Recording of Transactions — Journal
The journal is the first place every business transaction gets written down — in a clear debit-and-credit format that keeps accounts balanced. Master it here, and the rest of financial accounting will fall into place.
Every journal entry you write in your exam — and every set of books a future employer or client asks you to audit — starts with this exact skill, so getting the journal right is the single most valuable thing you can learn in Plus One Accountancy.
Concept
Lots of students think…
"The journal and the ledger are basically the same thing, just presented in a different layout."
Actually…
The journal records transactions in the order they happen (chronological). The ledger groups all entries for each individual account together. You write the journal first, and the ledger is built from it later through a process called posting.
By the end of this chapter you will know how every business transaction gets written down — in a neat, balanced format called the journal — so that accounts never get confused. Get this right and the rest of accountancy will make sense.
The Journal: First Stop for Every Transaction
The journal is the very first book in which a business records what happened. Every purchase, every sale, every payment — it all goes here first, in the order it happened. That is why it is called the book of original entry.
Priya runs a stationery shop in Thrissur. On Monday she buys pens for ₹2,000, on Tuesday she sells notebooks for ₹500, and on Wednesday she pays rent of ₹3,000. Each event is written in the journal on the day it happens — Monday first, then Tuesday, then Wednesday. Nothing is skipped.
Double-Entry: Every Transaction Has Two Sides
Every transaction affects at least two accounts. Whatever comes in must be balanced by something going out — or by an increase somewhere else. This is called double-entry bookkeeping. The two sides are called debit (Dr.) and credit (Cr.), and they must always be equal.
Rajan's hardware shop in Ernakulam receives ₹10,000 cash from a customer. Cash comes in (one side) and the amount the customer owed goes down (the other side). Two accounts are touched, same ₹10,000 on both sides. The books stay balanced.
Debit and Credit Rules by Account Type
To know which side to record on, first ask: what type of account is this? Assets and expenses increase on the debit side. Liabilities, capital, and income increase on the credit side. When something decreases, it goes on the opposite side.
Ananya opens a textile shop in Kozhikode and puts ₹3,00,000 of her savings into her business bank account. Bank is an asset — it increased — so you debit Bank ₹3,00,000. Capital is the owner's stake — it increased — so you credit Capital ₹3,00,000. Same amount, two accounts, balanced.
How a Journal Entry Looks
Every journal entry has five parts: the date, the accounts affected (with the credited account written below and slightly indented, starting with 'To'), a short explanation called the narration, and the debit and credit amounts in their own columns. The narration is not optional — it explains why the entry exists.
Sreejith buys furniture worth ₹25,000 paying by cheque for his shop in Kannur. The entry reads: 'Furniture Account Dr. ₹25,000 / To Bank Account ₹25,000' and below that in brackets: '(Purchased furniture by cheque for shop use.)' — that bracketed sentence is the narration. An exam examiner will deduct marks if it is missing.
Compound Entry: One Payment, Many Accounts
Sometimes one payment covers more than two accounts. Instead of writing separate entries, you can write one compound entry — with multiple debits or multiple credits — as long as the total debit still equals the total credit.
Mohammed, who owns a small shop in Kozhikode, pays ₹15,000 by cash in a single transaction: ₹10,000 for goods and ₹5,000 for furniture. One compound entry: debit Purchases ₹10,000, debit Furniture ₹5,000, credit Cash ₹15,000. Total debit = ₹15,000, total credit = ₹15,000. Balanced.
Opening Entry: Starting a New Year
At the start of every new accounting year, the business carries forward what it owns (assets) and what it owes (liabilities) from the previous year. All assets are debited and all liabilities and capital are credited in one opening journal entry. The totals always match because last year's balance sheet was balanced.
On 1 April 2025, Divya's bookshop in Thiruvananthapuram opens its new year books. She had cash ₹50,000, stock ₹80,000 (both assets — debited), and owes ₹30,000 to a supplier (liability — credited), with the rest being her capital ₹1,00,000 (credited). Total debits = Total credits. The new year begins with a clean, balanced start.
Notes
The journal is the book of original entry — the first place a transaction is written down, in debit-and-credit form, with a narration explaining it. This chapter covers source documents, the two approaches to deciding debit and credit (traditional golden rules and the modern approach), the five-column journal format, compound entries and the opening entry.
