Recording of Transaction

8/14/2019 Recording of Transaction

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Book-keeping, Accounting & AccountancyBook-ke

eping, Accounting & Accountancy

Book-keeping: -Book-ke

eping: - It is a simplest form of accounting, or we can say, it is the record-makingIt is a simplest form of accounting, or we can say, it is the record-makingphase of accounting. It records the financial data relating to the business operations in aphase of accounting. It records the financial data relating to the business operations in a

significant and orderly manner. It covers the following:significant and orderly manner. It covers the following:

Identifying theIdentifying the transactions and eventstransactions and events;; Measure them;Measure them;

Record them in proper books of accounts; andRecord them in proper books of accounts; and

Classify them in proper Ledger.Classify them in proper Ledger.

Accounting: -Accounti

ng: - Accounting is that language of business through which a business houseAccounting is that language of business through which a business housecommunicates with the outside world. It is the process of recording financial transactions incommunicates with the outside world. It is the process of recording financial transactions in

a proper format. The main objective of accounting is to reflect the true and fair picture ofa proper format. The main objective of accounting is to reflect the true and fair picture of

profitability and financial position which helps management to take corrective actions andprofitability and financial position which helps management to take corrective actions and

future decisions.future decisions. In addition to the functions of book-keeping, accounting covers theIn addition to the functions of book-keeping, accounting covers the

following:following:

Summarizing the classified transactions in the form of income statements and positionSummarizing the classified transactions in the form of income statements and position

statements;statements; Analyzing and interpreting the summarized results; andAnalyzing and interpreting the summarized results; and

Communicating the interpreted information to the interested parties.Communicating the interpreted information to the interested parties.

Thus we can say, accounting is a service-based and measurement discipline.Thus we can say, accounting is a service-based and measurement discipline.

Accountancy: -Accou

ntancy: - It refers to a systematic knowledge of accounting. It explains the reasons andIt refers to a systematic knowledge of accounting. It explains the reasons andthe processes of accounting.the processes of accounting.


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Book-keepingBook-keeping

(Record keeping phase of accounting)(Record keeping phase of accounting)

AccountingAccounting

(Refers to the actual process of preparing accounts)(Refers to the actual process of preparing accounts)

AccountancyAccountancy(Refers to a systematic knowledge of Accounting)(Refers to a systematic knowledge of Accounting)


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Golden Rule Of AccountsGolden Rule Of Accounts

Keeping in view the previous classification of Accounts, the rules of DEBIT andKeeping in view the previous classification of Accounts, the rules of DEBIT and

CREDIT are summarized below :-CREDIT are summarized below :-

Types of

Accounts

Personal

Accounts

Real

Accounts

Nominal

Accounts

DEBIT The

Receiver

What

comes in

All

expenses

and loses

CREDIT The giver What goesout All incomesand gains


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Useful Fundamental Equations of Accounting :-Useful Fundamental E

quations of Accounting :-

Increase in asset-- debit, decrease in asset-- creditIncrease in asset-- debit, decrease in asset-- credit

Increase in asset-- debit, decrease in liability creditIncrease in asset-- debit, decrease in liability credit

Decrease in asset-- credit, increase in asset debitDecrease in asset-- credit, increase in asset debit

Increase in liability-- credit, decrease in liability--Increase in liability-- credit, decrease in liability--

debitdebit


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Recording of TransactionRecording of Transaction

The recording of transactions in the books of accountsThe recording of transactions in the books of accountsmay be represented as follows :-may be represented as follows :-

Recording of TransactionRecording of Transaction

Cash Transaction Non-Cash TransactionCash Transaction Non-Cash Transaction

Recorded in Cashbook Recorded in JournalRecorded in Cashbook Recorded in Journal

LedgerLedger

(Classified summary of all Transaction)(Classified summary of all Transaction)


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JournalJournal

A journal records all daily transactions of a business in the order ofA journal records all daily transactions of a business in the order oftheir occurrence. A journal may, therefore, be defined as a booktheir occurrence. A journal may, therefore, be defined as a book

containing a chronological record of transactions. It is a book in whichcontaining a chronological record of transactions. It is a book in which

transactions are recorded first of all under the double entrytransactions are recorded first of all under the double entry

system. Thus, journal is a book of the original records. A journal doessystem. Thus, journal is a book of the original records. A journal does

not replace but precedes the ledger. The process of recordingnot replace but precedes the ledger. The process of recording

transactions on the basis of rules of double entry system in a journaltransactions on the basis of rules of double entry system in a journal

is termed as journalizing. The record of a business transaction inis termed as journalizing. The record of a business transaction in

journal is called journal entry.journal is called journal entry.

