Chapter 4 · Lesson 4 of 4 · ⏱ 35 min

Journal Proper and Balancing of Accounts

🎯 After this lesson you will be able to:

List the transactions that are recorded in the journal proper and why
Pass journal proper entries such as opening, credit purchase of assets, goods withdrawn, samples, loss by fire and discount cancellation
Balance personal and real accounts, and close nominal accounts
Put the whole chapter together: which book, posting and balancing

We now have a cash book, a petty cash book and four day books. Most transactions have found a home. But some are left over: the opening entry on 1 April, a machine bought on credit, goods taken home by the owner, goods lost in a fire, year-end adjustments… Where do they go? Into the Journal Proper, the “everything else” book. In the second half of the lesson, we will learn to balance ledger accounts so that at the end of the month each account tells us one clear number.

1. What is the journal proper?

Journal Proper (also called the residual journal): the book in which those transactions are recorded that do not find a place in any special journal (cash book, purchases, purchases return, sales, sales return books).

Think of a school’s lost-and-found box. Books go to the library, lunch boxes to the canteen, sports kits to the PT room. Whatever does not belong to any of these goes into the lost-and-found box. The journal proper is the lost-and-found box of accounting, and it uses the same journal format you learnt in Chapter 3.

2. Transactions recorded in the journal proper

Opening entry: at the start of a new accounting year, the balances of assets, liabilities and capital of the last year are brought into the new books.
Adjustment entries: passed at the end of the year to put the accounts on the accrual basis, e.g. outstanding rent, prepaid insurance, depreciation, commission received in advance.
Rectification entries: to correct errors made in the books of original entry or in posting (you will learn these in Chapter 6).
Transfer entries: e.g. transferring Drawings A/c to Capital A/c at the year end.
Closing entries: closing the accounts of purchases, sales, expenses, incomes, etc. by transferring them to the Trading and Profit and Loss Account.
Other entries, for example:
- purchase or sale of items other than goods on credit (furniture, machinery, an old computer);
- goods withdrawn by the owner for personal use;
- goods distributed as free samples;
- loss of goods by fire, theft or spoilage;
- cancellation of discount allowed or received earlier, when a cheque is dishonoured;
- cash discount allowed or received on settlement (the cash part is in the cash book);
- endorsement and dishonour of bills of exchange, consignment and joint venture entries (studied in higher classes).

Memory hook “O-A-R-T-C + Others”: Opening, Adjustment, Rectification, Transfer, Closing, plus the odd ones (non-goods on credit, goods out without sale, discounts, dishonour).

3. Journal proper entries in practice

3.1 The opening entry

On 1 April 2026 Sharma Traders had: Cash ₹20,000; Bank ₹45,000; Stock ₹60,000; Furniture ₹25,000; Debtor Mohan ₹15,000; Creditor Gupta Paper House ₹18,000; Bank Loan ₹30,000. Pass the opening entry.

Assets (debited): 20,000 + 45,000 + 60,000 + 25,000 + 15,000 = ₹1,65,000.
Liabilities (credited): 18,000 + 30,000 = ₹48,000.
Capital = Assets − Liabilities = 1,65,000 − 48,000 = ₹1,17,000 (credited).

Date	Particulars	Dr (₹)	Cr (₹)
2026 Apr 1	Cash A/c Dr.	20,000
	Bank A/c Dr.	45,000
	Stock A/c Dr.	60,000
	Furniture A/c Dr.	25,000
	Mohan’s A/c Dr.	15,000
	To Gupta Paper House A/c		18,000
	To Bank Loan A/c		30,000
	To Capital A/c		1,17,000
	(Being balances brought forward from last year)
	Total	1,65,000	1,65,000

3.2 Other entries during the year

Pass journal proper entries for Sharma Traders (April 2026):
(a) Apr 8 Bought furniture on credit from Singh Furniture ₹14,000.
(b) Apr 12 Owner took goods costing ₹2,500 for personal use.
(c) Apr 15 Distributed goods costing ₹1,200 as free samples.
(d) Apr 20 Goods costing ₹8,000 destroyed by fire; the insurance company admitted a claim of ₹5,000.
(e) Apr 22 Sold the old office computer (book value ₹6,000) on credit to Neha for ₹6,000.
(f) Apr 25 Mohan’s cheque of ₹9,800, received on Apr 10 in full settlement of ₹10,000, was dishonoured.

(a) Furniture is an asset, not goods → Furniture A/c Dr., Singh Furniture A/c Cr.
(b), (c), (d): goods go out without a sale, so they are credited to Purchases A/c at cost (the goods were recorded as purchases when bought). Debit Drawings, Advertisement (samples), and Loss by Fire + Insurance Claim.
(e) Asset sold on credit → Neha’s A/c Dr., Computer A/c Cr.
(f) The dishonour of ₹9,800 is recorded in the cash book (bank column, payments side, against Mohan). The ₹200 discount allowed earlier is no longer valid, so it is cancelled in the journal proper: Mohan’s A/c Dr., Discount Allowed A/c Cr. Mohan again owes the full ₹10,000.