Key terms & definitions
- Journal
- The book of original (prime) entry in which every transaction is first recorded in chronological order, showing the accounts debited and credited.
- Journalising
- The act of analysing a transaction and recording it in the journal as a debit and an equal credit.
- Narration
- A short explanation written in brackets below each journal entry stating why the entry was made. It is part of the entry, not optional.
- Double-entry system
- The system under which every transaction is recorded in at least two accounts, with total debits always equal to total credits.
- Debit (Dr.)
- The left-hand side of an account. It records increases in assets and expenses, and decreases in liabilities, capital and income.
- Credit (Cr.)
- The right-hand side of an account. It records increases in liabilities, capital and income, and decreases in assets and expenses.
- Personal Account
- An account of a person, firm or institution — Ramesh A/c, Kerala Bank A/c, a debtor or creditor.
- Real Account
- An account of an asset or property — Cash A/c, Furniture A/c, Building A/c, Purchases A/c.
- Nominal Account
- An account of an expense, loss, income or gain — Rent A/c, Salary A/c, Commission Received A/c.
- Compound (combined) entry
- A single journal entry involving more than two accounts, used when several transactions occur on the same date or one transaction affects several accounts.
- Opening entry
- The entry passed on the first day of a new accounting year bringing forward last year's assets (debited) and liabilities and capital (credited).
- Ledger Folio (L.F.)
- The column in the journal recording the page number of the ledger to which the entry has been posted — it links the two books.
Why the journal exists
- A stationery shop in Thrissur sees money in, money out and goods moving every day. Without a systematic record the owner soon loses track of what is owned, owed and earned.
- The journal captures each transaction ONCE, in date order, with both sides of its effect.
- It is called the book of ORIGINAL ENTRY because it is where a transaction enters the accounting system.
- From the journal, entries are later POSTED to the ledger — the journal is the source, the ledger is the organiser.
Source documents — where an entry starts
- Nothing is journalised without evidence. The document is the proof behind the entry.
- CASH MEMO: proof of a cash sale or cash purchase.
- INVOICE / BILL: proof of a credit sale (to the seller) or credit purchase (to the buyer).
- RECEIPT: proof that cash or cheque has been received.
- DEBIT NOTE: sent when returning goods to a supplier, reducing what we owe him.
- CREDIT NOTE: sent when a customer returns goods to us, reducing what he owes us.
- VOUCHER: the internal document, prepared from the above, that authorises the entry.
The double-entry principle
- Every transaction affects AT LEAST two accounts.
- The total debited must always equal the total credited — this is not a coincidence, it is the dual aspect concept in action.
- Debit and credit here mean LEFT and RIGHT. They do not mean 'increase' and 'decrease' by themselves.
- Because debits always equal credits, a trial balance can later be used to test arithmetical accuracy.
Traditional approach — the three golden rules
- PERSONAL accounts: Debit the RECEIVER, Credit the GIVER.
- REAL accounts: Debit what COMES IN, Credit what GOES OUT.
- NOMINAL accounts: Debit all EXPENSES AND LOSSES, Credit all INCOMES AND GAINS.
- Step 1 identify the two accounts; Step 2 classify each as personal, real or nominal; Step 3 apply the matching rule.
- Example — paid salary ₹8,000 in cash: Salary (nominal, an expense) is debited; Cash (real, goes out) is credited.
Modern approach — by type of account
- ASSETS: increase → Debit; decrease → Credit.
- EXPENSES: increase → Debit.
- LIABILITIES: increase → Credit; decrease → Debit.
- CAPITAL: increase → Credit; decrease (drawings, loss) → Debit.
- INCOME / REVENUE: increase → Credit.
- Memory aid: assets and expenses behave the same way (debit to increase); liabilities, capital and income behave the same way (credit to increase).
- Both approaches always give the SAME entry — use whichever you find quicker, but be consistent within an answer.
The journal format
- Five columns: DATE | PARTICULARS | L.F. | DEBIT AMOUNT (₹) | CREDIT AMOUNT (₹).
- In Particulars, the account debited is written on the first line, ending with 'Dr.'
- The account credited is written on the next line, indented, preceded by 'To'.
- Below that, in brackets, comes the NARRATION.
