Linkage Between Previous And Current Year Accounting.

The continuous rotation of the accounting process is called the accounting cycle, and this rotation is rotated in a circle that’s why it is called the accounting cycle. Today we are going to learn how the accounting cycle creates a linkage between the previous and current year?

According to the going concern concept, every year the business organization maintains the accounts in accordance with certain procedures and rules. 

In other words, the concept is that business enterprise will continue indefinitely. If the business is not closed, the ownership of the company may change, but the existence of the company will remain in place indefinitely.  

In other words, the financial functions are divided into several stages or steps to determine the financial results of the financial year transactions of the organization and to express its financial status.

The first step in this process is to identify the financial transaction and record it in the Journal. Then, through the ledger and creation of a trial balance, financial statements are prepared and the results are released and assets, liabilities, and owners’ equity are determined.

Below is a discussion of how continuity between the past and the current accounting periods are maintained through the accounting cycle.  

The accounts of the previous year, which were recorded by the initials Journal, were opened and transferred to this year’s ledger accounts. The consolidated accounts of the current transactions were then transferred from the Journal to the Ledger and the closing transactions were calculated by adjusting the transactions with the previous year.  

As a result, the appropriate explanation and table show that the combination of the financial performance of the current year and the previous year creates a link between the accounts of both years.  

It also shows the link between the past and the current account, as the balance of the trial was prepared from the ledger. Trial balance is prepared to verify the mathematical accuracy of the Ledger balance, after that financial statements such as income statement and balance sheet or statement of financial position were prepared from the Trial Balance.  

The financial results of this year are calculated through the financial statements. To calculate these results, adjustments are made for the previous years, such as past outstanding rent, depreciation, and depreciation of assets from the previous year.  

On the other hand, the balance sheet includes assets and liabilities for the past and current years. For example, furniture purchased in the current year is shown in addition to furniture purchased in the last year.  

Thus, it can be stated that there are continuity and linkage between current and last year’s accounts by transferring the closing balance of last year’s accounts to current year’s accounts and by identifying, recording, classifying, summarizing, and compiling the current year’s financial statements.  

I hope you have understood how the accounting cycle creates a linkage between the previous and current year?

If there is any confusion don’t forget to comment or if you like it don’t forget to share it.    

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What is Debit? And what is Credit?

There are two or more accounts in every transaction in accounting. One is Debit and another one is Credit. Now we try to understand what is Debit? And what is Credit?

The term debit shows the left side of the account and the credit shows the right. They are usually shortened as Dr. for debit and Cr. For credit.

It does not mean, as is generally thought, increase or decrease. In the recording process, we frequently use the terms debit and credit to describe where accounts are entered.

For example, debiting an account is called the act of entering an amount on the left side of an account. Crediting the account is an entry on the right side.

When comparing two sides, a debit balance is displayed in an account if the total amounts of the debit exceed the credits. If the amounts of the credit exceed the debits, the account will show a credit balance.

If we analyze the golden rules of accounting we will find the definition of debit and credit.

Debit:

• Debit the receiver
• Debit What Comes in
• Debit all expenses and losses
• Debit denotes the Left side of the account.

Credit:

• Credit the giver
• Credit what goes out
• Credit all income and gains
• Credit denotes the right side of the account.

Example of Debit and Credit

For example, a cash receipt of $25,000 (in Orange) is debited to Cash and a cash payment of $12,000 (in yellow) is credited to Cash.

Cash Account

Having increases on one side and decreases on the other reduces recording errors and helps to determine the totals of each side of the account as well as the balance of the account. The balance is determined by netting the two sides (subtracting one amount from the other).

The balance of the account, a debit of $11,100, indicates that Tyra had an increase of 11,100 more than the decrease in cash. In other words, Tyra started with a zero balance and now has $11,100 in her cash account.

The Rules for Identifying Debit and Credit

It is described earlier that in the double-entry system total debit amount is equal to the total credit amount. This concept is the base of the accounting equation. The primary elements of the accounting equation are assets, Liabilities, and Equity.

