110-Chapter 3 - Books of Original Entry-Journal - WM
110-Chapter 3 - Books of Original Entry-Journal - WM
110-Chapter 3 - Books of Original Entry-Journal - WM
Journal is the primary book of recording the business transactions. The transactions are
recorded in the books of original entries or Journal in form of Double entry system i.e. in form of
Debit record (Dr). and Credit record (Cr).
All of the transactions are recorded in a chronological order i.e. in a date wise sequence. With
the help of it we are able to prepare our ledger accounts, trial balance and at last the financial
statements of an organisation. These transactions are recorded in a particular format which is
shown below:
FORMAT OF JOURNAL-
Steps in Journalising-
1. Ascertain the accounts that are affected by a transaction.
3. Ascertain the account to be debited and credit by applying the rules of debit and credit.
4. Ascertain the amount by which the accounts are to be debited and credited.
5. Write the date and the month of the transaction in the date column and the year at the
top.
6. Write in the particulars column name of the account to be debited. Along with of the
account, abbreviation Dr. and write the amount to be debited in the debit amount
column. Similarly write in the particulars column name of the account to be credited by
the word ‘To’. Write the amount to be credited in the credit column.
7. Write brief description of the transaction starting from the next line in the Particulars
column which is called Narration.
8. Draw a line across the particulars column to separate one journal entry form the other.
In this system, every business transaction is having a twofold effect of benefit giving and
benefit receiving aspects. The recording is made on the basis of both these aspects.
Double Entry is an accounting system that records the effects of transactions and other
events in at least two accounts with equal amounts of debit and credit.
Every aspect is having its own rules & regulations therefore accounting is also based on some
specified rules. These rules are called as Golden Rules of Accounting.
This rule is applicable only on the persons and as per this rule there are three types of persons.
Personal account may have Debit Balance and Credit balance.
a. Natural Persons – Human Beings or Individuals. For example – Ram, Shyam, Mohan
etc.
This rule is applicable on the property or assets which may be tangible or intangible in nature
and can be measured in terms of money and being acquired by the business. For example –
Cash, Land & Building, Plant & Machinery, Long term Investments, Goodwill, Patents,
Trademark and Copyright etc. Real Accounts are always having debit balance.
This rule is applicable on the expenses incurred and income received by the business.
Expenses are having always Debit balance whereas Incomes are having always Credit balance.
Example of Expenses – Discount allowed, Salary paid, Rent paid, Interest paid etc. Example of
Incomes – Discount Received, Commission received, Interest Received etc.
The accounting equation is a statement of equality between the debits and the credits.
Under accounting equation approach, rules of debit and credit depend on the nature of
an account. For this purpose, all the accounts are classified into the following five
categories under this approach:
1. Assets Accounts
2. Capital Account
3. Liabilities Accounts
4. Revenue or Incomes Accounts
5. Expenses or Losses Accounts
2) Capital Account: Increase in the amount of capital is recorded on the credit side
and decrease in the amount of capital is recorded on the debit side of the Capital
Account. Suppose, the proprietor introduces the additional capital in the
business, the Capital account will be credited. Similarly, if the proprietor
withdraws some money for his personal use, then Capital account or Drawings
account will be debited.
5) Expenses or Losses Account: All increases in the losses and expenses are
recorded on the debit side of the concerned Expense account and all reductions
in the losses and expenses are recorded on the credit side of the concerned
Expense Account.
Example 1: RULES OF DEBIT AND CREDIT: On what side, increase in the following
accounts will be recorded:
1. Cash 2. Machinery
3. Debtors 4. Creditors
5. Bank Overdraft 6. Capital
7. Interest received 8. Salaries paid
Solution:
Solution:
2.
ICICI BANK A/C DR. 250000 ASSETS INCREASE IN ASSETS-DEBIT
TO CASH A/C ASSETS DECREASE IN ASSETS-CREDIT
250000
(BEING CASH DEPOSITED
IN BANK)
100000 ASSETS INCREASE IN ASSETS-DEBIT
3. 5000 ASSETS DECREASE IN ASSETS-CREDIT
95000 ASSETS DECREASE IN ASSETS-CREDIT
Compound Journal Entry – Transactions which are inter-connected and have taken place
simultaneously are recorded by means of a compound or combined journal entry. For
example, if amount is spent on the same day for salaries, wages, stationery, rent, etc. a
combined entry can be passed debiting all the relevant nominal accounts with respective
amounts and crediting cash account with the total amount spent.