- A thin line is drawn across the Particulars column to separate one entry from the next.
- The L.F. column stays blank until the entry is actually posted to the ledger.
Worked entries — Shruti's textbook shop, Kochi
- 1 June: started business with ₹2,00,000 cash → Cash A/c Dr. ₹2,00,000 / To Capital A/c ₹2,00,000. (Cash comes in; the owner is the giver.)
- 1 June: bought 500 books for ₹50,000 cash → Purchases A/c Dr. ₹50,000 / To Cash A/c ₹50,000. (Goods bought for resale go to PURCHASES, never to 'Books A/c'.)
- Later: received ₹15,000 cash for books sold → Cash A/c Dr. ₹15,000 / To Sales A/c ₹15,000.
- Note the pattern: in every entry the debit total equals the credit total.
Goods versus assets — a constant source of error
- Items bought FOR RESALE are goods → use the PURCHASES account.
- Items bought FOR USE in the business are assets → use the asset's own account.
- A bookshop buying books for resale debits Purchases. The same bookshop buying a computer for the counter debits Computer A/c.
- Similarly, goods sold are credited to SALES, while an old asset sold is credited to that asset's account — not to Sales.
Compound (combined) entries
- Used when one transaction affects more than two accounts, or several transactions of the same date are combined.
- Example: goods worth ₹10,000 and furniture worth ₹5,000 bought in one payment of ₹15,000 →
- Purchases A/c Dr. ₹10,000
- Furniture A/c Dr. ₹ 5,000
- To Cash A/c ₹15,000
- The rule is unchanged: total debits must equal total credits.
The opening entry
- Passed on the first day of a new accounting year to bring in last year's closing balances.
- ALL ASSETS are DEBITED (assets carry debit balances).
- ALL LIABILITIES and CAPITAL are CREDITED.
- If capital is not given, it is the balancing figure: Capital = Total Assets − Total Liabilities.
- Narration: '(Being the balances brought forward from the previous year)'.
Trade discount and cash discount
- TRADE DISCOUNT is deducted on the invoice itself. Only the NET amount is journalised — trade discount never appears as a separate account.
- CASH DISCOUNT is allowed for prompt payment and IS recorded: Discount Allowed (an expense) when we give it, Discount Received (an income) when we get it.
- Example: goods listed ₹10,000 with 10% trade discount → record the purchase at ₹9,000.
- If ₹9,000 is then settled at ₹8,800 for early payment, the ₹200 is Discount Received.
Three mistakes to avoid
- The journal and the ledger are NOT the same book in different formats. Every transaction goes through BOTH — journal first, then posted to the ledger.
- In a journal entry the debit and credit amounts MUST be equal. They are not meant to differ 'to show movement'.
- The narration is not optional. Omitting it loses marks even when the entry itself is correct.
Formulas & formats
- Journal format: DATE | PARTICULARS | L.F. | DEBIT ₹ | CREDIT ₹ | X A/c Dr. | | 10,000 | | To Y A/c | | | 10,000 | (Being ..... narration .....) | | |
- Traditional golden rules: PERSONAL : Debit the receiver, Credit the giver REAL : Debit what comes in, Credit what goes out NOMINAL : Debit expenses and losses, Credit incomes and gains
- Modern approach: Assets ↑ Dr. / ↓ Cr. Expenses ↑ Dr. Liabilities ↑ Cr. / ↓ Dr. Capital ↑ Cr. / ↓ Dr. Income ↑ Cr.
- Opening entry: All Assets A/c Dr. To All Liabilities A/c To Capital A/c (Capital = Total Assets − Total Liabilities, if not given)
- Discounts: Trade discount → deduct on the invoice; record NET amount only, no separate account Cash discount → record as Discount Allowed (expense) or Discount Received (income)
Important questions & model answers
What is a journal? Why is it called the book of original entry?
2 marks- A journal is the book in which every business transaction is recorded first, in chronological order, showing the account to be debited, the account to be credited and a narration.
- It is called the book of original entry because a transaction enters the accounting records here for the first time, before being posted to the ledger.
State the three golden rules of accounting with one example each.
3 marks- PERSONAL ACCOUNT — Debit the receiver, credit the giver. Example: cash paid to Ramesh → Ramesh A/c Dr., To Cash A/c.
