Journal and Subsidiary Books: Recording Transactions

1. What is a Journal?

The Journal is the primary book of original entry in which business transactions are recorded for the first time in chronological (date-wise) order from source documents (like invoices, cash memos, receipts, and vouchers).

The word “Journal” originates from the French word “Jour”, which means “day”. Hence, a journal is literally a daily record of business dealings.

The act of recording a transaction in the journal is called Journalizing, and the resulting written record is called a Journal Entry.

2. Standard Format of a Journal

A standard journal page consists of 5 columns:

1. Date Column: The year, month, and exact day on which the transaction occurred.
2. Particulars Column:
   • Name of the account to be debited written first with the prefix “Dr.” at the end of the line.
   • Name of the account to be credited written on the next line indented with the prefix “To”.
   • Narration: A brief explanation of the transaction enclosed in brackets starting with the word “Being…”.
3. L.F. (Ledger Folio) Column: The page number of the Ledger where this journal entry has been posted. It remains blank at the time of journalizing and is filled when posting to the ledger.
4. Debit Amount (₹): The monetary value debited to the account.
5. Credit Amount (₹): The monetary value credited to the account.

3. Rules of Journalizing (How to Pass an Entry)

To record any journal entry correctly, follow this 3-step decision process:

1. Identify the two accounts affected by the transaction.
2. Classify the accounts into Personal, Real, or Nominal (or Assets, Liabilities, Capital, Expense, Revenue).
3. Apply the Golden Rules:

                       The 3 Golden Rules
                               |
       +-----------------------+-----------------------+
       |                       |                       |
Personal Account          Real Account           Nominal Account
"Debit the Receiver,    "Debit what comes in,   "Debit all expenses & losses,
 Credit the Giver"       Credit what goes out"   Credit all incomes & gains"

4. Types of Journal Entries

1. Simple Journal Entry: Contains only one debit account and one credit account.
   • Example: Started business with cash ₹50,000 → Cash A/c Dr. ₹50,000, To Capital A/c ₹50,000.
2. Compound Journal Entry: An entry that involves more than two accounts (either multiple debits, multiple credits, or both) occurring on the same date.
   • Example: Paid ₹9,500 cash to a creditor in full settlement of a ₹10,000 debt (₹500 discount received):

     Creditor A/c .......................... Dr.   ₹10,000
         To Cash A/c .....................................   ₹9,500
         To Discount Received A/c ........................   ₹500
     (Being cash paid and discount received in full settlement)

5. Comprehensive Solved Practice Illustration

Let us pass journal entries for the following transactions of Mr. Rajesh for October 2026:

1. Oct 1: Started business with cash ₹2,00,000 and goods worth ₹50,000.
2. Oct 3: Deposited cash into State Bank of India ₹80,000.
3. Oct 7: Purchased goods from Verma Traders on credit for ₹40,000 at 10% Trade Discount.
4. Oct 12: Sold goods to Priya for ₹25,000 for cash.
5. Oct 16: Sold goods to Rohit on credit for ₹30,000.
6. Oct 20: Paid Verma Traders by cheque ₹35,000 in full settlement of their account.
7. Oct 25: Received cash from Rohit ₹29,000; allowed him cash discount ₹1,000.
8. Oct 31: Paid shop electricity bill ₹3,000 and office assistant salary ₹12,000 in cash.

In the Books of Mr. Rajesh — Journal

Important Exam Tip regarding Trade Discount vs. Cash Discount:

• Trade Discount: A reduction granted from the catalog price at the time of purchase/sale. It is never recorded in the books of accounts; transactions are entered directly at net invoice value (as in Oct 7 above: ₹40,000 - 10% = ₹36,000).
• Cash Discount: An allowance offered to encourage prompt payment within a specified period. It is always recorded in the books under Discount Allowed (an expense) or Discount Received (an income).

6. Need for Subsidiary Books (Sub-division of Journal)

When a business grows large and conducts thousands of transactions daily, recording everything in a single Journal causes serious bottlenecks:

1. One clerk cannot handle the volume alone.
2. Finding a specific past transaction becomes extremely slow.
3. The journal becomes unmanageably bulky.

To overcome this, the Journal is divided into Specialized Subsidiary Books (Day Books):

7. Summary & Quick Revision Checklist

• Journal is the primary book of original entry; records transactions chronologically.
• Every entry has 5 columns: Date, Particulars, Ledger Folio (L.F.), Debit Amount, Credit Amount.
• Every entry must conclude with a Narration explaining the transaction.
• Trade Discount is deducted from the invoice price and never shown in accounts; Cash Discount is explicitly recorded.
• Large firms subdivide the journal into Subsidiary Books (Cash Book, Purchases Book, Sales Book, Journal Proper).