GST-
The business enterprise has to maintain the following accounts (apart from accounts like
purchase, sales, stock) –
Input CGST a/c- when CGST paid on purchase of goods and services (intrastate)
Output CGST a/c- when CGST collected from buyer at the time of sales of goods and
services (intrastate)
Input SGST a/c- when SGST paid on purchase of goods and services (intrastate)
Output SGST a/c- when SGST collected from buyer at the time of sales of goods and
services (intrastate)
Input IGST a/c- when IGST paid on purchase of goods and services. (interstate)
Output IGST a/c- when IGST collected from buyer at the time of sales of goods and
services (interstate).
Electronic Cash Ledger (Automatically maintained on Government GST portal to pay
GST, interest, fees or penalty.)
Thus due to input tax credit, tax liability is reduced. Also, GST on legal fees can be used for set
off against the GST payable on goods sold as GST paid on input services is also admissible for
taking benefit of input tax credit. If there had been any input tax credit left it would have been
carried forward to the next year.
Any IGST credit will first be applied to set off IGST and then to set off CGST and SGST in any
order.
So out of total input IGST of ₹ 45000, firstly it will be completely set off against output IGST of
₹19800. Then ₹13770 against CGST and balance ₹11430 against SGST.
From the total ₹52200, only ₹2340 is payable.
So the setoff entries will be-
Generally, the ledgers maintained with respect to GST entries are Output CGST/ SGST/ IGST
and Input CGST/ SGST/ IGST. Other than the above records, there are mainly 3 electronic
ledgers that are maintained by the GST portal which we can keep a track of in our accounts:
Electronic Liability Ledger: This ledger shows the tax liability payable by the assessee and
can only be cleared when it is set off against either the electronic credit ledger or electronic cash
ledger or both.
Electronic Credit Ledger: This ledger depicts the credit tax available if any.
Electronic Cash Ledger: This ledger maintains details of tax payments made by the assessee
which can be used to set off tax liabilities as displayed by the Electronic Liability Register.
Thus, if we want to truly make sure that our accounts are in line with the GST portal we will
need to account for the above ledgers and also pass monthly closing entries.
GSTR 1
The output tax liability is determined through this form initially and hence our entries will reflect
the same.
1. B2B / B2C supplies:
During the month let’s say:
The taxable value of our sales/ output = ₹ 3,00,000
On which CGST = ₹ 27,000 and SGST = ₹ 27,000.
The entries while making the actual supply would be as follows:
Debtors A/c........................ Dr. 3,54,000
3,00,000
To Sales (B2B / B2C) A/c 27,000
27,000
To Output CGST A/c
To Output SGST A/c
Word of advice: Maintain separate sales accounts for B2B, B2C, Export, Exempt, inter-state
sales and even supplies liable to reverse charge.
2. Exempt supplies:
Debtors A/c........................ Dr. xx
xx
To Sales (Exempt) A/c
Making an exempt supply will not lead to any output tax liability but will still have to be disclosed
in the Form GSTR – 1 and thus proper records will need to be maintained in this regard.
3. Zero-rated supply:
A zero-rated supply is a supply which includes exports and supplies made to an SEZ developer
or an SEZ unit. Such supplies can be made under either of the following options:
1. Without payment of tax (IGST): The goods or services may be exported without paying
any IGST thereon under a bond or Letter of Undertaking after following the prescribed
conditions.
2. With payment of tax (IGST): The goods or services may be supplied after charging the
applicable IGST and subsequently, the refund for such IGST can be claimed.
