Points to be Noted while Passing Journal Entries:

Points to be Noted While passing Journal Entries: From Sr.No.21

     21. Whenever cash is paid for repairing a property, say, furniture, machinery, motor vehicle or building, the two accounts involved in the transaction are (1) repairs account (and not the concerned asset account) and (2) cash account. The concerned property account is not at all involved, as cash is paid towards the repair charges of the property, and not towards the cost of the property.

     22. Whenever some investments or securities, say, shares or debentures, are purchased, the two accounts involved in the transaction are (a) investments account (and not purchase account) and (b) cash account.

     Another point to be noted in the context of the purchase of investments is that, while recording the investments purchased, and not the face value of the investments purchased. For instance, if shares of the face value of Rs.1,000 are purchased at a cost of Rs.950, the amount to be taken into account for the recording of the investments purchased is the cost price of the investment viz., Rs.950 and not the face value of the investment, viz., Rs.1,000.

     One more point to be borne in mind, in the context of the purchase of investments, is the treatment of brokerage, if any, paid on the purchase of investments. The brokerage paid on the purchase of the investment should be added to the purchase price of the investment, and the entry for the purchase of investments should be passed with the total cost of the investments, i.e., the purchase price of the investments plus the brokerage paid on the purchase of the investments.

     23. Whenever some investments or securities, say, shares or debentures are sold, the two accounts involved are (1) cash account (2) investments account (and not the sales account).

     Another point to be noted in the context of the sale of investments is that, while recording the investments sold, the amount to be taken into account is the net sale price of the investments, i.e., the sale price of the investments minus the brokerage, if any, paid for the sale of investments.

     24. Whenever cash is paid to a person for an expense, say, salary, rent or wages, the two accounts involved in the transaction are (1) concerned expenses account (and not the party'saccount) and (2) cash account. The personal account of the party to whom the payment is made on account of the expense is not at all involved, because payment is made to him for the service already rendered by him to us, and he is not liable to pay us any amount at a later date.

     25. Whenever the business pays carriage, freight or transport charges of the goods despatched to a buyer, the two accounts involved in the transaction are (1) concerned expense account, say, carriage account or freight account and (2) cash account.

     On the other hand, if the business pays carriage, freight or some other transport charges on the goods despatched to a buyer on the buyer's account, the two accounts involved in the transaction are (1) buyer's personal account (but not carriage or freight or any other transport charges account) and (2) cash account.

     26. Whenever cash is received from a party on account, it means that the party already owes us some amount and now he is paying us some money. So, the two accounts involved in the transaction are (1) cash account and (2) party's personal account (i.e. the personal account of the party from whom the money is received on account).

     Similarly, whenever cash is paid to a party on account, it means that we already owe him some money, and now we are paying him some amount. So, the two accounts involved in the transaction are (1) party's personal account (i.e., the personal account of the party to whom the payment is made) and (2) cash account.

     27. Whenever an expense is paid in cash, say, salary paid in cash or rent paid in cash, the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account, and (2) cash account.

     On the other hand, if an expense is incurred, but is not paid (i.e., due to a party), the two accounts involved in the transaction are (1) concerned expense account, say, salary account or rent account and (2) outstanding expenses account, say, outstanding salaries account or outstanding rent account (or the party's account, i.e., the account of the party to whom expense is due).

     Similarly, whenever an income is received in cash, say, interest received in cash or commission received in cash, the two accounts involved in the transaction are (1) cash account and (2) concerned income account, say, interest account or commission account. On the other hand, if an income is earned, but is not received, then, the two accounts involved in the transaction are (1) outstanding income account, say, outstanding interest account or outstanding commission account or the party's account, (i.e., the account of the party from whom the income is due) and (2) concerned income account, say, interest account or commission account.

     28. If cash is received from a party, say, from B, on account, we can name that party's account (i.e., B's personal account) as B's Account. But if cash is received from a party, say, from B, as loan, then, we have to name the party's personal account, i.e., B's personal account as B's Loan Account, and not as B's Account.

     Similarly, if cash is given to a party, say, A, on account, we can name that party's account (i.e., A's personal account) as A's Account. But if cash is given to a party, say, A, as loan, then, we have to name the party's personal account (i.e., A's personal account) as A's Loan Account (and not as A's Account).

