Recording Of Transactions - I - Class 11 Commerce Accountancy - Extra Questions

The General Journal is called the book of original entry and the process of recording transactions in the journal is called journalizing.

The transactions are recorded in a journal in chronological order i.e., in the order of their occurrence or taking place.

The accounting equation signifies that the assets of a business are always equal to the total of its liabilities and capital. The accounting equation decodes the fundamental relationship among the components of the balance sheet, it is also called the Balance Sheet Equation. As the name suggests, the balance sheet is a statement of assets, liabilities, and capital.
The equation goes as follows:
Assets = Liabilities + Capital

The General Journal is called the book of original entry and the process of recording transactions in the journal is called journalizing.

The two account of "commercial business with cash are"cash account and capital account.

a) Cash A/c Dr. (Dr. The Receiver )

Answer :-Day Book 

The following entry will be made in the above case
(a) Increase revenue                                    Credit entry will be made in this case.
(b) decrease in expense                               Debit entry will be made in this case.
(c) Records drawings                                    Debit entry will be made in this case.
(d) Fresh capital introduced by the owner   Credit entry will be made in this case. 

Debits listed first in journal entries. Credits indented the journal entries, it means the account title to be credited is written on the second line leaving sufficient margin on the left side with a prefix"To".  

The system of Double Entry Book-keeping is founded upon the truth that every transaction affects two accounts. There are Three classes of accounts. The general rule for debit and credit is adjusted in accordance with the types of accounts. As there are three types of accounts, three sets of rules are laid down for recording the transaction. They are as follows

(i)	For personal Accounts	Debit the receiver, credit the giver. Explanation The accounts of the person who receives some benefit from the business should be debited and the account of the person who gives some benefit to the business should be credited.
(ii)	For Real Accounts	Debit what comes in, credit what goes out Explanation Any real item or asset entering the business, is given debit and real item or asset leaving the business, is given credit. In other words, all assets will be debited and all liabilities will be credited.
(iii)	For Nominal Accounts	Debit expenses or looses, credit-incomes and gains Explanation All the business expenses will be debited and all the income items will be  created in the books of account.

   Dr                                                                         Capital account                                                                                  Cr

Date	Particular	Jf	Amt.(Rs.)	Date	Particular	Jf	Amt.(Rs.)
2010 Dec 31	To Balance c/d		1,00,000	2010 Jan 1	By cash A/c		1,00,000
			$$\underline{\underline{1,00,000}}$$				$$\underline{\underline{1,00,000}}$$

The rules of debit and credit are same for both liability and capital because capital is also considered as liability with the view point of business, In accounting, there is a concept, according to which business and businessman, both are separate and  whatever is invested by the owner of a firm in that film is also treated as liability and shown in liability side of the balance sheet after adding to the owner's capital.

Ledger Folio is a page number of an account in ledger that is written in L.F. column of a journal format in journal entry. Ledger folio number is written corresponding to the name of the account in the L.F. column. It helps in easy locating of the account in the ledger book. It reduces the time in recording and rechecking.

First a transaction should be recorded in journal because the journal entry is the basic record of business transaction. On the other hand, a ledger is the collection of the account, debited or credited in the journal.

All accounts are divided into five categories for the purposes of recording the transactions (i) Asset (ii) Liability (iii) Capital (iv)Expenses/Losses (v) Revenues/Gains
Two fundamental rules are the followed to record the changes in these accounts 
(i) For recording changes in Assets/Expenses (losses)
      (a) "Increase in asset is debited and decrease in asset is created."
      (b) " Increase in expenses/losses is debited and decrease in expenses/losses is credited."
(ii) For recording changes in liabilities and Capital/Revenues (Gains)
      (a) " Increase in liabilities is created and decrease in liabilities is debited.'
      (b) " increase in capital is created and decreases in capital is debited.'
(iii)" Increase in revenue/gain is credited and decrease in revenue /gain is debited."