The proforma of a journal is as follows:The proforma of a journal is as follows:

In the books ofIn the books ofJournal entries for the month / period of Journal entries for the month / period of

DateDate ParticularsParticulars L/FL/F Dr (Rs)Dr (Rs) Cr (Rs)Cr (Rs)


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Advantages of JournalAdvantages of Journal

The recording of business transactions in journal book on theThe recording of business transactions in journal book on the

basis of double entry system has following advantages:basis of double entry system has following advantages:

1. Complete Information about the Business1. Complete Information about the Business

The journal gives complete information about businessThe journal gives complete information about business

transactions in a chronological order. Accounts to be debited andtransactions in a chronological order. Accounts to be debited and

credited are recorded at once in one place.credited are recorded at once in one place.

2. Explanation of the Transaction2. Explanation of the Transaction

An entry in the journal book includes a brief explanation of theAn entry in the journal book includes a brief explanation of the

transaction called narration.transaction called narration.

3. Minimum Errors3. Minimum Errors

Double entry system used for recording is clearly visible in journal asDouble entry system used for recording is clearly visible in journal as

both debit and credit aspects are recorded at one place. It also makesboth debit and credit aspects are recorded at one place. It also makes

posting into ledger accounts easier. This ultimately reduces possibilityposting into ledger accounts easier. This ultimately reduces possibility

of errors.of errors.


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LedgerLedgerLedger contains a classified summary of all transactions recordedLedger contains a classified summary of all transactions recorded

in cashbook and journal. It is the main book of account. Ledgerin cashbook and journal. It is the main book of account. Ledger

can also be called Principal book as final information pertaining tocan also be called Principal book as final information pertaining to

the financial position of a business emerges only from thethe financial position of a business emerges only from the

account.account.

Steps in ledger posingSteps in ledger posing :-:-

Enter the date of the transaction in the left-hand side of the A/cEnter the date of the transaction in the left-hand side of the A/c

Particulars column records the title of the other account affectedParticulars column records the title of the other account affected

Journal folio (J/F) column records the page number of the journal fromJournal folio (J/F) column records the page number of the journal from

which the posting to the ledger has taken placewhich the posting to the ledger has taken place

Amount column records the amount mentioned in the journal againstAmount column records the amount mentioned in the journal against

title of the account under considerationtitle of the account under consideration

For posting of the account to be credited, above mentioned stepsFor posting of the account to be credited, above mentioned steps

are followed but with one difference. Name of the a/c in particularsare followed but with one difference. Name of the a/c in particulars

column on the debit and credit side are preceded by the wordscolumn on the debit and credit side are preceded by the words

To and By respectively.To and By respectively.


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Cash received from Geet & Co. of Rs.1000/- onCash received from Geet & Co. of Rs.1000/- on

7/1/20087/1/2008

DateDate ParticularParticular J/FJ/F AmountAmount DateDate ParticularParticular J/FJ/F AmountAmount

7/1/087/1/08 To Geet & CoTo Geet & Co 10001000 31/131/1 By balance c/dBy balance c/d 10001000

Date Particulars L/F Dr (Rs) Cr (Rs)

7/1/087/1/08 Cash A/c DrCash A/c Dr

To Geet & Co A/cTo Geet & Co A/c

(being cash received from Geet & Co)(being cash received from Geet & Co)

10001000

10001000

DateDate ParticularParticular J/FJ/F AmountAmount DateDate ParticularsParticulars J/FJ/F AmountAmount

31/131/1 To balance c/dTo balance c/d 10001000 7/1/087/1/08 By Cash A/cBy Cash A/c 10001000

Geet & Co A/c

Dr

Cr

Cash A/c

Dr

Cr


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Trial BalanceTrial Balance

A Trial Balance is a statement compiled at the end of a specificA Trial Balance is a statement compiled at the end of a specificaccounting period. It is a summary of all the General Ledgeraccounting period. It is a summary of all the General Ledger

Balances outstanding as a particular date.Balances outstanding as a particular date. All the debit balances fromAll the debit balances fromthe ledger are shown on one side and all the credit balances are shown onthe ledger are shown on one side and all the credit balances are shown on

the other side.the other side.

A Trial Balance is a five-column schedule listing the names and balances of allA Trial Balance is a five-column schedule listing the names and balances of all

the ledger a/cs. The different columns of the Trial Balance are: -the ledger a/cs. The different columns of the Trial Balance are: -

Serial numberSerial number

Heads of AccountsHeads of Accounts

Ledger FolioLedger Folio

Debit balance, andDebit balance, and

Credit balance.Credit balance.

A debit balance in a general ledger account indicates an excess of debit sideA debit balance in a general ledger account indicates an excess of debit side

over the credit side of the ledger. Similarly, a credit balance in a generalover the credit side of the ledger. Similarly, a credit balance in a general

ledger account indicates an excess of credit side over the debit side.ledger account indicates an excess of credit side over the debit side.


