The journal

The journal is the book of original entry: every transaction is first written here, in date order. Its columns are Date, Particulars, L.F. (Ledger Folio, the ledger page number, filled in later when the entry is posted), Debit amount and Credit amount.

How to write an entry: first the account debited, followed by Dr.; on the next line, a little indented, To and the account credited; the amounts in their columns; then a short narration in brackets, such as "(Being capital introduced)". Leaving out the narration loses marks.

A simple entry has two accounts. A compound entry has more than two, such as furniture of ₹25,000 bought for ₹5,000 cash and ₹20,000 on credit. Expenses paid on the same day, like salary, wages and rent, can be combined in one compound entry.

Goods are not kept in one "goods" account. They go into Purchases, Sales, Purchases Returns, Sales Returns and Stock accounts. When the owner takes goods for himself or gives them away as charity, Purchases is credited (with Drawings or Charity debited), because those goods will no longer be sold.

Discounts. A trade discount is taken off the price before the sale and is never entered. A cash discount for quick payment is entered. If Suman owes ₹20,000 and pays ₹19,500 in full settlement, debit Cash ₹19,500 and Discount Allowed ₹500 (a loss), and credit Suman ₹20,000. If we pay a creditor less than we owe, the saving is Discount Received, credited as a gain.

Two more points. Interest on capital is worked out for the time the money was used: ₹1,50,000 at 6% for 9 months = 1,50,000 × 6/100 × 9/12 = ₹6,750. At the foot of each page, the totals are carried forward (c/f) and written at the top of the next page as brought forward (b/f). Cash taken from the bank for the office debits Cash; cash taken for the owner's own use debits Drawings.