- REAL ACCOUNT — Debit what comes in, credit what goes out. Example: furniture bought for cash → Furniture A/c Dr., To Cash A/c.
- NOMINAL ACCOUNT — Debit all expenses and losses, credit all incomes and gains. Example: rent paid → Rent A/c Dr., To Cash A/c.
Journalise: (i) Shruti started business with ₹2,00,000 cash. (ii) Purchased 500 books for ₹50,000 cash. (iii) Received ₹15,000 cash for books sold.
5 marks- (i) Cash A/c ......... Dr. ₹2,00,000 / To Capital A/c ₹2,00,000 — (Being business started with cash)
- (ii) Purchases A/c ... Dr. ₹50,000 / To Cash A/c ₹50,000 — (Being books purchased for cash)
- (iii) Cash A/c ....... Dr. ₹15,000 / To Sales A/c ₹15,000 — (Being books sold for cash)
- Note: books bought for RESALE are debited to Purchases A/c, not to a 'Books A/c'.
- In each entry the debit total equals the credit total, satisfying the double-entry principle.
What is a compound journal entry? Give an example.
3 marks- A compound (combined) journal entry is one which involves more than two accounts — used when a single transaction affects several accounts or several transactions of the same date are recorded together.
- Example: goods worth ₹10,000 and furniture worth ₹5,000 purchased by a single cash payment of ₹15,000.
- Purchases A/c Dr. ₹10,000; Furniture A/c Dr. ₹5,000; To Cash A/c ₹15,000.
- The total of the debits (₹15,000) equals the credit, so the double-entry rule is preserved.
Distinguish between trade discount and cash discount.
4 marks- PURPOSE: Trade discount is a reduction in the list price allowed for bulk buying or to a trader; cash discount is allowed to encourage prompt payment.
- TIME: Trade discount is given at the time of sale or purchase; cash discount is given at the time of payment.
- RECORDING: Trade discount is deducted on the invoice and is NOT recorded separately — only the net amount is journalised. Cash discount IS recorded, as Discount Allowed or Discount Received.
- NATURE: Trade discount never appears in the books; cash discount appears as a nominal account in the Profit & Loss Account.
Pass the opening entry: Cash ₹20,000, Stock ₹35,000, Furniture ₹15,000, Creditors ₹12,000, Bank Loan ₹18,000.
4 marks- Total Assets = 20,000 + 35,000 + 15,000 = ₹70,000. Total Liabilities = 12,000 + 18,000 = ₹30,000.
- Capital (balancing figure) = ₹70,000 − ₹30,000 = ₹40,000.
- ENTRY: Cash A/c Dr. ₹20,000; Stock A/c Dr. ₹35,000; Furniture A/c Dr. ₹15,000;
- To Creditors A/c ₹12,000; To Bank Loan A/c ₹18,000; To Capital A/c ₹40,000.
- (Being the balances brought forward from the previous year)
- Check: debits ₹70,000 = credits ₹70,000. ✔
Why is a narration written below a journal entry?
2 marks- The narration is a brief explanation, written in brackets, stating the reason for the entry.
- It allows any person examining the books later — an auditor, a partner or the proprietor — to understand the purpose of the entry without going back to the source document.
- It is treated as an essential part of the entry; an entry without a narration is regarded as incomplete.
A bookshop buys books for resale and also buys a computer for its billing counter. How is each recorded, and why differently?
3 marks- The books are goods purchased for RESALE, so they are debited to the PURCHASES ACCOUNT.
- The computer is bought FOR USE in the business, not for resale, so it is debited to the COMPUTER ACCOUNT as a fixed asset.
- The distinction matters because purchases are charged to the Trading Account in arriving at gross profit, whereas a fixed asset appears in the Balance Sheet and is depreciated over its useful life.
- Treating the computer as a purchase would understate profit and omit an asset.
Name any four source documents and state what each proves.
4 marks- CASH MEMO — proof of a purchase or sale made for cash.
- INVOICE / BILL — proof of a credit purchase or credit sale.
- RECEIPT — proof that cash or a cheque has been received.
- DEBIT NOTE — prepared when goods are returned to a supplier, reducing the amount payable to him.
- CREDIT NOTE — prepared when a customer returns goods, reducing the amount receivable from him.