Therefore, it can be said that we see the following types of accounts in business:

1. Asset
2. Liability
3. Equity
4. Income and
5. Expense

Method of calculating debit and credit for different accounts described below:

1. Asset

Due, to transactions, assets may increase or decrease. For example, the purchase of a Delivery van increases assets and selling the same decreases assets. An increase of an asset is debit while a decrease of the same is credit.

2. Liability:

Like assets, liability can also be increased or decreased. For example, taking loans from banks increases liability while paying the installment of it decreases. The relation of liability is opposite to asset. Therefore, the increase in liability is credit while a decrease of the same is debit.

3. Equity:

The owner brings in capital to start the business. The equity of the owner increases here. Again, the owner’s equity decreases if the owner withdraws cash from the business. The equity of the owner is a kind of business liability. Because the owner and the business have separate identities according to the principle of accounting.

Therefore, if the owner’s equity increases, like liability, it is credit, but while decreases to be debit.

4. Revenues or Income:

A business’s only goal is to earn a profit. Profit is actually the revenue portion, which is more than the expenses. We can therefore say that revenue increases the owner’s equity. Therefore, credit is an increase in revenue, while debit is a decrease of the same.

5. Expense:

Expense is opposite to revenue since revenue increases owner’s equity, so the increase of expense is debit, and the decrease of the same is credit.

Summary of Debit and Credit Rules

Difference between Debit and Credit

The difference between debit and credit is as follows:

You may also read:

• 10 steps of the Accounting Cycle.
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The post Debit and Credit in Accounting [Notes with PDF] appeared first on Everything about Accounting.

What is the Accounting Cycle?

According to the going concern concept, it is expected that business will continue on forever. The accounting process starts through the identification of transactions and ends with preparing financial statements.

These processes are rotated continuously in every accounting period. So, it is said that the accounting cycle is the continuous process of recording and processing all transactions of an organization.

10 Steps of Accounting Cycle:

Ten (10) steps of the accounting cycle are as follows:

1. Identification of Transaction
2. Journalizing
3. Posting to Ledger
4. Preparation of Trial Balance
5. Adjusting Entry
6. Adjusted Trial Balance
7. Preparation of Financial Statements
8. Closing Entry
9. Post-Closing Trial Balance
10. Reversing Entry

1. Identification of Transaction

The 1^st step of the accounting cycle is the identification of transactions. Transactions are identified after analyzing all events. The only financial transaction would be considered a transaction.

The transaction may include the Purchase of Goods, Sales of Goods, any operating expenses, any payment, etc.

2. Journalizing

The 2^nd step of the accounting cycle is Journalizing. Here analyzed transactions are recorded in the primary book of accounts as debit and credit in chronological order.

Purchase Book, Sales Book, Purchase Return Book, Sales Return Book, Note Receivable Book, Note Payable Book are the primary book of Transaction recording.

For example

Purchase of goods from OYO international $ 3,000 on credit

You can also read: Short questions and answers-Accounting Cycle

3. Posting to Ledger

The 3^rd step of the accounting Cycle is Ledger. Ledger is the main book of accounts. Here transactions are transferred into the Ledger as a separate head of accounts.

Different Ledger is prepared for each head of accounts. Such as Purchase A/c, Sales A/c, Salary A/c, Advertisement A/C, Capital A/c, Building A/c, etc.

For Example

Purchase A/C

OYO International A/C

4. Preparation of Trial Balance

The 4^th step of the Accounting Cycle is the Preparation of the Trial Balance. It is prepared to testify the mathematical accuracy of the recorded transactions.

The trial balance is prepared with the concerned accounts head along with the debit and credit balances of the ledger. It is prepared at a certain time period.

For Example:

Trial Balance

5. Adjusting Entry

The 5^th step of the accounting cycle is adjusting entry. The journal entry which is given for adjusting accrued and prepaid income and expenses to identify the actual financial condition of a business of a particular accounting period is called adjusting entries.

Such as, adjusting entries for Accrued Salaries, Prepaid insurance premium, unrealized income, and expenses, etc.