Date	Particulars	Dr (₹)	Cr (₹)
2026 Apr 8	Furniture A/c Dr.	14,000
	To Singh Furniture A/c		14,000
	(Being furniture bought on credit)
Apr 12	Drawings A/c Dr.	2,500
	To Purchases A/c		2,500
	(Being goods withdrawn by the owner for personal use)
Apr 15	Advertisement A/c Dr.	1,200
	To Purchases A/c		1,200
	(Being goods distributed as free samples)
Apr 20	Loss by Fire A/c Dr.	3,000
	Insurance Claim A/c Dr.	5,000
	To Purchases A/c		8,000
	(Being goods destroyed by fire and claim admitted by the insurance company)
Apr 22	Neha’s A/c Dr.	6,000
	To Computer A/c		6,000
	(Being old computer sold on credit)
Apr 25	Mohan’s A/c Dr.	200
	To Discount Allowed A/c		200
	(Being discount cancelled on dishonour of Mohan’s cheque)
	Total	31,900	31,900

Goods withdrawn, samples and goods lost are credited to Purchases A/c, not to Sales A/c and not to “Goods A/c”. No sale has happened, so Sales must not increase. And they are taken at cost, not at selling price.

The owner of a kirana shop took home goods costing ₹1,800 for family use. Pass the entry.

The owner took something from the business. The goods leave without a sale.

Drawings increase → debit Drawings A/c. Goods go out at cost without a sale → credit Purchases A/c.

Particulars	Dr (₹)	Cr (₹)
Drawings A/c Dr.	1,800
To Purchases A/c		1,800
(Being goods withdrawn for personal use)

A bakery bought an oven (machinery) on credit from Arjun Engineering for ₹48,000. Pass the journal proper entry.

Is an oven “goods” for a bakery? Was cash paid?

The oven is an asset used in the business, bought on credit → Machinery A/c Dr., Arjun Engineering A/c Cr. It is not recorded in the purchases book because it is not goods for resale.

Particulars	Dr (₹)	Cr (₹)
Machinery A/c Dr.	48,000
To Arjun Engineering A/c		48,000
(Being oven purchased on credit)

Rohit’s cheque of ₹4,850, received in full settlement of ₹5,000, was dishonoured. The bank column entry is already made in the cash book. What entry goes into the journal proper?

The ₹150 discount was allowed only because he paid. Now he has not paid.

The discount is cancelled: Rohit again owes ₹150 more → debit Rohit’s A/c; Discount Allowed A/c is reversed → credit.

Particulars	Dr (₹)	Cr (₹)
Rohit’s A/c Dr.	150
To Discount Allowed A/c		150
(Being discount cancelled on dishonour of cheque)

3.3 Year-end entries (a preview)

You will study these in detail later, but see how they look. On 31 March 2027:

Date	Particulars	Dr (₹)	Cr (₹)
2027 Mar 31	Rent A/c Dr.	6,000
	To Outstanding Rent A/c		6,000
	(Being rent for March due but not paid)
Mar 31	Prepaid Insurance A/c Dr.	1,500
	To Insurance A/c		1,500
	(Being insurance paid in advance for next year)
Mar 31	Capital A/c Dr.	30,000
	To Drawings A/c		30,000
	(Being drawings transferred to capital account)
	Total	37,500	37,500

4. Balancing of accounts

After posting, a ledger account may have many entries on both sides. To know where we stand, we balance it, usually at the end of each accounting period (month or year).

Balancing an account means totalling both sides, finding the difference, and writing that difference on the shorter side as “Balance c/d” (carried down) so that both totals become equal. The same amount is then written on the opposite side in the next period as “Balance b/d” (brought down).

4.1 Steps

Total the debit side and the credit side separately (on rough paper).
Find the difference.
Write the difference on the side with the smaller total: “By Balance c/d” on the credit side, or “To Balance c/d” on the debit side.
Write the (now equal) totals on both sides on the same line and rule them off.
Bring the balance down on the first day of the next period on the other side: “To Balance b/d” or “By Balance b/d”.

If the debit side is bigger, the account has a debit balance (c/d is written on the credit side). If the credit side is bigger, it has a credit balance. The balance is named after the bigger side, but written on the smaller side.

Balance Mohan’s account (a debtor) for April 2026: Apr 1 opening balance (Dr.) ₹15,000 · Apr 6 goods sold to him ₹7,500 · Apr 10 cash received ₹9,800 and discount allowed ₹200 · Apr 14 he returned goods ₹1,000.

Debit side: 15,000 + 7,500 = 22,500. Credit side: 9,800 + 200 + 1,000 = 11,000.
Difference = 11,500. Debit is bigger → debit balance; write “By Balance c/d 11,500” on the credit side.
Bring down “To Balance b/d 11,500” on May 1.

Dr.Mohan’s AccountCr.

Date	Particulars	₹	Date	Particulars	₹
2026 Apr 1	To Balance b/d	15,000	2026 Apr 10	By Cash A/c	9,800
Apr 6	To Sales A/c	7,500	Apr 10	By Discount Allowed A/c	200
			Apr 14	By Sales Return A/c	1,000
			Apr 30	By Balance c/d	11,500
		22,500			22,500
May 1	To Balance b/d	11,500

Mohan still owes ₹11,500 (debit balance, an asset).