     29. Cash discount is a discount allowed by the business to its debtor, at the time of receipt of money from the debtor, for his prompt payment, or the discount received by a business from its creditor at the time of payment of money to the creditor, for the prompt payment made to him. It has to be recorded in the books of the business.

     Whenever cash discount is allowed by the business to a debtor, the two accounts involved in the transaction are (1) discount allowed account and (2) debtor's account (but not cash account). Cash Account is not at all involved, as the discount is not paid in cash, but is just reduced from the amount due from the debtor.

     Whenever cash discount is received by the business from a creditor, the two accounts involved in the transaction are (1) creditor's account (but not cash account) and (2) discount received account. Cash Account is not involved, as the discount is not received in cash, but is reduced from the amount due to the creditor.

     30. Trade discount is a reduction in the selling price allowed by a manufacturer to a wholesaler, or by a wholesaler to a retailer to enable the buyer to sell the goods at the catalogue price (i.e., the price mentioned in the price list) and yet make some profit for himself. Trade discount is always deducted from the catalogue price, and only the net price is taken into account by both the seller and the buyer, while recording the transaction in their respective books. That means, trade discount should not be separately recorded at all either in the books of the seller or in the books of the buyer.

           ......To be Continued in new post from Sr. No.31

Points to be Noted while Passing Journal Entries: From Sr.11

Points to be Noted while Passing Journal Entries: 

....Contd....

     11. Whenever the personal or private expenses of the proprietor, such as his life insurance premium, income-tax, club bill and charity given on his personal account are paid by the firm, those transactions should be recorded in the books of the business. The two accounts required to be taken into consideration for recording those transactions are (1) Drawings Account (and not the expense account, i.e., not the life insurance premium account, the income-tax account, the club bill account or charity account) and (2) Cash Account.

     Similarly, whenever the household or domestic expenses of the proprietor, such as the rent, water charges and electricity charges of the proprietor's residence, salaries of the proprietor's domestic servants, school and college fees of the proprietor's children, etc. are paid by the business, those transactions should be recorded in the books of the business. The two accounts required to be taken into account for recording those transactions are (1) Drawings Account (and not the concerned private expenses account) and (2) Cash Account.

      12. Whenever goods are involved, no doubt, the term 'goods account' can be used for the goods in the various contexts. But it is preferable to split the goods account into (a) purchased account, (b) sales account, (c) purchases returns, returns outwards or returns to suppliers account, (d) sales returns, returns inwards or returns from debtors account, (e) opening stock account and (f) closing stock account, and use the relevant term in the relevant context. That is to say, the term 'purchases account' can be used for the goods purchased by the business. The term "sales account" can be used for the goods sold by the business. The term "purchases returns account", "returns outwards account"or "returns to suppliers account" may be used for the goods returned by the business to the suppliers. The term "sales returns account", returns inwards account", or "returns from customers account" may be used for the goods returned to the business by the customers. The term "opening stock account" may be used for the goods lying in the business unsold at the beginning of the accounting year. The term "closing stock account" can be used for the goods lying unsold with the business at the end of the accounting year.

     13. Generally, purchases account, sales account, purchases returns account and sales returns account as treated as real accounts, and the rules applicable to real accounts, viz., 'Debit what comes in and credit what goes out', is applied to these accounts, while journalising the transactions involving these accounts.

     However, these accounts can be treated in an alternative way. That is, these accounts can be treated as nominal accounts, and the rules applicable to nominal accounts, viz., 'Debit expenses and losses and credit incomes and gsins', can be applied to these accounts.

     If these accounts are treated as nominal accounts, purchases have to be treated as expenses, sales have to be treated as incomes, purchases returns have to be treated as incomes and sales returns have to be treated as expenses.

     14. When it is not clearly stated in the transaction whether goods are bought for cash or on credit, the purchase should be considered as cash purchase, if the name of the supplier (i.e., seller) of goods is not stated. On the other hand, if the name of the supplier is mentioned, the purchase should be considered as credit purchase.

     Similarly, when it is not clearly stated in the transaction whether goods are sold for cash or on credit, the sale should be regarded as a cash sale, if the name of the customer (i.e., the purchaser) is not stated. On the other hand, if the name of the customer is mentioned, the sale should be treated as a credit sale.

     15.  Whenever the goods are purchased from a party for cash, the accounts involved in that transaction are (1) purchases account and (2) cash account. The personal account of the seller is not at all involved, because he has been paid for the goods at the time of the purchase itself, and there is no liability on our part to pay him the value of the goods later.

