Presentation on theme: "Ch-12 Recording of Transactions An external event that affects assts, liabilities or capital is called a transaction. And recording the transaction is."— Presentation transcript:
Ch-12 Recording of Transactions An external event that affects assts, liabilities or capital is called a transaction. And recording the transaction is the first stage in the accounting process. Book keeping is an art of systematically and correctly recording of all transactions which involves the transfer of money or money’s worth in the books of original entry.
Book keeping V/S Accountancy Book keeping is an art of systematically and correctly recording of all transactions which involves the transfer of money or money’s worth in the books of original entry. The records are not means for outsiders It is a science to examine and checks up the accuracy of the recorded transactions Accountancy gives required information to all the related outside parties
Vouchers are prepared for the records made under book-keeping. Book keeping done by junior staff. It does not show results of business transactions. The records under book keeping are the basis for accounting information. Accounting work id done by senior accountant whose responsibility is much greater in the organisation. Result of a business are fully made available.
Book keeping do not show the profit or loss of a business or its financial position. It is concerned with totally and balancing of various accounts in the ledger. Accounting help in ascertain its profit and true financial position. It helps in the preparation of trial balance and checking the arithmetical accuracy of accounts.
Single Entry System i) Kohler defines single entry system as “a system of book keeping in which as a rule, only cash and personal accounts are maintained. It is always an incomplete double entry, varying with circumstances” ii) According to R.N.Carter. “Single entry cannot be termed as a system, as it is not based on any scientific system, like double entry system. For this purpose, single entry is now-a-days known as preparation of account from incomplete records”
Advantage of double entry book keeping 1.1. It is a scientific method of maintaining the books of account 2.2. It helps in recording both the aspects of every transaction It is easy to find out the assets and liabilities, income and expenditure, purchase and sale etc. for a paritcular period.
4. It is easy to find out the net profit or loss earned by an enterprise. 5. It is easy to make comparison between the previous and current user's sale and purchase, opening and closing stock, as well as income and expenditure. 6.The exact state of affairs of business can be easily verified by preparing the balance sheet. 7.It helps in locating the error in the ledger.
Types of Accounts Sr. N o Name of the accountantDebitCredit 1PersonalThe ReceiverThe giver 2RealWhat comes inWhat goes out 3NominalAll losses ExpensesAll gains & incomes
Personal Accounts Accounts recording transactions with a person or group of persons with whom the business has dealings are known as personal accounts. To record credit transactions, these accounts are necessary. Personal accounts are of the following types: (a) Natural persons An account recording transactions with an individual human being is termed as a natural persons’ personal account. Both males and females are included in it. e g., Ram’s account, Shyam’s account, Shanthi’s accounts. (b) Artificial or legal persons An account recording financial transactions with an artificial person created by law or otherwise is termed as an artificial person, personal account, e.g. Firms’ accounts, limited companies’ accounts, educational institutions’ accounts, Co-operative society account. (c) Groups/Representative personal Accounts An account indirectly representing a person or persons is known as representative personal account. When accounts are of a similar nature and their number is large, it is better tot group them under one head and open representative personal accounts. e.g., prepaid insurance, outstanding salaries, rent, and wages etc.
Real Accounts Accounts relating to properties or assets are known as ‘Real Accounts’, A separate account is maintained for each asset e.g., Cash Machinery, Building, etc., Real accounts can be further classified into tangible and intangible. (a) Tangible Real Accounts: These accounts represent assets and properties which can be seen, touched, felt, measured, purchased and sold and they have a physical shape e.g. Machinery, Cash, Furniture and Stock etc. (b) Intangible Real Accounts: These accounts represent assets and properties which cannot be seen, touched or felt because they have no physical shape, but they can be measured in terms of money. e.g. Goodwill, Patents, Trademarks and Copyrights etc.
Nominal Accounts It relates to the items which exist in name only. Expenses, incomes etc., are there in business activities. Accounts relating to income, revenue, gain,expenses and losses are termed as nominal accounts. These accounts are also known as fictitious accounts as they do not represent any tangible asset. A separate account is maintained for each head or expense or loss and gain or income. e.g., Wages account, Rent account Commission account, Interest received account are some examples of nominal account
Books of Original Entry Journal Cash-book 1.Simple cash book 2.Two columnar cash book 3.Three columnar cash book 4.Petty cash book Other day books 1.Purchase book 2.Sales book 3.Purchase-return book 4.Sales return book
Journal-Rules & Format Journal is the basic book of original entry. Whenever transaction took place, the entry will be entered in the journal. After preparing journal, this transaction are posted in the ledger.
Date: In each page of the journal at the top of the date column, the year is written and in the next line, month and date of the first entry are written. The year and month need not be repeated until a new page is begun or the month or the year changes. Thus, in this column, the date on which the transaction takes place is alone written. Particulars: In this column, the details regarding account titles and description are recorded. The name of the account to be debited is entered first at the extreme left of the particulars column next to the date and the abbreviation ‘Dr.’ is written at the right extreme of the same column in the same line. The name of the account to be credited is entered in the next line preceded by the word “To” leaving a few spaces away from the extreme left of the particulars column. In the next line immediately to the account credited, under this a short explain about the transaction is given called as narration. To indicate the completion of the entry for a transaction, a line is usually drawn all through the particulars column.
Ledger Folio: This column is meant to record the reference of the main book, i.e., ledger and is not filled in when the transactions are recorded in the journal. The page number of the ledger in which the accounts are appearing is indicated in this column, while the debits and credits are posted o the ledger accounts. Amount (Debit): The amount to be debited along with its unit of measurement at the top of this column on each page is written against the account debited. Amount (Credit): The amount to be credited along with its unit of measurement at the top of this column on each page is written against the account credited. Narration: A brief explanation of the transaction is given after passing the journal entries know as “Narration”. It may include particulars required to identify and understand the transaction and should be adequate enough to explain the transaction. It usually starts with the word “Being” which means what it is and is written within parentheses. The use of the word “Being” is completely dispensed with, in modern parlance.
LEDGER Ledger is the book which contains, in a summarised and classified form, a permanent record of all transactions of a business, A ledger is a collection of all the accounts debited or credited in the general journal and various special journals. A ledger account may be defined as a summary statement of all the transactions relating to a person, asset, expense, or income or gain or loss which have taken place during a specified period and shows their net effect ultimately. A ledger account is divided into two sections by a central vertical line.
All the debit entries are made on left hand side with abbreviation Dr. TO is written before debit entries. All the credit entries are made on right hand side with abbreviation Cr. BY is written before credit entries.
Dr. Cr. DateParticularJ.F.AmountDateParticularJ.F.Amount To……………. BY………..
Importance of Ledger Mgt can know the due from a specific customer on a particular date. The various transactions pertaining to an account may be spread over in the journal. But in ledger you can find it at specific page. Helps in making P&L a/c. Easy finding of any account.
Journal vs ledger It is the book of original entry Chronological record is there Balancing is not done From journal entries are transferred to the ledger It is the book of secondary entry. All the transactions relating to a particular account are record in order of their occurrence. All the accounts are balanced. From the ledger, the trial balance is drawn and then financial statements are prepared from it.
The process of recording entries in the journal is called journalizing. The unit of classification of data within the journal is the transaction, The process of recording entries in the ledger is called posting. The unit of classification of data within the ledger is the account.