For example:

Accrued salary for the month of June 2019 is $4,000

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6. Adjusted Trial Balance

The 6^th step of the accounting cycle is the preparation of the adjusted Trial balance.

Here again, the adjusted transaction is transferred to Ledger as a separate head of accounts then the adjusted trial balance is prepared with the balances of debit and credit of Ledger.

For Example:

Adjusted Trial Balance

June 30, 2019

7. Preparation of Financial Statement

The 7^th step of the accounting cycle is the preparation of Financial Statements. The financial statement is prepared to identify the profit and Loss, Assets, Liabilities, and owner’s equity of a business at the end of the accounting period.

The financial condition of a business is determined through financial statements.

For Example:

Income Statement

For the Year Ended June 30, 2019

Balance sheet

June 30, 2019

8. Closing Entry

The 8^th step of the accounting cycle is a closing entry. There are two types of accounts in the business. One is income and expense related A/c another one is Asset and liability related accounts.

The necessity of income and expenditure-related accounts are finished in the accounting period. So, Closing entries are given to close the balance of revenues, expenses, and drawings account at the end of the year.

For Example

9. Post-Closing Trial balance

The 9^th step of the accounting cycle is the preparation of the post-closing Trial Balance. After closing entries ledger balance of income and Expenses become Zero.

The next accounting period will start with the remaining balance of asset, liability, and owner’s equity account. Post-closing Trial Balance is prepared with these assets, liabilities, and owner’s equity balances of Ledger.

For Example

Post Closing Trial Balance

10. Reversing Entry:

The 10^th and final step of the accounting cycle are Reversing Entry. Reversing entry is the opposite of the adjusting entry made in the last accounting period.

Adjusting entries are made at the beginning of the next accounting period.

For Example

Summary

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The post 10 Steps of Accounting Cycle [Notes with PDF] appeared first on Everything about Accounting.

What is the Accounting Equation?

In a given time, the total assets should be equal to the sum of the liabilities and the equity of the owner. The equation that represents this basic framework is called the Accounting Equation.

Here we will learn

1. Basic Accounting Equation
2. Expanded Accounting Equation
3. Accounting Equation Example

Important Note about Accounting Equation

1. It is applicable to all business transactions.
2. It applies to both small businesses and large corporations.
3. Provides the underlying framework for recording and summarizing business transactions.

Basic Accounting Equation

Formula of the Basic Accounting Equation is given below  

A=L+OE  

Here,

A     = Assets

L     = Liabilities

OE  = Owner’s Equity  

So we can Say,   Assets   =   Liabilities    +    Owner’s Equity

“The relationship of the basic accounting equation is that the assets must be equal to the sum of the liabilities and the equity of the owner.” 

Expanded Accounting Equation

 Assets   =   Liabilities + Owner’s Capital-Owner’s Drawings + Revenues – Expenses

Let’s explain the Assets, Liabilities, and Owner’s Equity to better understand the Accounting Equation.

Assets: 

Assets are the resources the company owns. The company uses its assets to carry out activities such as production and sales.   

The common feature of all assets is the ability to provide future services or benefits. In a business, that service potential or future economic benefit will ultimately result in cash inflows (receipts).

 
Example of Assets:

• Cash and Cash Equivalents
• Accounts Receivable
• Inventory
• Prepaid Expenses
• Plant and Machinery
• Furniture
• Investment
• Land

Liabilities: 

Liabilities are business legal financial debt and obligation against assets. it arises during the business Operation.  

Example of Liabilities:

• Accounts Payable
• Notes Payable
• Accrued Expenses Payable
• Income tax payable
• Loans
• Borrowings
• Bank Draft
• Differed Revenues

Owner’s Equity:  

The owner’s claim on total assets is called the owner’s equity.  

1. Owner’s Equity = total assets – total Liabilities.
2. Owner’s Equity= Owner’s Investment- Owner’s Drawings + Net Profit-Net Loss
3. Owner’s Equity is increased by the Owner’s investment and Business Revenues
4. Owner’s Equity is decreased by the Owner’s Drawings and Business Expenses.