     Similarly, whenever the goods are sold to party for cash, the two accounts involved in that transaction are (1) cash account and (2) sales account. The personal account of the purchaser is not at all involved, because he has paid us the value of the goods at the time of the sale itself, and there is no liability on his part to pay us the value of the goods later.

     16. Whenever the goods are purchased from a party on credit, the two accounts involved in the transaction are (1) purchases account and (2) the supplier's (i.e., seller's) account. The supplier's account is involved, because he has not been paid for the purchase at the time of purchase, and there is a liability on our part to pay him the value of the goods purchased at a later date.

     Similarly, whenever the goods are sold to a party on credit, the two accounts involved are (1) customer's account (i.e., the purchaser's account) and (2) sales account. The customer's account is involved, because he has not paid us the value of the goods sold to him at the time of sale, and he is liable to pay us the value of the goods sold to him on a future date. 

     17. Purchases returns are, generally, out of credit purchases (i.e., out of goods purchased on credit). But, sometimes, purchases returns may be out of cash purchases (i.e., out of goods purchased for cash). As such, unless we are clearly told that the purchases returns are out of cash purchases, we must always assume that the purchases returns are out of credit purchases.

     If the purchases returns are out of credit purchases, then, the two accounts involved in the purchases returns are (1) creditor's or supplier's account and (2) purchases returns account. (On the other hand, if the purchases returns are out of cash purchases, we must assume that the business has received cash for those purchases returns. If such an assumption is made, the two accounts involved in the purchases returns will be (1) cash account and (2) purchases returns account).

     Similarly, sales returns are, generally, out of credit sales (i.e., out of goods sold on credit). But, sometimes, they may be out of cash sales (i.e., out of goods sold for cash). As such, unless we are clearly told that the sales returns are out of cash sales, we must always assume that the sales returns are out of credit sales.

     If the sales returns are out of credit sales, then, the two accounts involved in the sales returns will be (1) sales returns account and (2) debtor's or customer's account. (On the other hand, if the sales returns are out of cash sales, we must assume that the business has paid cash for those sales returns. If such an assumption is made, the two accounts involved in the sales returns are (1) sales returns account and (2) cash account).

     18. If a property, say, furniture or machine is purchased and if it is not clearly stated in the transaction whether the asset is purchased for cash or on credit, we should assume that the asset is purchased for cash, if the name of the seller of the asset is not given. On the other hand, if the name of the seller of the asset is given, we should assume that the asset is purchased on credit.

     Similarly, if an asset, say, furniture or machine is sold, and if it is not clearly stated in the transaction whether the asset is sold for cash or on credit, we should assume that the asset is sold for cash, if the name of the purchaser of the asset is not given. On the other hand, if the name of the purchaser of the asset is given, we should assume that the asset is sold on credit.

     19. Whenever a property, say, furniture, motor vehicle, machine, building or land, not intended for resale, but meant for use in the business, is purchased, the purchases account is not at all involved. Only the concerned property account, i.e., the furniture account, the motor vehicle account, the machinery account, the building account or the land account, is involved. (The purchases account is involved only when goods, i.e., things meant for resale, are purchased).

     Similarly, whenever a property, say, furniture, motor vehicle, machine, building or land is sold, the sales account is not involved. Only the concerned property account (i.e., the furniture account, motor vehicles account, machinery account, building account or land account) is involved. (The sales account is involved only when goods, i.e., things intended for resale, are sold).

     20. Whenever an expense is incurred on the purchase of an asset or on the transport of an asset to our business premises or on the installation of an asset in our business premises, the amount of an expenses incurred for the purchase of the asset, the amount of expenses incurred on the transport or installation of the asset should be considered as a part of the cost of the concerned asset (and not as expense account), as that increases the ultimate cost of the asset. So, the two accounts involved in that transaction are (1) the concerned asset account (and not the expense account) and (2) cash account. For instance, if some brokerage is paid for the purchase of an asset, say, a motor car, the two accounts involved in the transaction are (1) motor car account (and not brokerage account) and ,(2) cash account. Similarly, if carriage or freight is paid for the transport of an asset, say, a machine, purchased to our business premises, the two accounts involved in the transaction are (1) machinery account ,(and not carriage or freight account) and (2) cash account. So also, if some expenses are incurred on the installation of an asset, say, machine purchased, in our business premises, the two accounts involved in the transaction are (1) machinery account ,(and not installation charges account) and (2) cash account.