Consider that an export has been made to Mr. Z located in a foreign country worth ₹ 1,00,000
and the applicable GST rate is 18%
Export made under bond:
Mr. Z A/c ........................ Dr. 1,00,000 1,00,000
To Sales A/c
(Being export made to Mr. Z under bond without payment of tax)
Export made with payment of IGST:
25.04.2018 Mr. Z A/c ......................... Dr. 1,00,000
IGST Refund Receivable A/c .............Dr. 18,000
To Sales A/c 1,00,000
To Output IGST A/c 18,000
4. Advances received:
GST liability is attracted even on receipt of advance. Where an advance is received in a
particular month and the invoice in respect of the same is raised in the same month, the
accounting will be done as follows:
However, where the advance is raised in a particular month and the invoice is raised in a
subsequent month, the GST will practically have to be paid on receipt of the advance itself and
the accounting for the same will be done as follows:
In the above example, if Mr. A received 110 units instead of the 100 units ordered for and he is
given the option to pay for such goods and keep them, Mr. B will raise a debit note for the
balance goods. The accounting for in respect of the balance 10 units will be done as follows:
25.04.2018 Mr. A’s A/c ......................... Dr. 236
To Sales A/c 200
To Output CGST 18
To Output SGST 18
(Being debit note issued in respect of 10 units @ ₹ 20 each to
Mr. A)
6. Amendment in invoices:
Form GSTR – 1 also allows for amending earlier raised invoices in case errors in the following
inputs:
Invoice number
Invoice date
Place of Supply (but not supply type)
Invoice value
Taxable value
Amount of tax
Let us look at how an amendment in an invoice will affect our accounting entries:
Illustration :
Mr. A made an output supply having taxable value of ₹ 30,000 on IGST of ₹ 5,400 was paid in
the month of July 2018. While preparing the invoice for this supply, the taxable value was
erroneously entered as ₹ 3,00,000 on which IGST of ₹ 54,000 was paid and the GSTR – 1 filed
accordingly. The error was noticed in the subsequent month. The entries to be passed in such a
case would be:
Edit
July Debtor A/c ......................... Dr. 3,54,000 3,00,000
To Sales (B2B / B2C) A/c 54,000
To Output IGST A/c
(Being the incorrect entry passed in July)
August Sales (B2B / B2C) A/c ............ Dr. 2,70,000
Output IGST A/c............ Dr. 48,600
To Debtor A/c 3,18,600
(Being incorrect sales amount now corrected)
Since extra tax was paid, this amendment in the invoice has the effect of reducing the output tax
payable in the month of August.
Illustration :
Mr. A made an output supply having taxable value of ₹ 3,00,000 on which IGST of ₹ 54,000 was
paid in the month of July 2018. While preparing the invoice for this supply, the taxable value
was erroneously entered as ₹ 30,000 on which IGST of ₹ 5,400 was paid and the GSTR – 1
filed accordingly. The error was noticed in the subsequent month. The entries to be passed in
such a case would be:
July Debtor A/c ......................... Dr. 35,400
To Sales (B2B / B2C) A/c 30,000
To Output IGST A/c 5,400
(Being the incorrect entry passed in July)
August Debtor A/c ......................... Dr. 3,18,600
To Sales (B2B / B2C) A/c 2,70,000
To Output IGST A/c 48,600
(Being incorrect sales amount now corrected)
Since short tax was paid in an earlier month, the output tax liability for the month of August
would be increased by the difference in tax liability and interest would be charged accordingly at
the time of payment.
