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Unit 12 Solutions: Journal Entries

Answers to the Unit 12 exercises. Each answer is as long as its marks call for: a sentence or two for 1 mark, and full working for each numerical problem.

A. Very Short Answer Questions (1 Mark Each)

1. Why is the Journal called the Book of Original Entry?

The Journal is called the Book of Original Entry because every transaction is recorded in it first, in date order, directly from the source vouchers, before it is posted to the Ledger.

2. What is meant by Journalizing and Narration?

Journalizing is the process of analyzing a transaction and recording it in the Journal. A Narration is the short explanation written in brackets (Being ...) just below each journal entry.

3. State the Golden Rules of Debit and Credit for Personal, Real, and Nominal accounts.

  • Personal Account: Debit the receiver, credit the giver.
  • Real Account: Debit what comes in, credit what goes out.
  • Nominal Account: Debit all expenses and losses, credit all incomes and gains.

4. Why is Purchase A/c credited when the proprietor withdraws goods for personal use?

The goods were debited to Purchase A/c when they were bought, so when the owner takes some of them out of the business, Purchase A/c is credited at cost price to reduce the goods (what goes out is credited), and Drawing A/c is debited.

B. Numerical Problems for Practice (6 to 8 Marks Each)

Problem 12.1: Journalize the following transactions in the books of Siddhartha Traders, Butwal for Jestha 2082:

  • Jestha 1: Started business with cash Rs. 3,00,000 and goods worth Rs. 80,000.
  • Jestha 4: Deposited cash into Everest Bank Ltd. Rs. 1,80,000.
  • Jestha 8: Purchased goods from Nima for Rs. 40,000 and paid Rs. 15,000 immediately by cheque.
  • Jestha 12: Purchased a computer for office use for Rs. 45,000 and paid by cheque.
  • Jestha 16: Sold goods to Bhuwan for Rs. 30,000 at a 10% trade discount.
  • Jestha 20: Settled Nima’s account by paying cash Rs. 24,000 in full settlement.
  • Jestha 25: Received Rs. 26,000 from Bhuwan in full settlement of his account.
  • Jestha 28: Charged 10% depreciation on the computer costing Rs. 45,000.
  • Jestha 30: Received Rs. 2,500 cash from Ram, whose debt had been written off as a bad debt last year.

Journal Entries in the Books of Siddhartha Traders, Butwal

DateParticularsL.F.Debit (Rs.)Credit (Rs.)
2082-02-01Cash A/c ……………………………………………….. Dr.
Purchase A/c ……………………………………………. Dr.
To Capital A/c
(Being business started with cash and goods)		3,00,000
80,000

3,80,000
2082-02-04Bank A/c ……………………………………………….. Dr.
To Cash A/c
(Being cash deposited into Everest Bank Ltd.)		1,80,000
1,80,000
2082-02-08Purchase A/c ……………………………………………. Dr.
To Bank A/c
To Nima’s A/c
(Being goods purchased from Nima, Rs. 15,000 paid by cheque and the balance on credit: 40,000 - 15,000 = 25,000)		40,000
15,000
25,000
2082-02-12Computer A/c ……………………………………………. Dr.
To Bank A/c
(Being computer purchased for office use and paid by cheque)		45,000
45,000
2082-02-16Bhuwan’s A/c ……………………………………………. Dr.
To Sales A/c
(Being goods of Rs. 30,000 sold on credit to Bhuwan at 10% trade discount: 30,000 - 3,000 = 27,000)		27,000
27,000
2082-02-20Nima’s A/c ……………………………………………… Dr.
To Cash A/c
To Discount Received A/c
(Being cash paid to Nima in full settlement of Rs. 25,000 and discount received)		25,000
24,000
1,000
2082-02-25Cash A/c ……………………………………………….. Dr.
Discount Allowed A/c …………………………………….. Dr.
To Bhuwan’s A/c
(Being cash received from Bhuwan in full settlement of Rs. 27,000 and discount allowed)		26,000
1,000

27,000
2082-02-28Depreciation A/c ………………………………………… Dr.
To Computer A/c
(Being 10% depreciation charged on computer: 10% of 45,000 = 4,500)		4,500
4,500
2082-02-30Cash A/c ……………………………………………….. Dr.
To Bad Debts Recovered A/c
(Being bad debt of Ram written off last year now recovered in cash)		2,500
2,500
Grand Total7,31,0007,31,000

Answer: The Grand Total of the Journal is Rs. 7,31,000 on both the Debit and Credit sides.

Working notes:

  • Jestha 1: Goods brought in by the owner are debited to Purchase A/c (the chapter’s master guide also allows Stock of Goods A/c); Capital is the total of cash and goods, 3,00,000 + 80,000 = 3,80,000.
  • Jestha 8: Nima’s name is given and only Rs. 15,000 is paid, so the balance of Rs. 25,000 is a credit purchase and Nima becomes a creditor.
  • Jestha 12: A computer for office use is a fixed asset, so Computer A/c is debited, never Purchase A/c.
  • Jestha 16: Trade discount is never entered in the books. Only the net amount of Rs. 27,000 is recorded, so Bhuwan owes Rs. 27,000, not Rs. 30,000.
  • Jestha 20: Nima was owed Rs. 25,000 (from Jestha 8) and accepted Rs. 24,000, so discount received is 25,000 - 24,000 = 1,000.
  • Jestha 25: Bhuwan owed Rs. 27,000 and paid Rs. 26,000, so discount allowed is 27,000 - 26,000 = 1,000.
  • Jestha 30: Ram’s account was closed when his debt was written off, so the recovery is credited to Bad Debts Recovered A/c, not to Ram’s A/c.