Explain the modern (accounting-equation) approach to debit and credit.
4 marks- Under the modern approach all accounts are classified as assets, liabilities, capital, income or expenses, and the rule follows from the accounting equation.
- ASSETS: debited when they increase, credited when they decrease.
- EXPENSES: debited when they increase.
- LIABILITIES, CAPITAL and INCOME: credited when they increase, debited when they decrease.
- The logic is that assets and expenses sit on the left of the equation, while liabilities, capital and income sit on the right.
- This approach gives exactly the same entry as the traditional golden rules.
Exam tips
- Always write 'Dr.' after the account debited and 'To' before the account credited — the format itself carries marks.
- Never omit the narration, even when short of time. A correct entry without narration is treated as incomplete.
- Goods bought for resale go to PURCHASES A/c. Writing 'Books A/c' or 'Goods A/c' is a standard and costly error.
- For trade discount, journalise only the NET amount; never open a Trade Discount account.
- In an opening entry, if capital is not given, compute it as Total Assets − Total Liabilities and state that it is the balancing figure.
- Total your debit and credit columns before moving on — if they differ, one side of a transaction has been missed.
- Choose either the golden rules or the modern approach and stay with it through the whole answer; mixing the two confuses the examiner.
Quick revision
- Journal = book of original entry; ledger = book of final entry.
- Every entry: account debited (Dr.) first, account credited ('To') second, narration in brackets.
- Golden rules — Personal: debit receiver, credit giver. Real: debit what comes in, credit what goes out. Nominal: debit expenses/losses, credit incomes/gains.
- Modern rules — Assets ↑Dr, Expenses ↑Dr, Liabilities ↑Cr, Capital ↑Cr, Income ↑Cr.
- Bought for resale → Purchases A/c. Bought for use → the asset's own account.
- Compound entry: more than two accounts, debits still equal credits.
- Opening entry: assets Dr., liabilities and capital Cr.; capital is the balancing figure.
- Trade discount is never recorded; cash discount is recorded as Discount Allowed / Received.
- Source documents: cash memo, invoice, receipt, debit note, credit note, voucher.
The full picture
Imagine you run a small stationery shop in Thrissur. Every day, money comes in from customers, money goes out to suppliers, and goods move in and out. If you do not write these down systematically, you will quickly lose track of what you own, what you owe, and how much profit you are making. That is exactly the problem the journal solves. The journal — also called the book of original entry or book of prime entry — is a chronological record of every business transaction. 'Chronological' simply means in the order events happened. Every transaction enters the journal first, before it is transferred anywhere else.
The journal works on the principle of double-entry bookkeeping. This rule says that every transaction affects at least two accounts, and the total amount recorded on one side must equal the total on the other side. The two sides are called debit (Dr.) and credit (Cr.). You do not need to memorise these as 'left' and 'right' — instead, learn the rules by account type. An asset or an expense increases on the debit side and decreases on the credit side. A liability, revenue (income), or capital increases on the credit side and decreases on the debit side. For example, when you receive cash from a customer, Cash (an asset) increases — so you debit Cash. The amount owed by the customer decreases — so you credit the Debtors account. Both sides record the same amount, keeping the books balanced.
A journal entry has a standard format with five columns: Date, Particulars, Ledger Folio (L.F.), Debit Amount, and Credit Amount. In the Particulars column, you write the account being debited on the first line, the account being credited on the second line (slightly indented and preceded by 'To'), and then a narration — a short sentence in brackets explaining what happened. For example: 'Purchased goods for cash from Rajan Stores, Ernakulam.' The narration is not decoration; it is the explanation that helps an auditor, a tax officer, or even your future self understand why the entry exists. The Ledger Folio column stays blank while you write the journal and is filled in later when you post entries to the ledger.
How do you know which account to debit and which to credit? A reliable approach is to first identify the two accounts affected, then decide the account type for each, and then apply the rules. Take this example: you buy furniture worth ₹25,000 paying by cheque. The two accounts affected are Furniture (an asset, coming in) and Bank (an asset, going out). Furniture increases, so debit Furniture ₹25,000. Bank decreases, so credit Bank ₹25,000. Always verify: do both sides record the same amount? Yes — the entry is balanced. This is the mechanical check that protects against errors before they reach the ledger.