vi) Closing entries:
At the time of filing GSTR -1, the output tax liability is determined and the entries will need to be
passed in the following manner:
GSTR 2
Entries relating to the availing of Input Tax Credit will be passed by transferring the amount of
credit from the input GST accounts to the respective Electronic Credit Ledger. However, in this
scenario, a possibility of ineligible Input Tax Credit emerges and should be accounted for in
accordance with the provisions of the CGST Act. Where the entity makes both taxable and
exempt supplies, the inputs used commonly to provide such output supplies would be availed
and reversed in the proportion of exempt supply turnover to total turnover. If the appropriate
bifurcation of ITC that needs to be reversed (T1, T2, and T3) and eligible ITC has been made
according to the rules at the invoice level, the closing entries can be passed as follows:
GSTR 3
Form GSTR – 3 or GSTR – 3B is the final monthly return to be filed and it is in this form that the
final tax payment is determined. Thus the final closing entry for the month with respect to GST
would be as follows:
Electronic Liability Ledger CGST A/c ............. Dr. xx
Electronic Liability Ledger SGST A/c ............. Dr. xx
Electronic Liability Ledger IGST A/c ............. Dr. xx
To Electronic Credit Ledger CGST A/c xx
To Electronic Credit Ledger SGST A/c xx
To Electronic Credit Ledger IGST A/c xx
To Electronic Cash Ledger CGST A/c xx
To Electronic Cash Ledger SGST A/c xx
To Electronic Cash Ledger IGST A/c xx
(Being output tax liability set-off using available ITC and balance paid in
cash)
1. Accounting Entries for Professional payment under section 194J and TDS deducted
thereon @ 10%-
(ii) Professional fees paid to XY & Associates, firm of Chartered Accountant of ₹ 35,000
during the year, when TDS is Applicable-
- At the time of Provision of Professional Charges A/c Dr. 35,000
expenses- To M/s XY & Associates A/c 31,500
To TDS payable on Professional fees A/c 3,500
(Being provision of fees made to M/s XY & Associates
after deducting TDS @ 10%)
(iii) If GST charged on Professional fees, paid to XY & Associates, firm of Chartered
Accountant of ₹ 1,00,000 + GST of ₹ 18,000 i.e. totaling to ₹ 1,18,000 during the year –
2. Accounting Entries for Payment to contractor under section 194C and TDS deducted
for Individual/HUF @1% & Other than Individual/HUF @2%
Particulars Accounting Entry
(i) Job Work charges paid to XY & company, partnership firm of ₹ 25,000 during the year,
if TDS not Applicable-
- At the time of Provision of Job work charges A/c Dr. 25,000
expenses- To M/s XY & Company A/c 25,000
(Being provision of fees made to M/s XY & Company)
- At the time of payment of M/s XY & Company A/c Dr. 25,000
contact amount- To Bank A/c 25,000
(Being amount of fees paid to M/s XY & Company)
(ii) Job Work charges paid to XY & Company, Partnership firm of ₹ 1,25,000 during the
year, when TDS is Applicable-
- At the time of Provision of Job work Charges A/c Dr. 1,25,000
expenses- To M/s XY & Company A/c 1,22,500
To TDS payable on Contractor A/c 2,500
(Being provision of fees made to M/s XY & Company
after deducting TDS @ 2%)
- At the time of payment of M/s XY & Company A/c Dr. 1,22,500
contact amount- To Bank A/c 1,22,500
(Being amount of payment made to M/s XY & Company)
- At the time of payment of TDS payable on Contractor A/c Dr. 2,500
TDS- To Bank A/c 2,500
(Being amt of TDS u/s 194C deposited)
(iii) If Job Work charges paid to XY & Company, Partnership firm of ₹ 1,00,000 + GST of ₹
18,000 i.e. totaling to ₹ 1,18,000 during the year –
3. Accounting Entries for Payment of Salary under section 192 and TDS deducted
thereon-
Particulars Accounting Entry
(i) For Payment of Total Salary of ₹ 2,50,000/- after deducting TDS of ₹ 20,000/-, ESI of ₹
12,000/- and PF of ₹ 28,000/-
- At the end of month the provision- Salary A/c Dr. 3,10,000
To Salary Payable A/c 2,50,000
To ESI Payable A/c 12,000
To PF Payable A/c 28,000
To TDS payable on Salary A/c 20,000
(Being provision of salary made at the end of
month)
- Employer’ Contribution to ESI Employer’s Contribution to ESI A/c Dr. 30,000
(30,000)- To ESI Payable A/c 30,000
(Being amount of Employer’s contribution to
ESI)
- Employer’ Contribution to PF (28,000 Employer’s Contribution to PF A/c Dr. 28,000
+ Admin Expenses 2,000)- PF Administration charges A/c Dr. 2,000
To PF Payable A/c 30,000
(Being amount of Employer’s contribution to PF)