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Examples and Uses of Accounting Equation

Let’s try to understand the practical uses of the accounting equation by taking some examples that will make it clear if there is any blur in your mind.

Let’s start with  Examples of Accounting Equation  

Example-1: Mr X invested cash $18,000 in the business.  

Here involved 2 accounts

Impact

Example-2: Purchase an office table for cash $1,000  

Here involved 2 accounts  

Impact

Example-3: Purchase Goods from “Y” Company for $3000 on credit.  

Here involved 2 accounts  

Impact

 Example-4: Salaries paid for cash $2000  

Here involved 2 accounts  

Impact

Example-5: Services provided for $4,000 Cash and $5,000 on Credit  

Here involved 3 accounts  

Impact

Example-6: Cash $ 1,500 received from Customer.  

Here involved 2 accounts  

Impact

Example-7: Wages outstanding for the month of September 2019 $400  

Here involved 2 accounts  

Impact

 If we analyze the above examples of accounting equations, we find that the total assets at any time will be equivalent to the funds mobilized by the company, i.e. Creditors ‘ claims and owners ‘ fairness.

This connection is referred to as the accounting equation or balance sheet, i.e. Assets= liabilities + capital.

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The post Understanding the Accounting Equation [Notes with PDF] appeared first on Everything about Accounting.

What are the three (3) golden rules of accounting?

The Three (3) Golden Rules of accounting are as follows

1. Debit the Receiver, Credit the Giver
2. Debit what Comes In and Credits what Goes Out
3. Debit all expenses and Losses and Credit all Income and Gains.

Today I am going to describe the 3 golden rules of accounting. For a beginner, I know how much the golden rules of accounting matter, so I will try to make it much easier for you as much as I can.

Understanding these rules is not a much difficult task, it just requires someone who can teach it properly and the mental exercise of one who is understanding it.

That means you. Before starting what are the three (3) golden rules of Accounting, you should know why we need them?

Why do we need the golden rules of accounting?

Journal Entries cannot be recorded without some rules. The rules for recording journal entries are referred to as the golden rules of accounting. Therefore we need these golden rules of accounting to record journal entries without which the accounting is incomplete.

Before knowing the golden rules of accounting, you need to know that there are three types of accounts in accounting that are or for which we will study ahead.

So, as I have mentioned that there are three types of Account which are

1. Personal Account.
2. Real Account.
3. Nominal account.

In addition to these three accounts, there are also 3 golden rules of accounting and you know what each golden rule is associated with separate accounts.

Thus we have 3 rules for 3 types of accounts or we can say 1 rule for 1 type of account.

Now let’s study each of these accounts and the rules associated with them.

Personal Account:

A personal account is an account that relates to the person, organization, etc. Thus any account which represents a person, organization, etc. comes under a personal account. Here are a few examples of personal accounts.

First is a Capital account: Capital represents the owner of the firm and an owner is a person, therefore a Capital account comes under a personal account.

Second is Curry Ltd’s account: Curry Ltd Account represents an organization and any account that represents an organization comes under a personal account.

The third is a Bank account: A bank is an organization, thus it also comes under a personal account.

Fourth is Peter’s account: Peter is a person and all accounts which represent a person comes under a personal account.

So, the fact is any account that represents a person, organization, etc. comes under a personal account.

I hope now you got the meaning of a Personal account.

So now let’s see what is the golden rules of Accounting? In the case of a personal account, the Golden Rule of Accounting is

Debit the Receiver, Credit the Giver.

Which means debiting the person who receives from the business and crediting the person who gives into the business.

Now let’s study these rules in detail.

Debit the Receiver: It means debiting the person or organization who has received something from the business. It could be any person such as owner, creditor, debtor, dealer, supplier, customer, etc. it results in a decrease in the company’s resources.

Let’s study an example to make it clearer. Cash paid to Peter. Here in this transaction, we have 2 accounts i.e. Cash account and Peter’s account.

The cash account is a Real account for which we will study after the personal account and Peter’s account is a personal account as Peter is a person.

