000
To Bad Debt Recovered A/c 4,000
(3) Repairs A/c Dr. 500
To Cash 500
(4) Salaries A/c Dr. 8,000
To Outstanding Salaries A/c 8,000
(5) Depreciation A/c Dr. 4,000
To Furniture A/c 4,000
(6) Purchases A/c Dr. 40,000
Carriage Inwards A/c Dr. 3,000
To Cash 43,000
(7) Stationery A/c Dr. 350
To Cash A/c 350
(8) Office Expenses A/c Dr. 400
To Cash 400
(9) Cash A/c Dr. 10,000
Madan 20,000
To Sales A/c 30,000
(10) Shashi Dr. 7,000
To Cash A/c 6,700
To discount Received A/c 300
(11) Loss of Goods by Fire A/c Dr. 2,000
To Purchases 2,000
(12) Bank A/c Dr. 3,000
Bad Debts A/c Dr. 2,000
To Garib 5,000

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 23 Journal

TEST YOUR KNOWLEDGE

Objective Type questions

State whether the following statements are True (T) of False (F).
(1) Good worth Rs. 4,000 given as charity would be credited to Purchases A/c.
(2) Sales A/c is always credited.
(3) Journal is a book of final entry.
(4) The debit of Compound Entry is always greater than total of credit.
(5) A withdrawal of cash from business by the proprietor is credited to Drawings
A/c.
(6) There is always a debit balance in personal A/c.
(7) Wages paid for installation of Machinery is debited to Machine a/c.
(8) Bad debt recovered in cash is credited to Debtors a/c.
(9) The opening entry represents the first entry for recording capital contribution
by proprietor.
(10) The business transactions are recorded in chronological order.
[Answers:True:- 1,2,7 and10False:-3,4,5,6,8 and 9]
Theoretical Questions
1. What is a Journal? Why it is called as Book of Original Entry?
2. Explain the advantages and disadvantages of Journal.
3. What is compound Journal Entry? Explain with example.
4. Distinguish between Trade Discount and Cash discount.
5. State any four cases, where the “Purchases A/c” is credited.
6. Give journal entry to be passed in each of the following cases:
a. Recovery of bad-debts.
b. Wages paid on installation of Machinery.
c. Salary paid to Raman.
d. Interest on capital provided.

Practical Questions

Q.1 Journalise the following transactions in the books of Amit:

Amount (Rs.)
(a) Amit started business with cash. 1,00,000
(b) Goods purchased for cash. 10,000
(c) Goods purchased from Manoj. 15,000
(d) Goods purchased. 20,000
(e) Cash paid to Manoj on account. 10,000
(f) Purchased Furniture for cash. 14,000
(g) Good sold for cash. 20,000
(h) Sold goods to Ritu on credit. 16,500
(i) Paid to Rishab as salary. 7,000
(j) Cash received from Ritu. 16,500
(k) Paid Rent for the office. 7,500

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 24 Journal

Q.2 Enter the following transactions in the Journal of M/s Vatsla Enterprises:
2019 (Rs.)
Jan. 2 Commenced business with cash. 2,50,000
Jan. 3 Goods purchased from Meena for cash. 25,000
Jan. 5 Goods purchased from Ajay. 15,000
Jan. 8 Goods returned to Ajay. 2,000
Jan. 8 Sold goods to kamal for cash. 14,000
Jan. 11 Cash paid to Ajay. 13,000
Jan. 16 Sold goods on credit to Raju. 10,000
Jan. 17 Paid for legal charges. 2,000

Q.3 Passed compound Entries for the following:

(a) Paid Rs. 14,000 for salaries and Rs. 10,000 for Rent.
(b) Paid cash to creditors Rs. 14,700 and received discount Rs. 300.
(c) Received Rs. 5,000 from a debtor in full settlement of amount due Rs.
21,000 from him. The loss is due to insolvency of the debtor.
(d) Paid wages Rs. 4,000; Advertisement expenses Rs. 11,000 and salaries
paid Rs. 22,000.

Q.4 Record the following transactions in the Journal of Varad and co.:
2019 (Rs.)
May 1 Paid to Rakesh and 5,350
Discount received from him 150
May 3 Received cash from Rahul and 11,570
Discount allowed to him. 230
May 5 Goods purchased from Manish for cash. 16,500
May 12 Goods sold to Mukesh. 14,250
May 13 Goods sold to Alka. 12,500
May 16 Part of the goods, returned to Manish. 1,500
May 17 Goods returned by Mukesh. 2,250
May 19 Received cash from Mukesh in full settlement of his 11,800
account.
May 22 Sold goods to Krishna. 16,500
May 24 Paid to Manish in full settlement. (discount Received ?
Rs. 1,000)
May 28 Cash received from Krishna. 16,100
Discount allowed to Krishna. 400
May 31 Goods purchased for cash 5,100
Carriage on purchases. 150
Q.5 Give journal entries for the following transaction:
2019 (Rs.)
June 1 Started business with cash. 10,00,000

