Professional Documents
Culture Documents
three
The JOURNAL
The accountant loves to get his/her
thoughts and feelings (transactions)
into his/her journal as soon as
something happens within the
business.
THE JOURNAL
ADVANTAGES
The complete transaction is recorded in
one place
Reduces Errors
Transactions are listed in chronological
order
Shows a picture of every day at the
business
Journal
Recording the dual aspects of a
transaction is known as journalizing. It is a
book containing a chronological record of
all daily transactions of a business. Thus,
journal is the book of original record.
L.F.
Debit below:
Credit
A proDate
formaParticul
of journal
is given
ars
(1)
(2)
(3)
Rs.
Rs.
(4)
(5)
The Journal
Dat
e
Particular L
s
.F
.
DR
CR
A journal entry:
The NARRATION
Summarize each transaction with
words and as short as possible
Example: Owner invested cash
Example: Made cash sale of goods
Example: Bought equipment on account
Illustration
Ram starts a business with capital of Rs.10,000
on 1 January 2015
He purchased furniture for cash for Rs.4,000 on 5
January 2015
He purchased goods from Mohan on credit of Rs.
2,000 on 10 January 2015
He paid cash to Mohan Rs 1,000 on 20 January
2015
Date
Particulars
(1)
(2)
L.F.
(3)
Debit
Rs.
Credit
Rs.
(4)
(5)
Cash
account
To Capital
Account
10,000
Furniture
account
To Cash
Account
4,000
Purchase
Account
To Mohan
2,000
Mohan
To Cash
Account
1,000
10,000
4,000
2,000
1,000
Ledger Accounts
Ledger is a book which contains various accounts.
Transferring the debit and credit items from the journal to
their respective accounts in the ledger is called Posting.
The exact names of accounts used in the journal should be
carried to the ledger.
The page number of the ledger on which the posting has
been done is mentioned in the L.F. column of the journal.
Salaries Account
Dr.
Cr.
Particular
s
Rs.
Particular
s
Rs.
Use of To and By
It is customary to use words To and By
while making posting in the ledger. To is
used with the accounts which appear on
the debit side of a ledger account.
Similarly, By is used with the accounts
which appear on the credit side of a ledger
account.
Balancing of an Account
The technique of finding out the net balance of an
account, after considering the totals of both debits and
credits appearing in the account is known as
balancing the account.
Rs. 500
Rs. 45
Rs.
2700
BALANCE: Rs.
2155
Rs. 545
Illustration
Ram starts a business with capital of
Rs.10,000 on 1 January 2015
He purchased furniture for cash for
Rs.4,000 on 5 January 2015
He purchased goods from Mohan on credit
of Rs. 2,000 on 10 January 2015
He paid cash to Mohan Rs 1,000 on 20
January 2015
Illustrations
Trial Balance
Trial Balance is a list of closing balances of ledger accounts on a certain
date and is the first step towards the preparation of financial statements.
It is usually prepared at the end of an accounting period to assist in the
drafting of financial statements.
Ledger balances are segregated into debit balances and credit balances.
Asset and expense accounts appear on the debit side of the trial balance
whereas liabilities, capital and income accounts appear on the credit
side.
If all accounting entries are recorded correctly and all the ledger
balances are accurately extracted, the total of all debit balances
appearing in the trial balance must equal to the sum of all credit
balances.
Trial Balance
Cash
$25000
$300
$3500
$2,100
BALANCE:
$26,300
BALANCED!!
Illustration
Ram starts a business with capital of
Rs.10,000 on 1 January 2015
He purchased furniture for cash for
Rs.4,000 on 5 January 2015
He purchased goods from Mohan on credit
of Rs. 2,000 on 10 January 2015
He paid cash to Mohan Rs 1,000 on 20
January 2015
Illustrations
Final Accounts
After having checked the accuracy of the
book of accounts through preparation of Trial
balance, businessman wants to ascertain the
profit earned or loss suffered during the year
and also the financial position of his business
at the end of the year. For this purpose he
prepares Final Accounts which are also
termed as Financial Statements. These
include the following:
Trading account
Profit & Loss account
Balance Sheet