Journal

A journal is the book of original entry — the first place a transaction is recorded, in date order, before it goes anywhere else. To record it we must decide which account is debited and which is credited. For that, we first classify accounts.

Traditional classification sorts every account into three types:

• Personal accounts — of persons and firms (Ram, a bank, a company; also capital and drawings).
• Real accounts — of assets and property (cash, building, machinery, goods).
• Nominal accounts — of expenses, losses, incomes and gains (rent, wages, salary, commission received).

Each type has a golden rule:

The modern (accounting-equation) classification sorts accounts into Assets, Liabilities, Capital, Revenue and Expenses, and uses one consistent rule based on increase/decrease:

Both systems give the same answer. Whichever you use, the golden test of double entry holds: for every transaction, total debits = total credits.

A journal entry is written in a fixed format: the account debited first (with "Dr"), the account credited below it (prefixed "To"), a short narration in brackets, and the amounts in the debit and credit columns.

A simple entry involves exactly two accounts (one debit, one credit). A compound entry involves more than two accounts — several debits and/or several credits in one entry, used when several things happen together. The only rule is that the total of the debit amounts must equal the total of the credit amounts.

Some standard entries to memorise:

• Started business with cash: Cash A/c Dr, To Capital A/c.
• Purchased goods for cash: Purchases A/c Dr, To Cash A/c.
• Sold goods on credit to Ram: Ram A/c Dr, To Sales A/c.
• Paid salary: Salary A/c Dr, To Cash A/c.
• Withdrew cash for personal use: Drawings A/c Dr, To Cash A/c.

Note the difference between buying an asset (Furniture A/c) and buying goods for resale (Purchases A/c) — a very common exam trap.

Besides ordinary transaction entries, the journal also carries a few special entries.

• Opening entry — passed at the start of a new year to bring forward the previous year's closing balances. All assets are debited, all liabilities and capital are credited (capital is the balancing figure). For example: Cash A/c Dr, Stock A/c Dr, Furniture A/c Dr… To Creditors A/c, To Capital A/c.
• Closing entries — passed at the end of the year to close the nominal accounts (expenses and incomes) by transferring them to the Trading and Profit & Loss Account. For example, to close the wages account: Trading A/c Dr, To Wages A/c.
• Adjusting entries — passed for items like outstanding expenses, prepaid expenses, depreciation, etc., so that the accounts show the correct figures for the period (studied fully in Final Accounts).
• Rectification (rectifying) entries — passed to correct errors already made in the books. The idea: pass an entry that cancels the wrong effect and puts in the right one. A full treatment comes in the Trial Balance chapter, but the principle is introduced here: never erase an entry — correct it with another journal entry, so the trail stays honest and auditable.

So the journal is far more than a daybook of sales and purchases: it is where the year is opened, adjusted, closed and, when needed, corrected. Mastering these entry types is what turns a list of transactions into a complete, self-correcting record.