The journal records transactions in the order they happened. It answers “what did we do on the 12th?”. The ledger collects them by account. It answers “how much cash do we have?” and “how much does Suresh owe?”.
Neither ordering can answer the other’s question quickly, which is why both books exist. The journal is written first because it is where the decision is recorded — which two accounts, and which way round. Posting to the ledger afterwards is mechanical: the thinking has already been done.
The journal is therefore called the book of original entry and the ledger the book of final entry.
Date, the debit account, the credit account (indented, prefixed To), the two amounts, and a narration in brackets saying why:
| Date | Particulars | L.F. | Debit (₹) | Credit (₹) |
|---|---|---|---|---|
| Apr 5 | Purchases A/c Dr. | — | 60,000 | |
| To Mehta & Co. A/c | — | 60,000 | ||
| (Being goods bought on credit from Mehta & Co.) | ||||
The L.F. column is the ledger folio — the page the entry was posted to. It is how an auditor walks from the journal to the ledger and back, and in an examination it is left blank or dashed.
Ravi Traders begins on 1 April and the sixteen transactions below are its whole month. The same sixteen transactions are used in Units 4 and 5 — posted here, reconciled against the bank in Unit 4, summarised into a trial balance in Unit 5, and closed into final accounts there. Following one firm right through is the point: the closing cash figure you compute in this unit is the cash figure that appears on the balance sheet three units later.
Given in the order they occurred, with the entry each one produces.
| Date | Transaction | Entry | Amount (₹) |
|---|---|---|---|
| Apr 1 | Started business with cash | Cash A/c Dr. — To Capital A/c | 2,00,000 |
| Apr 2 | Opened a bank account | Bank A/c Dr. — To Cash A/c | 1,20,000 |
| Apr 3 | Bought furniture, paid by cheque | Furniture A/c Dr. — To Bank A/c | 25,000 |
| Apr 5 | Bought goods on credit from Mehta & Co. | Purchases A/c Dr. — To Mehta & Co. A/c | 60,000 |
| Apr 8 | Cash purchases | Purchases A/c Dr. — To Cash A/c | 15,000 |
| Apr 10 | Sold goods on credit to Suresh | Suresh A/c Dr. — To Sales A/c | 48,000 |
| Apr 12 | Cash sales | Cash A/c Dr. — To Sales A/c | 32,000 |
| Apr 15 | Returned defective goods to Mehta & Co. | Mehta & Co. A/c Dr. — To Purchase Returns A/c | 4,000 |
| Apr 18 | Suresh returned goods | Sales Returns A/c Dr. — To Suresh A/c | 3,000 |
| Apr 20 | Paid Mehta & Co. by cheque | Mehta & Co. A/c Dr. — To Bank A/c | 40,000 |
| Apr 22 | Received cheque from Suresh | Bank A/c Dr. — To Suresh A/c | 30,000 |
| Apr 25 | Paid salaries in cash | Salaries A/c Dr. — To Cash A/c | 9,000 |
| Apr 26 | Paid rent by cheque | Rent A/c Dr. — To Bank A/c | 6,000 |
| Apr 28 | Paid wages in cash | Wages A/c Dr. — To Cash A/c | 4,500 |
| Apr 29 | Commission received in cash | Cash A/c Dr. — To Commission A/c | 2,500 |
| Apr 30 | Drew cash for personal use | Drawings A/c Dr. — To Cash A/c | 5,000 |
Each journal entry is copied into two ledger accounts — the debited amount on the left of one account, the credited amount on the right of the other. Nothing is decided at this stage; a posting error is a copying error, which is why the trial balance in Unit 5 catches some of them and not others.
The convention for naming the other side: in an account’s debit column you write To and the name of the account credited; in the credit column, By and the account debited. So every line of a ledger account tells you where its other half went.
Every transaction above that touched cash, collected into one account.
| Dr. | Cr. | ||||
|---|---|---|---|---|---|
| Date | Particulars | ₹ | Date | Particulars | ₹ |
| Apr 1 | To Capital | 2,00,000 | Apr 2 | By Bank | 1,20,000 |
| Apr 12 | To Sales | 32,000 | Apr 8 | By Purchases | 15,000 |
| Apr 29 | To Commission | 2,500 | Apr 25 | By Salaries | 9,000 |
| Apr 28 | By Wages | 4,500 | |||
| Apr 30 | By Drawings | 5,000 | |||
| By Balance c/d | 81,000 | ||||
| Total | 2,34,500 | Total | 2,34,500 | ||
| To Balance b/d | 81,000 | ||||
Debits total 2,34,500 and credits total 1,53,500, so the account has a debit balance of 81,000. Cash is an asset, and an asset account carrying a debit balance is exactly what you expect — a credit balance in a cash account would mean the firm had paid out money it never had.
To balance an account: total both sides, put the difference on the smaller side as Balance c/d (carried down) so the two totals agree, then bring that same figure down on the opposite side below the totals as Balance b/d (brought down). The b/d side is the side the balance is really on.
In the cash account above, the difference went on the credit side as c/d, and reappeared on the debit side as b/d — confirming the balance is a debit balance of 81,000.
Every account the sixteen transactions touched, with the side its balance falls on. These fifteen balances are the trial balance of Unit 5, so it is worth checking a few against the transactions yourself before moving on.
| Account | Balance (₹) | Side | Why that side |
|---|---|---|---|
| Bank | 79,000 | Debit | asset |
| Capital | 2,00,000 | Credit | capital |
| Cash | 81,000 | Debit | asset |
| Commission | 2,500 | Credit | income |
| Drawings | 5,000 | Debit | reduction of capital |
| Furniture | 25,000 | Debit | asset |
| Mehta & Co. | 16,000 | Credit | liability |
| Purchase Returns | 4,000 | Credit | reduction of an expense |
| Purchases | 75,000 | Debit | expense |
| Rent | 6,000 | Debit | expense |
| Salaries | 9,000 | Debit | expense |
| Sales | 80,000 | Credit | income |
| Sales Returns | 3,000 | Debit | reduction of income |
| Suresh | 15,000 | Debit | asset |
| Wages | 4,500 | Debit | expense |