So, as we are talking about personal accounts, therefore we will see whether Peter’s account will be debited or credited.

Let’s look at the example again, Cash paid to Peter. Here, in this transaction Peter is receiving cash from the Business, therefore considering the rule Debit the Receiver, Peter’s account is to be debited as Peter has received cash from the Business and the rule is to debit the Receiver.

Now let’s move to

Credit the giver: It means crediting the person/organization which has given something into the business. It results in an increase in a firm’s resources.

Let’s study an example to make it clearer. Cash received from Curry Ltd. Here, in this transaction, we have 2 accounts i.e. Cash account and Curry Limited account. The cash account is a Real account and Curry Ltd.’s account is a Personal account as it is an organization. So, as we are talking about a personal account, we will see whether Curry’s Limited account will be debited or credited.

Let’s look at the example again. It is, Cash received from Curry Ltd. So, here Curry Ltd. is giving cash into the business, therefore Curry Limited account will be credited considering the rule Credit the Giver and Curry Limited has given cash into the business.

I hope you got the golden rules of accounting in case of a personal account.

Real Account:

A real account is an account that represents an asset or which is related to assets. If you don’t know what an asset is then let me tell.

An asset can be anything of economic value owned by an individual or organization and which can be converted into cash.

Thus anything which can be converted into cash can be termed as an asset.

So, here are a few examples of Real accounts i.e. Cash account, Stock account, machinery account, Furniture account, etc.

Because all these things such as cash, stock, machinery, furniture, etc. are assets. So, the fact is any account that represents assets comes under the real account.

Now, let’s study what is the golden rule of Accounting in the case of Real accounts.

It is Debit what Comes In and credits what goes out.

Debit what Comes In: Debit what comes in means debiting the assets coming into the business as a real account is linked with assets. 

Now let’s look at the example of Debit what comes in.

An example is a Cash received from Peter. Here in this transaction, we have two accounts i.e. cash account and Peter’s account.

The cash account is a real account as cash is an asset and Peter’s account is a personal account as Peter is a person.

As we are talking about real accounts thus we will see whether the Cash account will be debited or credited.

Let’s look at the example again. It is, Cash received from Peter. Here Cash is coming into the business, therefore the Cash account will be debited, considering the rule debit what comes in and Cash is coming into the business. I hope you got it.

Let’s move to

Credit what goes out: Credit what goes out means crediting the assets which are going out from the business.

It could be an asset such as cash, machinery, furniture, etc. Now let’s look at an example of Credit what goes out. Machinery sold to Peter.

Here in this transaction, we have two accounts i.e. Machinery account and peter’s account.

A machinery account is a Real account as Machinery is an asset and Peter’s account is a personal account as Peter is a person.

So, what we are studying now, we are studying the Golden rules of Accounting in the case of a Real account.

So, we will have to see whether the Machinery account will be debited or credited. Let’s look at the example again.

It is, Machinery sold to Peter. Here machinery is going out of the business as we have sold it.

Therefore, the Machinery account will be credited considering the rule in case of Real account Credit what Goes Out and Machinery is going out from the business.

Now, I hope you got the Golden Rules of accounting, both in the case of Personal and Real accounts.

Nominal Account:

A nominal account is an account that is related to all expenses, losses, income, gains, etc.

Here are just a few examples of the Nominal Account. Salary account (salary is an expense) Income received account (income received is an income therefore it comes under nominal account), Loss on sale of assets account, etc. (It is a loss for the company, therefore, it comes under nominal account) so, any account which represents expenses, losses, income, gains, etc. comes under the nominal account.

Let’s study what is the golden rules of accounting in the case of Nominal accounts.

It is Debit all expenses and Losses and Credit all Income and Gains.

First, we will study

Debit all expenses and losses: It means debiting all expenses and losses incurred by the business.

Let’s study an example of debit all expenses and losses to make it more clear for you. Salary paid in Cash.

In this transaction, we have two accounts i.e. salary account and a Cash account. The salary account is a nominal account because the salary is an expense as I have mentioned before and the Cash account is a Real account as Cash is an asset.

