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Business, according to going concern concept is supposed to be carried on indefinitely. At the end of the accounting year different accounts are closed but the business has to be carried on, so previous year’s assets and liabilities are to be brought into account of the current year. Passing journal entry in the beginning of the current year with the balances of assets and liabilities of the previous year is opening journal entry. In this entry assets accounts are debited because assets always show debit balance. Liabilities and capital accounts are credited because they show credit balance. 

            Illustration 2. The firm of M/s Garg and Gupta has the following balances in their different Ledger accounts on January I, 2006. 

            Cash                                                                $ 20,000

            Closing Stock                                                 $ 20,000

            Building                                                           $ 60,000

            Debtors                                                           $ 20,000

            Creditors                                                         $ 16,000

            Capital                                                            $ 1,08,000 

            Pass the opening Journal Entry. 

Solution: Journal Entry

            (Note: Excess of credit over debit has been assumed to be Goodwill.)


Illustration 3. 

Journalise the following transactions:


            Jan. 1 Started business with cash $10,000 and goods $ 5,000.

            Jan. 3 Paid into Current Account $ 4,000.

            Jan. 5 Sold goods to Neeraj $ 2,000.

            Jan. 9 Goods returned by Neeraj $ 200.

            Jan. 12 Goods purchased from Kapoor $ 3,000.

            Jan. 15 Goods returned to Kapoor $ 150.

            Jan. 18 purchased goods from John for $ 10,000.

                        He allowed 10% Trade discount.

            Jan. 21 Received a V.P.P. from Preform $ 1,000.

                        Sent a worker to collect it who paid $ 7 as cartage.

            Jan. 22 Paid interest on loan $ 30. 


Journal Entries

Illustration 4. Record the following transactions in journal :

(i) Goods worth $ 500 given as charity.

            (ii) Received $ 975 from Mahesh in full settlement of his account for $ 1,000.          

          (iii) Received a first and final dividend of 60 paise in a rupee from the Official Receiver of 


Journal Entries

            Notes. (i) Goods given as charity must have been charged at cost price, so they will reduce purchases. This is why, Purchases Account has been credited instead of Sales Account.

(ii) $ 25, received Jesser from Mahesh is discount allowed. It is an expense; so debited.

Illustration 5. Pass necessary journal entries for the following transactions:

(i) $ 1000 was stolen from the safe of the firm.

(ii) we received $ 20,000 as advance.

            (iii) Goods sold for cash $ 10,000. Also received 7% sales tax.

            (iv) Given as charity: Cash $ 1000, Goods $ 3,000 and a Sofa-set worth $ 4,000.

(v) Goods worth $ 700 stolen by an employee.

            (vi) Purchased two horses worth $ 20,000 for the business.

            (vii) Goods given to proprietor’s daughter $ 300.

            (viii) Goods worth $ 1,000 de:ftroyed by fire.

            (i.x) Goods worth $ 2,000 distributed as sample.

            (x) Bricks worth $ 1,00,000 purchased for the construction of building.

            (xi) Received cash from KiwtJlo against bad debts written off last year, $ 3,300. 


   Journal Entries