            ...... To be contd.....in new post from sr. no. 21

     
.

Points to be Noted while Passing Journal Entries:

Points to be Noted while Passing Journal Entries:

     While Passing the journal entries, the following points should be borne in mind:

     1. Though from the legal and practical point of view, the proprietor and the business are regarded as one and the same party, for the purpose of book-keeping (i.e., for the purpose of recording the business transactions in the books of accounts), the business and the proprietor (i.e., owner) of the business must be considered as two distinct (i.e., separate) entities (i.e., parties). In other words, the proprietor of the business must be considered as a distinct or separate party from the business which he owns and controls. In short, the proprietor of the business should be considered as a separate entity or party with whom the business deals.

     As the proprietor and the business are regarded as two separate parties, if there are any transactions between the proprietor and the business, those transactions should be recorded in the books of accounts of the business. For instance, if the proprietor invests money in the business, it should be deemed that the proprietor has given money to the business or the business has received money from the proprietor, and it should be recorded accordingly in the books of the business. Similarly, if the proprietor withdraws money from the business for his personal use, it should be deemed that the proprietor has received money from the business or the business has given money to the bus, and it should be recorded accordingly in the books of the business.

     2. It must be clearly understood that all business transactions are recorded in the books of the business, and not in the books of the proprietor.

     3. It must also be understood that all business transactions are recorded in the books of the business from the point of view of the business, and not from the point of view of the proprietor.

     4. Each business transaction must be independently recorded in the books of accounts. In other words, while Passing a journal entry, each transaction must be regarded as an independent activity or transaction, and so each transaction must be recorded in the journal on its own without considering what has already happened or what will happen later.

     5. While writing the name of a personal account, we can either add or omit the word 'Account' after the name of the person. But while writing the name of a real account or a nominal account, we have to add the word 'Account' after the name of the asset or expense or income.

     6. After passing all the journal entries, the amount columns of the journal should be totalled. The object of totaling the two amount columns is to ensure the arithmetical accuracy, i.e., correctness, if journal entries.

     7. Whenever the proprietor of a business brings in cash or any other thing into the business, an account called the 'Capital' Account'  should be opened in the name of the proprietor in the books of the business, and the cash or any other thing introduced by the proprietor should be recorded in the capital account opened in his name.

     The two accounts that are required to be taken into consideration for recording the cash or any other thing introduced by the proprietor into the business are (1) Cash Account (if cash is brought in) or the account of any other thing, say, stock account or furniture Account (if any other thing is brought in) and (2)Capital Account.

     8. Whenever the proprietor invests in the business the sale proceeds if his private assets, say, the sale proceeds if his residential house, the sale proceeds of his private motor car, etc., that transaction should be recorded in the books of the business as additional capital introduced by the proprietor. As such, the two accounts that are required to be taken into account for recording those transactions are (1) Cash Account and (2) Capital Account (and not the account of the private asset sold).

     Similarly, whenever the proprietor introduces into the business his private incomes, those incomes should be recorded in the books of the business as additional capital introduced by the proprietor. As such, the two accounts required to be taken into account for recording that transaction are (1) Cash Account and (2) Capital Account (and not the income account).

     9. Whenever the proprietor commenced business with loan borrowed from his wife, children or friend, the two accounts that are required to be taken into account for recording the transaction are (1) Cash Account and (2) Wife's Loan Account or Children's Loan Account or Friend's Loan Account (but not his Capital Account).

     10. Whenever the proprietor of a business withdraws cash, goods or any other thing from the business for his personal or domestic use, an account called the 'Drawings Account' should be opened in the name of the proprietor in the books of the business, and the cash, goods or any other thing withdrawn by the proprietor from the business for his personal or private use should be recorded in the Drawings Account opened in name.

     The two accounts that are required to be taken into consideration recording the cash withdrawn by the proprietor for his personal or private use are (1)Drawings Account and (2) Cash Account.

     The two accounts that are required to be taken into account for recording the goods withdrawn by the proprietor from the business for his personal or domestic use are (1) Drawings Account and (2) Purchases Account (if the goods are taken away by the proprietor at the cost price) or Sales Account (if the goods are taken away by the proprietor at the selling price, or if goods are withdrawn by the proprietor at cost price frequently).