Now, as we are talking about the Nominal account, we will see whether the Salary account which is a nominal account will be debited or credited.

Here, in this transaction, the salary account will be debited on the basis of the debit rule for all expenses and losses and the salary paid is an expense.

Let’s move to

Credit all Income and Gains: Credit all Income and Gains means Crediting all Income and Gains earned by the business. Let’s see an example of how to make it clearer.

An example is, interest Received from a bank. Here in this transaction, we have 2 accounts, i.e. Interest Received account and a cash account.

The interest received account is a Nominal account and the Cash account is a Real account.

Now as we are talking about the Nominal account, we will see whether the Interest received account will be debited or credited.

Here, the interest received account will be credited considering the rule credit all income and Gains and Interest received is an income for the Business Organization.

Now, I hope I have made accounting a little easier for you. I have tried my best to make it easier for you. Now, you are clear about the 3 Golden Rules of Accounting.

You can also read:

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• Accounting Equation [Notes with PDF]
• Depreciation Accounting [Notes with PDF]

The post 3 Golden Rules of Accounting [Notes with PDF] appeared first on Everything about Accounting.

What is the Double Entry System?

The best method of accounting in the current competitive world is the Double Entry System. It is known as a scientific and complete accounting system.

The double entry system is a system by which each transaction is measured in terms of money and expressed as a dual entity.

As well as the evolution of human civilization, Accounting has evolved. In ancient times, people used to keep their own accounts, but there have been many changes and developments in trade and trade over time, as well as many changes in the accounting method.

Especially during the industrial revolution, a period of change in the widespread expansion of business and in the process of production and distribution.

And this massive change led to the need for accountability in a scientific and acceptable way, and thus Luca Pacioli, the famous Italian mathematician, wrote in 1494 his famous book “Summa de Arithmetica, Geometria, Proportioniet Proportionlita” (“Collected Knowledge of Arithmetic, Geometry, Proportion, and Proportionality”).

Within his book, he described the ideal and proper reporting method for financial transactions, called the Double Entry System. And gradually, it has become the cornerstone of accounting.

The double-entry system is an accounting system where one party provides the benefit and the other party receives the benefit of each transaction. According to this method, there have been two or more accounts in each transaction. These accounts are written to the dual entity system. One is Debit and another is Credit.

According to this system, the total amount of the debit is always equal to the total amount of the credit.

What is The Examples of Double Entry System?

The examples of double-entry systems are as follows:

Paid cash $3,000 to Mr. Jack. If this transaction is recorded in the double-entry system, it will be as follows:

What are the 6 Important Features or Principles of the Double Entry System?

The double-entry system is a modern and scientific accounting system. It is better than any other system of accounting.

The 6 important features or principles of this system are as follows:

1. An important feature of this system is that each transaction has two sides-one is debit and the other is credit.
2. There are one giver and one receiver in every transaction.
3. The sum of the debit and the credit in each transaction is always equal.
4. Each transaction is stored separately according to its classification, as it is stored in a double-entry system, which gives accurate results.
5. It is a scientific method.
6. Owners and companies are considered to be two separate artificial entities in the dual-entry system.

You can also read: Short Questions and Answers-Double Entry System

What are the 13 Important Advantages or Benefits of a Double Entry System?

It has undergone major changes in accounting. Since the invention of this method, accounting has been quite easy to manage and self-contained.

As a part of accounting, this system provides many benefits. The 13 important benefits or advantages of this system are as follows:

1. It is a complete account of any transaction.
2. The mathematical accuracy of the accounts can be verified by recording transactions.
3. Determine the Profit and loss of a business organization easily.
4. It provides accurate information on the actual financial condition of the business organization, such as income, expenditure, assets, and liabilities.
5. It’s easy to get a sense of debt settlement.
6. Accounting errors and frauds can be easily prevented.
7. It serves as a formula for future planning.
8. The management of the account in this manner is easily recognized globally.
9. Control the additional costs of the organization
10. Determine the price of the product.
11. The organization can properly analyze its data and thus increase profits by recording transactions in this system.
12. Determine the amount of VAT and income tax at the time of sales.
13. This system is suitable for every small and large organization.