Balance Gupta Paper House’s account (a creditor) for April 2026: Apr 1 opening balance (Cr.) ₹18,000 · Apr 9 goods bought on credit ₹12,000 · Apr 18 paid by cheque ₹17,640 in settlement of ₹18,000 (discount received ₹360) · Apr 27 goods returned ₹800.

Credit side: 18,000 + 12,000 = 30,000. Debit side: 17,640 + 360 + 800 = 18,800.
Difference = 11,200. Credit is bigger → credit balance; write “To Balance c/d 11,200” on the debit side.

Dr.Gupta Paper House AccountCr.

Date	Particulars	₹	Date	Particulars	₹
2026 Apr 18	To Bank A/c	17,640	2026 Apr 1	By Balance b/d	18,000
Apr 18	To Discount Received A/c	360	Apr 9	By Purchases A/c	12,000
Apr 27	To Purchases Return A/c	800
Apr 30	To Balance c/d	11,200
		30,000			30,000
			May 1	By Balance b/d	11,200

We still owe Gupta Paper House ₹11,200 (credit balance, a liability).

Kapoor Brothers (a supplier) had a credit balance of ₹9,000 on 1 April. In April: goods bought from them on credit ₹11,400; goods returned to them ₹570; paid ₹8,820 by cheque in full settlement of the opening ₹9,000. What is the balance of Kapoor Brothers’ account on 30 April (in ₹)?

The settlement clears ₹9,000 (₹8,820 paid + ₹180 discount received).

Credit side = 9,000 + 11,400 = 20,400. Debit side = 8,820 + 180 + 570 = 9,570. Credit balance = 20,400 − 9,570 = ₹10,830.

4.2 Which accounts are balanced, which are closed?

Accounts of persons (debtors, creditors, loans, capital) and of assets are balanced and carried forward, because they continue into the next period until settled.
Accounts of expenses, losses, revenues and gains (rent, salary, sales, commission received…) are not balanced. At the year end they are closed by transferring their totals to the Trading and Profit and Loss Account through closing entries.

Dr.Rent AccountCr.

Date	Particulars	₹	Date	Particulars	₹
2026-27	To Bank A/c (Apr–Feb)	66,000	2027 Mar 31	By Profit and Loss A/c	72,000
2027 Mar 31	To Outstanding Rent A/c	6,000
		72,000			72,000

There is no “Balance c/d” here: the whole ₹72,000 is the expense of the year, transferred to the Profit and Loss Account. Next year the Rent account starts from zero.

Do not bring down a balance in an expense or income account at the year end. And never write “Balance c/d” on the bigger side; it always goes on the smaller side.

5. The full picture of Chapter 4

Transaction	Book of original entry	Posting in the ledger
Cash / bank receipt or payment	Cash Book	Other account posted individually (receipts → Cr., payments → Dr.); C entries not posted
Small expenses	Petty Cash Book	Column totals Dr. to expense accounts; Petty Cash A/c Cr.
Credit purchase of goods	Purchases Book	Suppliers Cr.; total Dr. to Purchases A/c
Return to supplier	Purchases Return Book	Suppliers Dr.; total Cr. to Purchases Return A/c
Credit sale of goods	Sales Book	Customers Dr.; total Cr. to Sales A/c
Return from customer	Sales Return Book	Customers Cr.; total Dr. to Sales Return A/c
Everything else	Journal Proper	Each entry posted individually

Goods costing ₹3,000 were stolen from the shop (not insured). The account credited is:

Sales A/c
Purchases A/c
Loss by Theft A/c
Cash A/c

Loss by Theft A/c is debited (a loss). The goods leave without a sale, so Purchases A/c is credited at cost.

The debit side of an account totals ₹42,000 and the credit side ₹35,500. After balancing:

“To Balance c/d ₹6,500” on the debit side; credit balance
“By Balance c/d ₹6,500” on the credit side; credit balance
“By Balance c/d ₹6,500” on the credit side; debit balance
“To Balance c/d ₹77,500” on the debit side

Debit is bigger, so the account has a debit balance of 42,000 − 35,500 = ₹6,500, written on the smaller (credit) side as “By Balance c/d”.

6. Exam tips

In a “prepare subsidiary books and post” question, first make a rough list: each transaction → its book. Then write the books, then the ledger, then balance.
Write the Journal Proper in full journal format with narrations; it often carries separate marks.
When balancing, the totals of both sides must be written on the same horizontal line.

📌 Points to remember (Quick Revision)

Journal Proper records whatever does not fit in any special book: opening, adjustment, rectification, transfer and closing entries, and other entries.
Other entries include credit purchase/sale of assets, goods withdrawn, free samples, loss by fire/theft, discount on settlement and discount cancellation on dishonour.
Goods going out without a sale are credited to Purchases A/c at cost.
Balancing: difference of the two sides is written on the shorter side as Balance c/d and brought down as Balance b/d next period.
Personal and asset accounts are balanced and carried forward; expense, loss, revenue and gain accounts are closed to the Trading and Profit and Loss Account.

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