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JOURNAL
RECORDING IN THE PRIMARY BOOKS

Prof. K.Omprakash

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Primary Books

Books of accounts consist of two broad sets of books: Primary Books and Secondary Books. A primary Book (also called Journal) is a book of

prime (first) entry of transactions.

Any transaction which is not recorded in primary book does not get reflected in books of accounts.

Recording in the Primary Books

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Ground Rules for Recording in Primary Books

Recollect the accounting equation:

A(Asset)= L(Liabilities)+ E(Equity)

Increase in assets and decrease in liabilities and equity: Debit. Decrease in assets and increase in liabilities and equity: Credit. Expenses and losses: Debit Income and gains: Credit

Ground Rules:

Recording in the Primary Books

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Application of Ground Rules

Example 1:
ABC Ltd bought an equipment for Rs. 500,000 in cash.

Is it a transaction? There are two elements: Equipment (Asset) and Cash (Asset). One asset (Equipment) increases and the other asset (Cash) decreases. Applying ground rules: Equipment Debit Rs.500,000 Cash Credit Rs. 500,000

Recording in the Primary Books

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Application of Ground Rules

Example 2:
ABC Ltd. purchased raw materials for immediate consumption worth Rs. 200,000 paying 50% in cash and balance payable after one month.

Three elements: Purchase of raw materials (Expenses), Cash (Asset), Payables to suppliers (Liability) Expenses are incurred, cash (Asset) depletes, and Suppliers Credit (Liabilities) increases. Applying ground rules: Purchases Debit Rs. 200,000 Cash Credit Rs. 100,000 Creditors Credit Rs. 100,000

Recording in the Primary Books

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Application of Ground Rules

Example 3: Cash sales of Rs. 100,000

Two elements- Cash (Asset) and Sales (Income) Cash (Asset) increases and Sales (Income) increases. Applying ground rules:

Cash

Debit

Rs. 100,000

Sales

Credit

Rs. 100,000

Recording in the Primary Books

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Application of Ground Rules

Example 4: Repayment of Loan of Rs. 150,000

The two elements are: Loan (Liability) and Cash (Asset) Loan (Liability) has decreased and Cash (Asset) has also decreased. Applying ground rules:

Loan Cash

Debit Credit

Rs. 150,000 Rs. 150,000

Recording in the Primary Books

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Application of Ground Rules

Example 5: Sold goods worth Rs. 10,00,000 on credit.

The two elements are sales (income) and receivables from customer (Asset). Income (sales) increases and Asset (Debtors) also increases. Applying ground rules: Debtors Debit Rs. 10,00,000 Sales Credit Rs. 10,00,000

Recording in the Primary Books

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Application of Ground Rules

Example 6: Continuing with Example 5,the customer has paid Rs. 9,90,000 in full and final settlement of her dues.

The elements are receivables from customer (Asset), cash (Asset), discount allowed (expense) One asset (receivables from customer) decreases, another asset (cash) increases and an expense (discount allowed) has been incurred. Applying ground rules: Cash Debit Rs. 9,90,000 Discount Allowed Debit Rs. 10,000 Debtors Credit Rs. 10,00,000

Recording in the Primary Books

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Types of Journal

There are many primary books (i.e., Journal Books). The transactions are categorized as per their nature and, for each type of transaction, a separate journal is used for recording the transaction. Since transactions are recorded in journal chronologically as these occur, journal books are generally called day books.

Recording in the Primary Books

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Types of Journal

There are eight types of journal books:

Purchases Day Book It records credit purchase of raw materials, and traded goods Sales Day Book It records credit sale of goods. Return Outward (also called Purchases Return) Book It records goods returned to the supplier (s) of raw materials and traded goods. Return Inward (also called Sales Return) Book It records goods returned by customers.

Recording in the Primary Books

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Types of Journal

Bills Receivable Book

It records bills (of exchange) accepted by customers.

Bills Payable Book

It records bills (of exchange) raised by suppliers.

Cash Book
It records all cash (and bank) transactions: receipts and payments.

Journal Proper
It records all residual transactions i.e., transactions which do not find place in any of the other journal books.

Recording in the Primary Books

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Journal Book Identification

Identify the appropriate journal for the following transactions: 1. Credit purchase of machinery.
2. Cash sales 3. Loan raised 4. Credit sale of goods. 5. Cash purchase 6. Credit purchase of goods 7. Cash deposited to Bank 8. Goods returned by customers. 9. Goods returned to suppliers. 10. Depreciation on assets

Recording in the Primary Books

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Cash Book

It is the most important day book. Prepare a cash book with the following transactions:

Opening cash balance Rs. 50,000 Opening bank balance Rs. 100,000 Cash purchases Rs. 125,000 Cash Sales Rs. 175,000 Salary paid Rs. 20,000 Cash deposited to bank Rs. 20,000 Cash withdrawn from bank Rs. 10,000

Find the closing cash and bank balances.

Recording in the Primary Books