Journal

Management Concepts Compendium topic

Journal

Accounting is the language of business. A business concern has to earn profits when its revenues and expenses are expressed as per the accounting priniciples to remain in business.

Accounting is based on documents that indicate that an asset is transferred to another party for cash or credit, or that a liability is incurred by the business, or that cash is paid for goods or services, or that goods or services are acquired on credit by the business. These accounting documents are called technically as vouchers. These vouchers are given serial numbers in the accounting department so that each and every documents is accounted for in the books of accounts.

Journal is a register kept by accountd department or accounting system. This register is called book of original entry. Every accounting document or voucher is first posted in this register. The posting is done chronologically, i.e., date wise.

In the journal posting, for each accounting transaction documented in the voucher, one account is specified for debit entry and one account is specified for credit entry.

What is the meaning of debit entry and credit entry.

Accounts for various liabilities assets, revenues and expenses are kept in ledger. Another register used in accounting system. All these accounts are classified into three categories.

1. Real accounts
2. Personal accounts
3. Nominal accounts

The meaning of debit and credit is better explained in terms of these different accounts.

For real accounts:

Debiting an account means there is an increase under the asset head.
The firm has acquired more of an asset category.

Crediting an account means there is a decrease under the asset head.
The firm has disposed off some portion of the asset in that category.

Popular rule for real accounts

Debit what comes in
Credit what goes out

Debit-Credit Meaning – Personal Accounts

Debiting a personal account means that person has received a benefit from the firm.
He has to pay the firm in future.
Crediting a personal account means that the person has given some benefit to the firm.
The firm has to pay him in the future.

Popular rule for personal accounts

Debit the receiver
Credit the giver

Debit-credit meaning for nominal accounts

Crediting a nominal account means that revenue is earned by the firm under that account head.
Debiting a nominal account means that an expenditure is incurred by the firm under that account head.
Normally revenue accounts receive credit.
Expenditure accounts receive debit


Popular rule for nominal accounts

Debit expenses and losses
Credit incomes and profits