One special type of journal entry you will encounter in Kerala SCERT is the compound entry. When one transaction affects more than two accounts — for example, you buy goods worth ₹10,000 and furniture worth ₹5,000 in a single payment of ₹15,000 — you can combine them into one entry: debit Purchases ₹10,000, debit Furniture ₹5,000, and credit Cash ₹15,000. The total debit (₹15,000) still equals the total credit (₹15,000). Compound entries save space and time but must be used carefully — the logic of each debit and credit must still be correct. Board examiners often test compound entries, so practise them deliberately.
The journal is also where the accounting year begins. On the first day of the new accounting year, opening balances of all assets and liabilities from the previous year are brought into the books through an opening journal entry. All assets are debited because assets sit on the debit side of the accounting equation (Assets = Liabilities + Capital). All liabilities and capital are credited because they represent claims against those assets — liabilities are amounts the business owes to outside creditors, and capital is the owner's stake in the business. Since a properly maintained closing balance sheet always balances, the total of all asset debits will exactly equal the total of all liability and capital credits, leaving no difference. Understanding this entry firmly connects the journal to the broader accounting cycle — trial balance, trading account, profit and loss account, and balance sheet — which you will study in later chapters.
An Indian example
Ananya runs a small textile shop in Kozhikode. On 1 April 2024 she starts her business by depositing ₹3,00,000 of her own savings into her business bank account. That day, she also buys fabric worth ₹80,000 on credit from Sreejith Textiles, Kannur. Two days later, a local tailor pays her ₹12,000 cash for fabric he ordered. Each event needs a separate journal entry. Entry 1: Bank Account Dr. ₹3,00,000 / To Capital Account ₹3,00,000 — her asset (Bank) increases and her capital (owner's equity) increases equally. Entry 2: Purchases Account Dr. ₹80,000 / To Sreejith Textiles (Creditor) ₹80,000 — her goods (expense/purchases) increase and her liability to Sreejith increases. Entry 3: Cash Account Dr. ₹12,000 / To Sales Account ₹12,000 — cash (asset) comes in and her revenue (sales) rises. In each entry, debit equals credit. If Ananya's books are ever checked by a GST officer or a bank lending her money, these three entries are the first evidence they will look at.
Common misconceptions to watch for
- Many students think the journal and the ledger are the same thing, just formatted differently. They are not — the journal records transactions in the order they happen (chronological order), while the ledger groups all entries for each individual account together. You write the journal first; the ledger is built from it later through a process called posting.
- Students often believe that in a journal entry, the debit amount and the credit amount should be different numbers to 'show movement'. This is wrong — the debit amount and the credit amount in a single journal entry are always exactly equal. Double-entry means two accounts are affected, not two different amounts. If they are not equal, the entry has an error.
- A common exam mistake is writing the narration as optional or skipping it to save time. In reality, the narration (the explanation in brackets below the entry) is a required part of a journal entry. Board examiners deduct marks for missing narrations, and in real business, the narration is the only written explanation of why a transaction was recorded — it protects the business owner legally.
Video
Journal Entries Step by Step: 5 Prompts That Stick
Questions
Shruti owns a small textbook shop in Kochi. On 1 June 2024, she starts the business with ₹2,00,000 in cash from her savings. On the same day, she purchases 500 books for ₹50,000 cash. Later, she receives ₹15,000 in cash for books sold. Prepare journal entries for all three transactions.
- 1Record the opening investment of cash into the business.
Date: 1 June 2024 Cash Account Dr. ₹2,00,000 To Capital Account ₹2,00,000 (Being cash invested by Shruti into the business)
When Shruti puts ₹2,00,000 into the business, the Cash account (an asset) increases. Assets increase on the debit side, so debit Cash. The owner's contribution increases Capital (equity), which increases on credit. Both sides equal ₹2,00,000—this is how double-entry works.
Question 1 of 5 · easy
Which of the following best describes the relationship between the journal and the ledger?
Quiz
Test yourself — pick an answer, then hit "Check" to see the explanation and your running score.
Question 1 of 5 · easy
Which of the following best describes the relationship between the journal and the ledger?
Simulator
The Accounting Cycle
Pick a debit account and a credit account to see the rule that fires.
Journal
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