 You can also read 3 Golden Rules of Accounting

What are the 6 Important Limitations or Disadvantages of Double Entry System?

Apart from the benefits of this system, there are some demerits or limitations, the nature of accounting in today’s competitive world has many complex shapes, and in some cases, there are difficulties in its implementation and circulation.

The 6 important limitations or disadvantages of this system are as follows:

1. It is necessary for experienced people to keep an account in this method because this system can not be applied to the organization if there is no theoretical and practical knowledge of accounting, so making an account with inexperienced people can lead to many mistakes.
2. It takes a lot of time and a lot of accounting books in the double-entry system, thus increasing the cost of the organization.
3. Under this system, the accounting department records every transaction, which often leads to an error in the lack of skilled persons.
4. This system can not record complete details of each accounting transaction because it keeps many accounting books in place.
5. It analyzes the debit-credit of each transaction, but sometimes the debit-credit analysis creates complications that increase the number of errors.
6. It is not easy to implement in small businesses. In this business, a single-entry system is more popular than a double-entry system to maintain accounts.

What Types of Books are Maintained under Double Entry System?

The types of books are maintained under the double-entry system are as follows:

1. Journal Book

• Purchase Book or Purchase Journal
• Sales Book or Sales Journal
• Purchase Return Book or Purchase Return Journal
• Sales Return Book or Sales Return Journal
• Book of Bills Receivable or Notes Receivable Journal
• Book of Bills Payable or Notes Payable Journal
• Journal in Proper or General Journal
• Cash Book

2. Ledger Book

1.Journal

Every day, the regular transactions of the business organization are written in this book, which is why it is called a journal.

Journal is called the primary book of accounts, Basic book of accounts, associate book of accounts, daily book of accounts, and so on.

To overcome the barriers of transaction form and recording, the journal can be divided into the following categories.

1.1. Purchase book or Purchase journal:

A purchasing book or purchase journal is the primary book of accounts that is used to record credit transactions of products purchased for the purpose of business or for sale. The Daily Purchase Book is another name for the Purchase Journal.

This book does not keep track of cash purchases of products. This book only records transactions concerning the purchasing of goods on credit.

1.2. Sales book or Sales Journal

The sales book or sales journal is the primary book of accounts used to record transactions concerning the credit selling of products. Daily Sales Book is another name for a sales journal.

This book does not record transactions involving the selling of products for cash. This book only records transactions concerning the selling of products on credit.

1.3. Purchase Return book or Purchase Return Journal

The purchase return book or purchase return journal is the book in which the transaction is recorded when goods purchased on credit are returned to the creditor.

Outward Return Book is another name for Purchase Return Journal.

1.4. Sales Return Book or Sales Return Journal

When the goods sold on credit are returned from the debtor, the book in which the transaction is recorded is called a sales return book or sales return journal.

Another name for this book is the Inward return book.

1.5. Books of Bills Receivable or Notes Receivable Journal

The bills receivable book or notes receivable journal is where the bill of money that is paid or accepted by the debtors is recorded.

1.6. Books of Bills Receivable or Notes Receivable Book

The bills payable book or Notes payable journal is where the bill is accepted in favor of the creditor is recorded.

1.7. Journal in Proper or General Journal

Transactions that cannot be included in any of the above categories are recorded in the journal in the proper or general journal.

1.8. Cashbook

A cash book is a book that records cash receipts and payments in a transaction. It doesn’t record any accrual transactions in this book.

Different forms of cash books exist. For example, the modern method keeps two journals for recording cash transactions: the Cash Receipt Journal and the Cash Payment Journal.

In addition, traditional methods are used for one-Column, two-column, three-column, multi-columns, and petty cash books.

2. Ledger

A ledger is a book of accounts that classifies and permanently records business transactions.

All entries in the other assistant books are classified and recorded permanently in the ledger, which is the main book of accounts.

I think you’ve learned all about the double-entry system. Don’t forget to comment on us if you have any confusion.

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