Page 65 - DCOM101_FINANCIAL_ACCOUNTING_I

Unit 6: Preparation of Journal

Notes
Example: If a debtor is allowed cash discount and he makes the payment, then the accounts
involved are three, i.e., (1) Cash A/c, (2) Discount A/c, and (3) Debtors A/c.
The following compound entry is to be passed:

Cash A/c Dr.
Discount A/c Dr.
To Debtors A/c
Debtor paid & was allowed discount.

Thus, we see that all the transactions are recorded in the journal and that too in a chronological
(date wise) order. That is why the journal is known as the book of original entry. All such
transactions which take place in the business are recorded which have documentary proof. Such
documents are known as vouchers, cash memos or debit or credit-note or pay-in-slip etc.

6.5 Opening Entry

The closing balance of account of one year is transferred to the next year. In the next year this
balance becomes the opening balance. After recording the opening balance, the transaction of the
year is recorded. To record the opening balance a Journal entry is passed which is called opening
entry.

Example: Suppose in a business there are closing balances of cash of `10,000, plant `90,000
and capital of `1,00,000, then opening Journal entry will be as follows:
Assets Account Dr. 90,000
Cash Account Dr. 10,000
To Capital Account 1,00,000

If all assets are more than all liabilities, its excess will be the value of capital which is showed
credit side in the opening journal entry. If liabilities are more than the value of all assets, then
this excess will be goodwill and it will be debited in opening journal entry. Typically, different of
assets and liability will be positive and excess value of assets are showed as capital in the credit
of journal entry.
Illustration 3: Pass the necessary opening entry on 1st January, 2006 in the books of Gopinath.
`
Cash in hand 3,000
Cash at Bank 16,000

Stock in trade 30,000
Furniture & Fittings 5,000
Sundry Debtors 21,000
Sundry Creditors 18,000

Loan from Ganesh & Co. 9,000

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