     The two accounts that are required to be taken into account for recording any asset, say, furniture, taken away by the proprietor from the business for his personal use are (1) Drawings Account and (2) Concerned Asset Account, say, Furniture Account.

.......... To be Continued in next post with sr.no.11

Steps Required for Journalising:

Steps Required for Journalising:

     For journalising a transaction i.e., for passing an entry for a transaction in the journal, the following steps are required to be taken:

     1. As stated earlier, every business transaction involves two accounts. One of the, the accounts receives the benefit of the transaction, and the other account gives the benefit of the transaction. As such, for journalising a transaction, first, we should ascertain the two accounts involved in the transaction.

     {It may be noted that, while ascertaining the two accounts involved in a business transaction, the account of the firm (in whose books the transaction is recorded) should not be taken into account, as the entry is passed in the books of that firm. Only the accounts of the other persons with whom the firm deals, the accounts of assets or things that come into and go out of the business, and the accounts of the expenses incurred or the incomes earned by the firm should be considered.}

     2. Secondly, after ascertaining the two accounts involved in a transaction, we should find out to which classes of accounts these two accounts belong.

     3. Thirdly, we should apply the corresponding or relevant rules for debit and credit (i.e., the rules for debit and credit applicable to the respective accounts) and find out which account is to be debited and which account is to be credited.

     4. Finally, after ascertaining the account to be debited and the account to be credited, the entry should be passed in the journal, debiting the account to be debited and crediting the account to be credited.

Form of Journal:

Form of Journal:

     The journal is ruled as follows:

Journal

   1                      2                       3              4                5

Date        Particulars            L.F.         Dr.            CR.

                                                                       Rs.             Rs.

     The first column, i.e., the 'Date' column, is meant for recording the date on which a particular transaction takes place.

     The second column, i.e., the 'Particulars' column, is meant for recording the names of the accounts to be debited and credited for a particular transaction.

     When filling up the 'Particulars' column, in the first line, the name of the account to be debited is written. In the next line, the name of the account to be credited is written, after leaving a little space (about three to four letter space) to the left. The idea behind leaving a little space to the left in the next line is to make it easy to distinguish the debit entry from the credit entry. To link the two accounts (i.e., the account to be debited and the account to be credited), which are written in two different lines, the word 'Dr.' (i.e., the abbreviation of the term 'Debtor') is written at the end of the first line after the name of the account to be debited, and at the beginning of the second line, before the name of the account to be credited, the word 'To'  is written. These two words means 'Debtor 'To', form the link between the two accounts and make it easy to read out a journal entry. To explain as to why one account is debited and the other account is credited, a brief explanation, usually, beginning with the word 'Being' or 'For' is written in the 'Particulars' column within brackets. This brief explanation to the journal entry is called 'Narration'. The narration given in the journal entry helps one to understand the nature and the purpose of the journal entry, i.e., the reason for the debit and credit in the journal entry. It may be noted that there is no particular way or style to write the narration. It can be written in any style. However, it should be brief.

      The third column, i.e., 'L.F.' (the abbreviation of the term 'Ledger Folio'), column is meant for recording the page number of the ledger where the journal entry will be posted or transferred later. It helps in tracing an entry in the ledger easily. It also shows whether a journal entry has been posted to the ledger or not. If a page number does not appear against an entry in this column, it is an indication of the fact that the entry has not been posted to the ledger.

     It should be noted that the 'L.F.' column can be completed only after the journal entry is posted to the concerned accounts in the ledger. Another point to be noted in this text is that, in the examination, in the absence of information about the ledger folio, the 'ledger Folio' column cannot be filled up, and so, it should be left blank.

     The fourth column, i.e., the 'Dr.' column is meant for recording the amount to be debited. The amount to be debited is entered against the name of the account to be debited.

     The fifth column, i.e., 'Cr.' column, is meant for recording the amount to be credited. The amount to be credited is entered against the name of the account to be credited.

     Another point to be noted in the context of the form of Journal is that, to separate one journal entry from another, a line is drawn below every journal entry. The line must be drawn in the 'Particulars' column only. It should not be extended to the 'Amount' columns.