In the Books of Rao
Journal Entries

Date	Particulars	LF	Amt.(Dr)	Amt.(Cr)
$$2011$$
Jan $$1$$	Reddy                  Dr To Sales A/c (Being goods sold to Reddy on credit)		$$10,000$$	$$10,000$$
Jan $$1$$	Cash A/c                            Dr Bills Receivable A/c            Dr To Reddy (Being half of the amount of credit sales and acceptance for remaining half amount received)		$$5,000$$ $$5,000$$	$$10,000$$
Feb $$3$$	Cash A/c                            Dr To Bills Receivable A/c (Being cash received on due date)		$$5,000$$	$$5,000$$

In the Books of Reddy
Rao's Account

Date	Particulars	JF	Amt.(Rs.)	Date	Particulars	JF	Amt.(Rs.)
$$2011$$				$$2011$$
Jan $$1$$	To Cash A/c		$$5,000$$	Jan $$1$$	By Purchase A/c		$$10,000$$
Jan $$1$$	To Bills Receivable A/c		$$5,000$$
			$$10,000$$				$$10,000$$

Every business transaction causes at least two changes in the financial position of the business concern at the same time hence, both the changes must be recorded in the books of accounts. 

An account is a summarised record of the relevant transactions relating to a particular head. It records not only the amount of transactions, but also their effects and directions. 

An account has two parts, i.e, debit and credit. The left side is the debit side while the right side is the credit side.If an account is to be debited, then the entry is posted to the debit side of the account. In such an event, it is said that the account is debited.  Ther term 'debit' is derived from an Italian word 'Debito'.

An equation which indicates or shows that the total assets of a business are always equal to the total liabilities of a business plus capital is called accounting equation.

An account which records the financial transaction of business related to expenses, losses, gains and income is known as nominal account.

In the transaction, " Goods destroyed by fire" two accounts are affected viz. nominal A/c i.e., loss by fire and real account i.e., purchase.

In the transaction, "Salary paid by cheque" two accounts are affected viz. Nominal A/c i.e., Salary and personal account i.e., Bank.

Head of an account means the category under which an account falls. All the related transactions are grouped under the particular head. 

Ledger Folio is the page number of the ledger account on which the relevant account appears. All entries from the journal are posted in the ledger accounts. This page number or the folio number of the ledger account, where the posting has been made, is recorded in the L.F. column of the journal.

For every individual account, a separate account is created in ledger. There are two sides of account i.e. debit and credit. Transactions are recorded accordingly. 

Journal is the original record of the business transactions. All entries from the journal are posted in the ledger accounts. Page number of a ledger account is known as Ledger Folio. 

After the transactions are recorded in the journal, it is then posted in the principal book called as ‘Ledger’. The process of transferring the entries from journal to respective ledger accounts is called ledger posting. Balancing of ledgers is carried to find out differences at the end of the year.

Ledger posting is entering information in the ledger, in respective accounts from the journal for individual records. The account debited is posted on the debit side and the account credited is posted on the credit side of the same account.

This process is carried throughout the year and at the end of the financial year the ledger accounts are closed and are totaled and balanced. This process is called the balancing of the ledger accounts.

(I) Purchase voucher: Voucher is a written,/documentary proof of payment. It is a receipt given for cash paid or payment made through cheques. It support the entry passed in the books of accounts. It gives full details, of payments made and gives reasons for its payment. Purchase voucher is an important document giving details of the goods purchased on cash or credit from the vendor. As soon as goods are purchased, the entry is feeded into computer on the basis of purchase voucher giving details of basic price of goods purchased and tax applicable on the same, description of goods purchased, payment terms etc. The Purchase Voucher is recorded into computer by using the following path:
Go to Gateway of Tally >Accounting Voucher

A Sales Voucher is a form of receipts or documents commonly given to buyer of goods. It serves as a proof of purchase against which the goods is delivered. 

Machinery account is debited when expenses are paid for installation of machinery.

