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NOTES ON ACCOUNTING

The document explains the accounting process of recording transactions through vouchers, journals, and ledgers. It details how business transactions are first recorded in the general journal and then posted to the general ledger, categorizing them into various accounts. Additionally, it provides sample transactions for a company, illustrating the journalizing and posting process for each transaction.

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Devika Arul
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17 views

NOTES ON ACCOUNTING

The document explains the accounting process of recording transactions through vouchers, journals, and ledgers. It details how business transactions are first recorded in the general journal and then posted to the general ledger, categorizing them into various accounts. Additionally, it provides sample transactions for a company, illustrating the journalizing and posting process for each transaction.

Uploaded by

Devika Arul
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as ODT, PDF, TXT or read online on Scribd
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Voucher : Document supporting transaction.

Journal : Voucher entries are consolidated into Journal . A journal is


basically a record of a set of transactions that took place , in chronological order.

• business transactions having an impact on the financial position of the


business are first recorded in the general journal, which is one of the
accounting prime entry books, then

• entries from general journal are posted to the general ledger, i.e. to
the corresponding account ( Ledger Account ) , the universe of which
composes general ledger.

Ledger Account : The journal entries are categorized into various


accounts viz Cash account , Savings Account , Current Account , Payment Account
, Expense account , Sundry Account etc.
In each account the entries are made as Debit and Credit .

Ledger entry :

http://accountingcorner.org/
General Journal
General journal includes all the business transactions which are recorded in the
chronological manner, i.e. day by day. Structure and form of general journal differs
depending on the business needs, however there is a mandatory data to be
present in any journal. This data is:

•date of transaction;

•names of accounts which are debited and credited

•description of the transactions

•columns for debit and credit where exact figures of business transaction are
recorded.

In the picture below you can see how the general journal looks like and what
information is included there. Considering sample general ledger journal entry
below each transaction will be first recorded into the general journal in the way as
it is presented in the picture.
General Ledger
Next step to record any sample general ledger journal entry is to post transactions
recorded in the general journal to the general ledger accounts. The accounts
classify accounting data into certain categories, the main of which are:

•Assets

•Liabilities

•Equity

•Revenue

•Expenses

We can use either T accounts, which have T form, with one side for Debit and one
side for Credit. In practice of course there are no T accounts and several column
general ledger format is used. In the picture below you can see how this forma
looks like. The first column includes date, second column – description of
transaction, third and fourth – debit and credit columns, and the last one –
balance of the account after the transaction has been posted. Positive balance
means debit, negative balance -means credit.
Sample General Ledger Journal Entry will be
presented by analyzing several transactions
performed by XYZ company.
We will be analyzing the following transactions of XYZ company in December of
the year 2008:

•1. December 15 – shareholders established XYZ company and


invested cash of $12000. This is a trading company reselling furniture
and also providing furniture maintenance services;

•2. December 17 – Acquired , on account – land costing $15000 and


building → for cash $10000;

•3. December 19 – acquired , on account – supplies costing $1200


and goods (furniture) for resale for $6000;

•4. December 20 – Provided services to customers for cash, i.e.


for $570

Sample General Ledger Journal Entry


Process
Journalizing and posting 1st transaction:

On December 15 shareholders established company XYZ by investing cash. First


step is to journalize the transaction, i.e. record it in the general journal. The
following entry is being done:
D Cash $12000

C Share Capital $12000

In the picture below you can see how general journal entries look like. The next
step of this sample general ledger journal entry is to post these entries to the
according general ledger accounts, i.e. Cash and Share Capital.

Here we are using multi-column general ledger format (not T accounts).

•$12000 is debited to the Cash account of the general ledger and afterwards
balance in the Cash account is calculated, which is $12000 on the debit side.
Since Cash account belongs to the assets category, its balance after the
posting will be always on the debit side.

•The same amount of $12000 is credited to the Share Capital account and
afterwards balance in this account is calculated. The balance is $12000 with
a minus sign (we show it in the brackets), since it is credit balance. Share
Capital account belong to the equity category and after the posting the
balance of this account is always on the credit side.

Illustration of Journalizing and Posting –


Transaction No. 1

Journalizing and posting 2nd transaction:

On December 17 the company XYZ acquired on account (i.e. cash for the
acquisition will be paid on the later agreed date after the purchase) land cost of
which is $15000 and for cash building cost of which is $10000. The following entry
is being done:

D Land $15000

D Building $10000

C Accounts Payable $15000

C Cash $10000

In the picture below you can see how general journal entries look like. Please note
that the entries for this transaction go below the journal entries of the previous
transaction. The next step of this sample general ledger journal entry is to post
these entries to the according general ledger accounts, i.e. Land, Building,
Accounts Payable, Cash.

Here we are using multi-column general ledger format (not T accounts).

•$15000 and $10000 are debited to the Land and Building accounts of the
general ledger and afterwards balances in the Land and Building accounts
are calculated, which are accordingly $15000 and $10000 on the debit side.
Since Land and Building accounts belong to the assets category, their
balances after the posting will be always on the debit side.

•$15000 is credited to the Accounts Payable account and afterwards balance


in this account is calculated. The balance is $15000 with a minus sign (we
show it in the brackets), since it is credit balance. Accounts Payable account
belong to the liabilities category and after the posting the balance of this
account is always on the credit side.

•$10000 is credited to the Cash account. Note that Cash account already
contains data related to the previous transactions and has a balance of
$12000. Afterwards balance in this account is calculated. The balance is
$2000, which is the balance before posting this transaction decreased by
credited amount of $10000.
Journalizing and posting 3rd transaction:

On December 19 the company XYZ acquired on account supplies cost of


which is $1200 and inventory for resale cost of which is $6000. The following
entry is being done:

D Supplies $1200

D Inventory $6000

C Accounts Payable $7200

In the picture below you can see how general journal entries look like. The
next step of this sample general ledger journal entry is to post the’s entries
to the according general ledger accounts, i.e. Supplies, Inventory and
Accounts Payable.

Here we are using multi-column general ledger format (not T accounts).


•$1200 and $6000 are debited to the Supplies and Inventory accounts of
the general ledger and afterwards balances in the Supplies and
Inventory accounts are calculated, which are accordingly $1200 and
$6000 on the debit side. Since Supplies and Inventory accounts belong
to the assets category, their balances after the posting will be always on
the debit side.

•$7200 is credited to the Accounts Payable account. Note that Accounts


Payable account already contains data related to the previous
transactions and has a credit balance of $15000. Afterwards balance in
this account is calculated. The balance is $22200, which is the balance
before posting this transaction increased by credited amount of $7200.

TRIAL BALANCE :

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