Journal :

JOURNAL

Introduction:

     As stated earlier, under the conventional or theoretical method of book-keeping, all the transactions of a business are, first, recorded in a single book of original entry or first entry called the Journal, General Journal or Ordinary Journal, as and when they take place. Then, the entries in the journal are posted or transferred to the appropriate accounts in the book of second or final entry called the Ledger, periodically, say, weekly, fortnightly, monthly or quarterly, to know the exact position of each account on any particular date. Finally, at the end of the accounting year, from the ledger account balances, whose arithmetical accuracy is checked by a Trial Balance, Final Accounts (i.e., the Trading and Profit and Loss Account and the Balance Sheet) are prepared to ascertain the net profit or net loss of the business for the accounting year and the financial position of the business as on the last date of the accounting year. So, it is necessary for us to have detailed study of the Journal.

Meaning of Journal:

     The term 'Journal' is derived from the French word 'Jour', which means a day. Journal, therefore, means a day book or a daily record. It is the book wherein all the transactions are first recorded in the order of dates, i.e., as and when they take place. In the Journal, each transaction is analysed (i.e., classified) into it's debit (i.e., receiving or incoming) aspect and credit (i.e., giving or outgoing) aspect, and both the debit and credit aspects of each transaction are recorded together in one entry, with an explanation for the entry.

     The act of recording a transaction in the journal (i.e., the process of making an entry in the journal) is called Journalising. The record of a transaction in the journal (i.e., the entry for a transaction made in the journal) is called a 'journal entry'.

Essential Features of Journal:

     The chief features of the journal are:

     1. The journal is a book of prime, original or first entry, as all business transactions are first recorded in the journal.

     2. It is true that the journal is a book of original or first entry. But it is only a subsidiary book, i.e., a book which is subordinate to the ledger, which is the principal book of accounts. So, the journal can be regarded as the queen of books of account, subordinate to the king of books of account, viz., the ledger.

     3. The journal analyses the various transactions into their debits and credits, so that they could be easily posted to the ledger accounts. In other words, the journal is helpful in the preparation of accounts in the ledger. It is for this reason that the journal is called the gateway to the ledger.

Need for Journal or Importance, Advantages or Uses of Journal:

     No doubt, transactions can be entered in the various ledger accounts straightaway without recording them in the journal. But, if transactions are straightaway recorded in the ledger, there are greater chances of committing mistakes. So, in practice, such a procedure is not at all followed. That means, journal is absolutely necessary. It is necessary for the following reasons:

     1. The journal provides the chronological (i.e., date-wise) record of all the business transactions.

     2. As the business transactions are recorded in the journal in the chronological order (i.e., in the order of dates), the journal facilitates quick and easy reference to any transaction.

     3. As both the debit and credit aspects of each transaction are entered in the journal together in one entry, journal provides a complete record of each transaction in one place.

     4 By providing narration, i.e., a brief explanation, to each entry just below the entry, journal helps one to understand the purpose and the nature of the entry.

     5. Journal helps in the understanding of the principles of double-entry system, as entries in the journal are classified into debits and credits.

     6. Journal avoids the necessity of making entries in the ledger immediately (i.e., as and when the transactions take place). When the journal is maintained, the entries in the ledger can be made from journal entries at leisure, say, weekly, fortnightly, monthly or quarterly, depending upon the convenience of the ledger clerk.

     7. The maintenance of the journal, besides the ledger, facilitates cross checking and helps in the checking of the arithmetical accuracy of the books of accounts.

     8. It is easier to post from the journal to the ledger, as it can be easily ascertained from the journal as to which account is to be debited and which account to be credited.

     9. Journal reduces the possibilities of errors, as the amounts to be debited and credited are written by side by side in the journal.

     10. Journal makes the detection of errors, if any, easy, because the entries in the journal are made date-wise.

     11. As the journal is a book of original entry, and the ledger is a book of final entry, courts consider the journal entries, and not the ledger entries, as proof of the business transactions. That means, even from the legal point of view, the journal is required to be maintained.

Limitations of Journal:

     Journal suffers from certain limitations. They are:

     1. If all the business transactions are recorded in the journal, the journal will become very bulky.

     2. The work of writing up of the journal is laborious and tedious.

     3. Journal will not be helpful to a businessman, in knowing the cash balance, bank balance, debtors balance, creditors balance, sales, purchases, etc. each day.

     4. A journal is only a subsidiary book. It is not a book of final entry. That means, a journal will not provide final information on the various matters of business.

     5. Journal is useful only for a small concern with a low volume of business transactions. It is not very useful for a big concerns with a large volume of business transactions.
    