Journal is the preliminary book to keep a chronological record of transactions in which each transaction is noted down in its entirely while ledger is a book containing all the accounts. From the journal, all entries are posted to their respective ledger accounts. So a journal provides chronological records of business transaction while ledger accounts provide account wise records of transaction in the accounting process. First the journal is prepared and then posted to the ledger.
Thus, the journal is the book of first or original entry, while the ledger is the book of second entry.

Some transactions are recorded in a Two-column Cash Book and relate to both cash and bank, i.e., the balance of one will decrease and the other will increase due to such transaction or vice-versa. Such transactions are entered on both sides of the cash book. Such entries are known as Contra Entries.
Often cash is withdrawn from the bank for use in business. In such a case, the amount is entered in the bank column on the payments side and also in the cash column on the receipts side. In the reverse case when cash is sent to the bank, the amount is recorded in the bank column on the receipts side and in the cash column on the payments side.
Against such entries, the letter 'C' should be written in the L.F. column to indicate that these are contra transactions and are not posted into the ledger account.

Posting is the process of transferring the debits and credits from the journal to proper ledger account. The debit column and credit column entries in the journal are transferred to the debit and credit side respectively of the concerned leger accounts.

At the time of admission, a nominal account known as the revaluation account is opened to revalue and reassess the assets and the liabilities. These assets and liabilities are revalued so that there is no undue gain to the incoming partner. At the time of admission, it is desirable for the new partner as well as the partnership firm to verify the correctness of the assets and liabilities in order to satisfy themselves.  Any profit or loss arising from the Revaluation account is credited or debited to the old partner's capitals accounts in their old profit sharing ratio.

Cash/Bank  A/c     Dr. 5,000
Bad Debts A/c       Dr. 5,000
          To Ambuj A/c              10,000
(Being the amount received from Ambuj's estate and balance amount writen off).

Cash A/c  Dr.           10,000
       To Sales A/c               10,000
(Being goods sold for Cash)

Journal Entry :-

Cash A/c   Dr.           50,000
      To Capital A/c               50,000
(Being business commenced).

A debit and credit entry has a broad impact on different accounts. The following illustrates its impact:

• Asset accounts, a debit increases the balance and a credit decreases the balance.
• Liability accounts, a debit decreases the balance and a credit increases the balance.
• Equity accounts, a debit decreases the balance and a credit increases the balance.
• Revenue accounts, a debit decreases the balance and a credit increases the balance.
• Expense accounts, a debit increases the balance and a credit decreases the balance.

A ledger is very useful and is of utmost importance in the organization. The net result of all transactions in respect of a particular account on a given date can be ascertained only from the ledger. Such information is very difficult to ascertain from the journal because the transactions are recorded in chronological order and defy classification. In the beginning, an index is also provided. For easy identification, in big organizations, each account also allotted a code number.

The following are the rules attached to the different types of accounts:
1. Personal Account: Debit the receiver, Credit the giver.
2. Real Account: Debit what comes in , Credit what goes out.
3. Nominal Account: Debit all expenses and losses, Credit all incomes and gains.

Business transactions are large in number and difficult to record. A Journal is sub-divided for quick, efficient and accurate recording of the business transactions into a number of subsidiary books or special purpose books like, sales book, purchases book, cashbook, purchase return, sales return, etc. which are maintained for those transactions that are routine and repetitive in nature. Recording through these books is economical and enables division of work among accountants as per the nature of transactions.

Posting is the process of transferring the entries from the book of original entry (journal) to the ledger. In other words, posting means grouping of all the transactions in respect to a particular account at one place for meaningful conclusion and to further the accounting process. 

Voucher acts as the base for the recording of all the transactions. Vouchers are regarded as the source documents, as the source documents, based on which the transactions are recorded in the Journal book in form of journal entries. Thus, for all the transactions that are recorded in the Journal book, corresponding voucher is a necessary condition.