Journal Entries: Understanding, Recording, and Analyzing Financial Transactions

This presentation provides an in-depth look at journal entries, the fundamental building blocks of accounting. It explains the purpose of journal entries, how they record financial transactions in an organized manner, and their role in accurately reflecting a company’s financial position.

1. Journal Entries Financial Reporting & Management Accounting (IMMG-4104/ MBMG 6105) @Ravindra Nath Shukla (PhD Scholar) ABV-IIITM

2. Accounting Accounting process involves identification and analysis of financial transactions. These transactions are recorded, classified and summarised in a systematic manner to provide useful information. Accounting is the language of business. Warren Buffet

3. Accounting Process /Cycle The accounting cycle or accounting process includes the following: Identifying the transactions Recording the transactions in the journal and other subsidiary books Classifying all entries posted in the journal or subsidiary books Posting classified transactions to the appropriate ledger accounts. Summarising all the ledger balances and preparing the trial balance. Preparing final accounts.

4. The accounting process starts with the recording of business transactions in monetary terms, in the primary books of accounts. For recording business transactions , it is necessary that these transactions are evidenced by proper source documents like cash memoes , purchase bills, sales bills, counterfoils of cheques issued, salary slips etc.

5. Step 1. Recording transactions in the primary book : journal Step 2. Posting in ledger Step 3. Preparation of counterfoils of trial balance. Step 4. Balance Sheet and Profit& Loss Accounts. Transaction recording: Transactions are recorded in the books of accounts.

6. Every transaction should be first recorded in the Journal. Transactions are recorded in a chronological (day to day) order. The process of recording transactions in a journal is termed as journalising . JOURNAL Journal is the book of primary entry

7. Specimen of JOURNAL

8. Analyze each transaction in terms of accounts affected. As a rule every transaction has its effect on at least two accounts. Find out the type of accounts affected in a transaction i.e. personal, real or nominal. Apply the rules of debit and credit to each type of accounts involved . The debit and credit accounts must be equal Procedure of Journalising The following procedure is followed for passing journal entries –

9. For a business, journal entries generally extend to several pages, hence, totals of debit and credit amount columns are cast at the end of each page. Against the debit and credit total at the end of a page , the words, ‘Total c/f’ (c/f - indicates carried forward) are written in the particulars column. The debit and credit totals are then written in the beginning of the next page in the amount columns and against them the words ‘Total b/f’ ( b/f - indicates brought forward) are written in the particulars column. On the last page ‘Grand Total’ is written. Procedure of Journalising The following procedure is followed for passing journal entries –

10. Example

11. Solution

12. Exercise Journalise the following transactions, post them in the ledger and balance the accounts in the books of Mr. Rajesh.

13. Thank you!