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Errors Disclosed by a Trial BalanceErrors Disclosed by a Trial Balance

The disagreement of a Trial Balance indicates the presence of one or more of theThe disagreement of a Trial Balance indicates the presence of one or more of the

following errors in the books of accounts.following errors in the books of accounts.

Omission to post an Amount in the Ledger :-Omission to post an Amount in the Ledger :- If a cash receipts of Rs.500 fromIf a cash receipts of Rs.500 fromMr.X has been properly recorded in Cash Book, but has not been posted in XsMr.X has been properly recorded in Cash Book, but has not been posted in Xs

a/c, the Trial Balance will fall short by Rs.500.a/c, the Trial Balance will fall short by Rs.500.

Debit or Credit Entries are not posted at all or Posted Twice :-Debit or Credit Entries are not posted at all or Posted Twice :- If stationeryIf stationery

purchased on credit from Mr.Y for Rs.300 has been properly recorded in thepurchased on credit from Mr.Y for Rs.300 has been properly recorded in the

stationery a/c but not in the account of Y, the Trial Balance will fail to agree.stationery a/c but not in the account of Y, the Trial Balance will fail to agree.

Similarly, if Ys a/c is correctly credited but stationery a/c has been wronglySimilarly, if Ys a/c is correctly credited but stationery a/c has been wrongly

debited twice, the trial balance will not agree.debited twice, the trial balance will not agree.

Debits are wrongly Posted as Credits and Vice-Versa :-Debits are wrongly Posted as Credits and Vice-Versa :- If a cash receipts ofIf a cash receipts of

Rs.1000 as interest is properly debited in the cash book but has been recordedRs.1000 as interest is properly debited in the cash book but has been recordedon the debit side of the interest a/c by mistake, then credit side of the Trialon the debit side of the interest a/c by mistake, then credit side of the Trial

Balance will fall short by Rs.2000.Balance will fall short by Rs.2000.

Wrong Totaling of Subsidiary Books :-Wrong Totaling of Subsidiary Books :- If the total of nay subsidiary books hasIf the total of nay subsidiary books has

been cast wrongly, it will cause a disagreement in the trial balance.been cast wrongly, it will cause a disagreement in the trial balance.


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Difference in Amount between the Entries :-Difference in Amount between the Entries :- If different values of an item areIf different values of an item are

posted in two different accounts, the Trial Balance will not agree.posted in two different accounts, the Trial Balance will not agree.

Errors in the Computation of an Account Balance :-Errors in the Computation of an Account Balance :- If the balance of an accountIf the balance of an account

is not correctly computed, the balance of the ledger will not show the trueis not correctly computed, the balance of the ledger will not show the true

position and will cause disagreement of the Trial Balance.position and will cause disagreement of the Trial Balance.

Omission of Account Balance :-Omission of Account Balance :- If the balance an account is not listed in theIf the balance an account is not listed in the

Trial Balance at all, it will fail to agree.Trial Balance at all, it will fail to agree.

Balance of an Account Wrongly Recorded in the Trial Balance :-Balance of an Account Wrongly Recorded in the Trial Balance :- If the balanceIf the balance

of an account is wrongly recoded in the Trial Balance, it will not agree. If theof an account is wrongly recoded in the Trial Balance, it will not agree. If the

balance of purchase a/c of Rs.1000 has been wrongly posted as Rs.100 in thebalance of purchase a/c of Rs.1000 has been wrongly posted as Rs.100 in the

Trial Balance, the debit side of Trial Balance will fall short by Rs.900.Trial Balance, the debit side of Trial Balance will fall short by Rs.900.

Errors in Extraction of the Trial Balance :-Errors in Extraction of the Trial Balance :- The Trial Balance will not tally if anyThe Trial Balance will not tally if any

or both the columns are wrongly totaled.or both the columns are wrongly totaled.


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Errors Not Disclosed by a Trial Balance

Errors in Omission :- If a particular transaction is omitted altogether from the

journals, it will not disturb the agreement of the Trial Balance.

Errors of Principle :- This type of error arise because of an incorrect application of

the principles of accounting.

Compensating Errors :- These are a group of errors, the total effect of which is not

reflected in the Trial Balance. One error is compensated by another error or by

errors of an opposite nature.

Recording Wrong Amount in Journal :- If a transaction is wrongly recorded in the

books of original entry and is subsequently carried through the ledgers. It will not

cause any disagreement in the Trial Balance.

Errors in Recording a Transaction on the Correct Side of a Wrong A/c :- If a

transaction is recorded on the correct side of a wrong a/c, it will not cause a

disagreement in the Trial Balance.

Recording of Transaction

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