                                                                       

Memorandum Book, Rough Book or Waste Book

Memorandum Book, Rough Book or Waste Book:

Introduction:
      Whatever may be the method of book-keeping adopted, whether it is the theoretical method or the practical method, for recording the business transactions, some business houses, besides keeping the relevant books of accounts required under the method of book-keeping adopted, also keep a memorandum book, rough book or waste book. So, it is better for us to have some idea about the memorandum book, before we take up the study of the books of accounts.

Is the Memorandum Book Necessary?

     At the very outset, it may be noted that maintenance of the memorandum book is not necessary for every business concern. So, it may not be maintained by every business concern. If at all it is maintained, it may be only in big business concerns where, every day, numerous transactions take place. Small business houses, which have very few transactions everyday, do not, usually, maintain the memorandum book.

Meaning of the Memorandum Book:

     The memorandum book, rough book or waste book is the book kept by a business concern for noting down (i.e., recording) briefly it's business transactions, as and when they take place during the course of the day. In other words, it is the book kept by a business house merely for a brief listing (i.e., noting down) of the daily transactions. It is called the memorandum book, because it is kept just for the sake of memory (i.e., for ensuring that no transaction slips away from memory or is omitted from recording). It is called the rough book, as it is just a rough record of the transactions in the chronological order (i.e., in the order of dates). It is called the waste book, as it will be a waste (i.e., useless) once the entries made in it are recorded in the books of account.

Writing up of the Memorandum Book:

     In the memorandum book, the transactions are recorded daily in the order in which they take place. Entries in this book are made from the original records or documents, such as the invoices, receipts, vouchers, debit note, credit notes, etc. It may be noted that there are no rules required to be observed for recording the transactions in this book. All that is necessary is to see that all the transactions are recorded briefly in the order in which they take place.

Nature of the Memorandum Book:

     The waste book is only a memorandum book, and not a book of accounts. As such, it does not form part of the double-entry system. That is, it does not contain either the debit entry or the credit entry for any transaction.

Use of the Memorandum Book:

     The memorandum book facilitates the writing up of the books of accounts. That is, the entries made in the memorandum book form the basis of entries made in the books of accounts. The entries in the books of account, i.e., in the books of original or first entry, viz., the single journal or the several subsidiary books, are made from the entries made in the memorandum book.

Specimen of the Memorandum Book:

     The following is the specimen of the memorandum book:
     
  1992 January 1   Commenced business with cash                                      Rs.10,000.
  1992 January 1    Purchased goods for cash                                                 Rs.3,000 
  1992 January 1    Opened a bank account with                                           Rs.2,000
  1992 January 1    Purchased stationery Rs.100
  1992 January 1    Purchased furniture Rs.1,000
  1992 January 1    Sold goods to A on credit Rs.2,000
  1992 January 2    Purchased goods from B on                                               credit Rs.2,000
  1992 January 2    Sold goods for cash Rs.1,000
  1992 January 2    Paid for postage Rs.20
  1992 January 2    Took loan from C Rs.1,500
  1992 January 3    Paid rent Rs.300
  1992 January 3    Withdrew from bank Rs.800
  1992 January 3    Received from A on account                                             Rs.500
  1992 January 3    Paid commission by cheque                                            Rs.200

Differences between the Memorandum Book and the Books of Accounts:

     The memorandum book is quite different from the books of accounts. There are number of differences between the Memorandum Book and the Books of Accounts. The main differences between them are:

     1. The memorandum book does not form part of the double-entry system, whereas the books of accounts form part of the double-entry system.

    2. As the memorandum book does not form part of the double-entry system, it does not contain either the debit entry or the credit entry for any transaction. On the other hand, as the books of accounts form part of the double-entry system, they contain the debit and credit entries for every transaction.

     3. There are no rules for recording the transactions in the memorandum book. But there are certain specific rules or principles, known as the principles of double-entry, for recording the transactions in the books of accounts.

     4. The memorandum book is written up from original records or documents, such as the invoices, vouchers, receipts, etc. But the books of accounts are written up from the memorandum book. (Of course, in business houses where the memorandum book is not maintained, the books of accounts, viz., the journal or the subsidiary books, are written up from the original records).

     5. The memorandum book is just a rough book or waste book, whereas the books of accounts are the proper and permanent records of business transactions.

     6. The maintenance of the memorandum book is not necessary for every business. But the maintenance of the books of accounts is necessary for every business.