Meaning and Concept of Journal Entries

Subject: Principles of Accounting

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The term journal is comes from French word "jour" that means a day. Journal, therefore , means a day or daily book or a record of business transaction. It is also known as book of a primary entry.
Meaning and Concept of Journal Entries


Every organization uses different types of books for recording their financial transactions. The books which are used by an organization for recording financial transactions are called books of account. Generally, there are two sets of a book of account which an organization issue to record the various business transactions. They are:

  1. Journal
  2. Ledger


Journal is a book which records day to day financial transaction of a business organization. The financial transactions are firstly recorded into a journal in chronological order. It is known as "Book of Original Entry".

The word 'journal' is derived from the French word 'jour' which means a diary or long book. It means a daily record. A journal may, therefore, be defined as a book which records the daily transaction. It is an important book based on the principle of double entry system of book-keeping.

According to L.C. Cropper,"A journal is a book, employed to classify or sort out a transaction in a form convenient for their subsequent entry in the ledger."

The objective of journal are as follow:

  • To keep a systematic record of a financial transaction.
  • To show financial transactions in chronological order.
  • To acquire complete information about the financial transaction.
  • To use as a legal evidence of a financial transaction.
  • To facilitate the preparation of a ledger book.


Simply, an act of recording financial transactions in the journal book is said journalising. It is a process of systematic recording of financial transactions in the book of prime or original entry.

The following steps are taken while journalising the transactions in the journal book.

  • Identifying the two aspects of the transaction.
  • Identifying the appropriate accounts for the two aspects of the transactions.
  • Debit and credit the accounts relevant to the transaction by using the rules of debit and credit.
  • Writing the entry in the journal in chronological order. Such an entry is called journal entry.

Advantage of Journal

Maintaining journals gives the following advantages to the entity concerned:

  1. Transaction recorded data-wise with explanation

All the business pecuniary transaction are entered in a journal in chronological order that is an order of occurrance.

  1. Process of classification at convenience

Since, transaction is recorded in a journal as and when these takes place, it ensures that nothing shall be omitted which should be recorded.

  1. Ensures the double entry rules have been followed

Each transaction before recording in a journal, it is analyzed for the aspects involved; accounts to be debited and credited. Totalling of the amount columns on each page ensures that the basic rule of debit having equal and corresponding credit has been followed.

  1. Reliable evidence

As the transaction taking the place and recording is the same time, therefore, the chances of cooking or manipulating the facts are minimized. Thought out of alternations or insertions are not possible.

  1. Provide primary source of data

Journal is directly written on the basis of vouchers. So, the information contained in the journal contained is a primary source of financial statistics of the business.

Rules of debit and credit

Debit and credit are the two aspects of every financial transaction. Their use and implication is the fundamental concept in the double-entry bookkeeping system in which every debit transaction must have a corresponding credit transaction(s) and vice versa.

Debits and credits are a system of notation used in book-keeping to express how to record any financial transaction. In financial accounting or bookkeeping, "Dr" (Debit) means the left side of a ledger account and "Cr" (Credit) is the right side of a ledger account. Journal and ledger are interlinked because next step after journal is the ledger

There are 2 concepts about the rules of debit and credit. They are:

  1. Traditional concept
  2. Modern concept

1. Traditional Concept

In traditional concept, the account is divided into two and they are a personal account and impersonal account.

i. Personal account

This account is related to the natural person. For example ; (Ram and company, Shyam and brother, Debtors, creditors etc) and Artificial person they are (firm, organization, company, institution, bank etc)

ii.Impersonal account

This account is divided into two; Real account and Nominal account

  • Real account: This account is related to assets. There are two types of assets. Tangible Assets and Intangible Assets. An example of Tangible assets is all Fixed assets (like land building, plant, and machinery, furniture, vehicle, loose equipment, investment, etc) and all current assets(like cash, bills receivable, inventory, short-term investment etc). An example of intangible assets is (Goodwill, patent, copyright, trademark etc.