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 25 Journal

June 4 Cash purchases. 2,00,000

June 6 Furniture purchased for cash. 1,00,000
June 7 Goods purchased on credit from Ashok. 90,000
June 9 Goods purchased from Murli. 40,000
June 11 Goods returned to Ashok. (Being found defective). 10,000
June 14 Paid for life insurance premium of the owner out of 6,000
firm’s cash.
June 16 Multan sold goods to us. 31,000
June 17 Paid for staff welfare expenses in cash. 4,200
June 19 Bought goods from Nehal, List Price Rs. 20,000 less ?
20% trade discount.
June 20 Paid to Murli and 39,550
Discount allowed by Murli. 450
June 22 Sold goods on credit to GaribDass. 5,400
June 23 Paid to Ashok in full settlement 78,500
Discount received 1,500
June 24 Received interest. 6,000
June 28 Paid to Multan (Received discount Rs. 1,000) 30,000
June 29 Sold goods to Manohar 24,000
June 30 Cash received from GaribDass and 5,100
Discount allowed. 300

Q.6 Give journal entries for the following transaction:

2019 (Rs.)
June 2 Sold goods for cash. 50,000
June 4 Sold goods on credit to Mohan. 40,000
June 5 Sold goods to Roshan. 20,000
June 8 Sold goods. 15,000
June 9 Goods sold to Harish with List Price Rs. 20,000 at ?
10% Trade discount and 5% cash Discount. Harish
paid immediately in cash.
June 12 Cash received from Jethalal, earlier written off as bad 2,400
debts.
June 14 Bought goods from Sushil for cash. [List Price Rs. ?
10,000; Trade discount 10%]

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 26 Journal

Q.7 Pass journal entries for the following transactions:

(a) Bought goods from Sohbat of the List Price of Rs. 40,000 at 10% trade
discount.
(b) Settled the account of Sohbat by paying cash, under a discount of Rs.
1,000.
(c) Bought goods for cash of the List Price of Rs. 90,000 at 15% trade
discount and 5% cash discount.
(d) Sold goods for cash Rs. 21,450.
(e) Cash received from Mohan on behalf of Ritika Rs. 4,000.
(f) Sold goods to Muskan having List Price of Rs. 50,000 at 20% Trade
Discount and 5% Cash Discount. She paid 40% immediately through a
banker’s cheque.

Q.8 The following balances appeared in the books of KMB Traders on 1st April,
2019:
Assets Cash Rs. 20,000; Bank Balance Rs. 25,000; Stock Rs. 51,000;
Furniture Rs. 14,000; Debtors Rs. 11,400 and Bills receivable Rs.
7,000.
Liabilities Term Loan Rs. 16,000; Creditors Rs. 15,000
Give the opening entry for the above balances.

Q.9 Pass journal entries for the following:

(a) Paid to Raj Kumar Rs. 9,700 in full settlement of his dues of Rs. 10,000.
(b) Paid Rs. 2,000 for repairing the office furniture.
(c) Bought goods from Mitali for cash Rs. 19,000. Also paid Rs. 500 towards
carriage.
(d) Salary due to clerks Rs. 16,000.
(e) Received Rs. 7,400 from Ravindra, which were earlier written off as bad.
(f) Purchased a Machinery for cash at Rs. 2,50,000. Also paid Rs. 20,000 on
its installment.
(g) Purchased od machinery for Rs. 72,000 and spent Rs. 8,000 on its carriage
and Rs. 12,000 on its immediate repairs.
(h) Paid for stationery Rs. 450.
(i) Cash paid for installation of Plant Rs. 4,000.
(j) Rs. 21,000 due from Shobitis now bad debts. It is sure that nothing will be
received.

Q.10 Journalise the following transactions in the books of Competent Bros.:

(i) Goods worth Rs. 11,000 were given away as charity. (Sales Price Rs.
20,000).
(ii) Goods costing Rs. 16,500 were distributed as free samples. (sales Price
Rs. 24,500).
(iii) Goods costing Rs. 24,000 (Sales value Rs. 32,000) were taken away by
the proprietor for his personal use.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta
Chapter 6 27 Journal

(iv) Goods costing Rs. 4,000 were used in furnishing the office.
(v) Goods worth Rs. 4,000 were stolen by employee.
(vi) Goods costing Rs. 60,000 were destroyed by fir. Insurance company
admitted a claim of Rs. 26,400 only.
(vii) Goods costing Rs. 20,000 were destroyed by fire.

Q.11 Pass journal entries for the following:

(i) Interest due but not received Rs. 2,100.

(ii) Salaries due to staff Rs. 28,500.
(iii) Received commission in cash Rs. 6,000 (Half of the amount is for next
year)
(iv) Provide 10% depreciation on machinery costing Rs. 1,40,000.
(v) Out of rent paid this year, Rs. 5,500 relates to the next year.

Basic Accounting (GMC) CA. (Dr.) K. M. Bansal and Dr. Ritu Gupta