Journal: format and entries with GST, trade discount and freight
The journal (book of original entry) has columns: Date | Particulars | L.F. | Debit ₹ | Credit ₹. Each entry: account debited with "Dr", next line "To" account credited, then narration in brackets. Several debits or credits together make a compound entry.
GST (intra-state, 18%)
Credit purchase ₹20,000: Purchases A/c Dr 20,000; Input CGST A/c Dr 1,800; Input SGST A/c Dr 1,800; To Creditor 23,600.
Credit sale ₹30,000: Debtor Dr 35,400; To Sales 30,000; To Output CGST 2,700; To Output SGST 2,700. Inter-state uses Input/Output IGST.
Trade discount
Record only the net amount after trade discount. Cash discount is recorded (Discount Allowed / Discount Received).
Freight
Freight or cartage on purchases (freight inward) is debited to Freight Inward/Carriage Inwards A/c; on sales (freight outward) to Carriage Outwards A/c. Freight on buying an asset is added to the asset's cost.
Cash book: simple, bank-column and petty cash book
The cash book is both a journal and a ledger for cash: receipts on the debit (left) side, payments on the credit (right) side. Cash balance can never be credit (you cannot pay more cash than you have).
- Simple (single column) cash book: one amount column on each side for cash.
- Cash book with bank column (double column): cash and bank columns on each side. The bank column may show a credit balance (overdraft). When cash is deposited or withdrawn, both columns are affected — a contra entry, marked "C" in the L.F. column. Discount can be shown in a separate memo column.
- Petty cash book: for small payments (postage, stationery, cartage, refreshments). Under the imprest system the petty cashier gets a fixed amount (imprest); at the end of the period the main cashier pays back exactly what was spent, so the balance returns to the imprest. It is often analytical: one column per type of expense.
Purchases, sales and return books
- Purchases (journal) book: only credit purchases of goods (items the firm deals in). Cash purchases go to the cash book; purchase of assets on credit goes to journal proper. Source: invoice received.
- Sales (journal) book: only credit sales of goods. Source: invoice issued.
- Purchases return (return outward) book: goods returned to suppliers. Source: debit note.
- Sales return (return inward) book: goods returned by customers. Source: credit note.
Each book is totalled periodically; the total is posted to Purchases, Sales or Return account in the ledger, and each party's account is posted individually.
Journal proper
Entries that fit no special book are made in the journal proper:
- Opening entry (start of year balances).
- Closing entries (transfer to trading and profit and loss account).
- Adjustment entries (outstanding, prepaid, depreciation).
- Rectification entries (correcting errors).
- Transfer entries (drawings to capital).
- Credit purchase or sale of assets; goods withdrawn for personal use; goods lost by fire or given as charity; bills receivable or payable dishonoured.
Key formulas and definitions
- Journal entry: Account Dr ₹ … To Account ₹ … (narration)
- Intra-state GST: Input/Output CGST = SGST = half the rate
- Invoice value = List price − Trade discount
- Petty cash reimbursement = Amount spent
- Cash book balance = Receipts (Dr) − Payments (Cr)
Worked examples
1. Journalise: bought goods from Aman on credit ₹40,000 + 18% GST (same state).
Purchases A/c Dr 40,000; Input CGST A/c Dr 3,600; Input SGST A/c Dr 3,600; To Aman 47,200. (Goods bought on credit with GST)
2. Journalise: sold goods to Seema, list price ₹30,000, trade discount 10%, IGST 18%.
Net = 27,000; IGST = 4,860. Seema Dr 31,860; To Sales A/c 27,000; To Output IGST A/c 4,860.
3. Journalise: paid freight ₹1,200 on goods purchased and ₹5,000 for installing a new machine.
Freight Inward A/c Dr 1,200; To Cash 1,200. Machinery A/c Dr 5,000; To Cash 5,000 (installation added to asset cost).
4. Cash book with bank column: opening cash ₹12,000, bank ₹30,000; cash sales ₹8,000; deposited ₹15,000 into bank; paid rent by cheque ₹6,000; withdrew ₹4,000 for office. Find closing balances.
Cash: 12,000 + 8,000 + 4,000 − 15,000 = ₹9,000. Bank: 30,000 + 15,000 − 6,000 − 4,000 = ₹35,000. Deposit and withdrawal are contra entries (C).
5. Petty cashier has imprest ₹3,000. Spent: postage 450, stationery 800, cartage 350, refreshment 600. How much is reimbursed and what is the new balance?
Spent = 2,200. Reimbursed ₹2,200; balance back to ₹3,000.
6. In which book: (a) goods sold to Tina on credit; (b) furniture bought on credit; (c) goods returned by Tina; (d) goods taken by owner for home?
(a) Sales book. (b) Journal proper. (c) Sales return book. (d) Journal proper (Drawings Dr, To Purchases).
Common mistakes
- Recording trade discount in the journal. Only the net amount goes in.
- Entering credit purchase of furniture in the purchases book. The purchases book is only for goods traded.
- Forgetting to mark contra entries with "C" and to write them on both sides of the cash book.
- Treating freight on a new machine as an expense. It is added to the machine's cost.