What comes in is Debit

What goes out is Credit

  • Nominal account: This account is related with Expenses or losses and income or gain. For example: salary, wages, discount, commission, rent, bad debts, interest, Depreciation, Advertisement, etc.

Expenses or losses is Debit

Income or profit is Credit

2. Modern concept

Nowadays, modern concept is often used than traditional concept because people find it very convenient than traditionalconcept.



i. Assets Increases

ii. Liabilities and capital Decreases

i. Assets Decreases

ii. Liabilities and capital Increases

Preparation of journal

Specimen of journal

Journal entries in the book of




Dr. Amount

Cr. Amount


Cash a/c Dr

To capital a/c

(being or for business started with cash)



Preparation of Journal entries

  1. Simple journal and compound journal

Simple journal

Whenever there is an involvement of only two different accounts in certain transactions, then journal need to be passed, such journal is known as a simple journal. In this type of journal, one account should be debited and another account should be credited.

Compound journal

Whenever there is involvement of three or more than three accounts in a certain journal, such type of journal should be known as Compound Journal. Generally, in a debit side or in credit side two or more than two accounts are involved.

  1. Capital/Drawing:

Whenever a businessman invested his personal property to his business to run smoothly, such amounts of properties are known as capital. And similarly, if businessman withdraws some of the properties of business for his personal use such amounts are known as drawing.

  • Started business with cash

cash a/c Dr xxx

To capital a/c xxx

  • Withdraw cash from business for certain reasons

Drawing a/c Dr xxx

To cash a/c xxx

  1. Purchase & Purchase return

In courses of business, it is necessary to purchase a different type of goods from their creditors either in cash or in credit. Similarly, creditors are paid in cash for their dues and sometimes, due to different reason goods may be returned to his creditor.

  • Bought or purchase goods on cash

Purchase a/c Dr xxx

To cash a/c xxx

  • Purchase goods on credit

Purchase a/c Dr xxx

To creditors a/c xxx

  • Return goods to creditors for being defective

Creditors a/c Dr xxx

To purchase return or return outward a/c xxx

  • Purchase goods and paid in cash and through cheque

Purchase a/c Dr xxx

To cash a/c xxx

To bank a/c xxx

  • Amount paid to creditors

Creditors a/c Dr xxx

To cash a/c xxx

  1. Sales and sale return

In the course of the business transaction, there is a lot of transaction relating to sales of the product for which business has been started. Such sales may be in cash or credit. Some of the customers may return goods and some of the customer pay cash or cheque against previous dues.

  • Goods sold on cash

Cash a/c Dr xxx

To sales a/c xxx

  • Goods sold on credit

Debtors a/c Dr xxx

To sales a/c xxx

  • Return goods by debtor being defective

Sales return or return inward a/c Dr xxx

To debtors a/c xxx

  • Received cash from debtors

Cash a/c Dr xxx

To debtors a/c xxx

  • Goods having book value of Rs 10000 sold for Rs 8000

Cash a/c Dr 8000

To sales a/c 8000

  • Goods having book value of Rs 5000 sold for Rs 6000

Cash a/c Dr 6000

To sales a/c 6000

(Joginder Goet , Bhesh Raj Banjade, 2012)


Joginder Goet , Bhesh Raj Banjade. (2012). Principal of Accounting. Kalimati, Kathmandu: Dreamland publication.

Things to remember

Different proffesors has defined journal entries in their own different ways

According to R.N carter " the journal" or" Daily Record"  as originally used was a prime entry in which transaction were copied in order of date from the memorandum or waste book. The entries as they were copied, were classified into the debits and credits, so as to facilitate their being correctly posted afterwards in the ledger. Similarly, in the words of L C cropper; " A journal is a book, employed to classify or sort of transactions in the form convenient for their subsequent entry in the ledger.

Objective of journal entries

The following are the main objective of the journal

  • Journal is prepared to keep a systematic record of financial transaction.
  • Journal is prepared to show financial transactions in chronological order.
  • Journal is prepared to present complete information about the financial transaction.
  • Journal is prepared to use as a legal evidence of a financial transaction.
  • Journal is prepared to facilitate the preparation of a ledger book.



  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.

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