Skip to main content

RECORDING PROCESS IN ACCOUNTING/Journal, Ledger and The Trial Balance

Steps in the Recording Process

recording process in accounting

Every business uses three steps for recording.
1. Analyse each transaction and its effects on the accounts
2. Enter the transaction in a Journal
3. Transfer the journal into an appropriate account in the ledger

The Journal

What is Journal? How it helps in recording process?

Journal is the book of original entry. Companies initially record transactions in the chronological order (i.e. the order in which they appear).
General Journal is the basic form of journal used by every company. General journal has space for dates, account title and explanation, references, two-column account i.e. debit and credit column.
Whenever we say journal we refer to general journal unless its specified.

Merits of Journal

1. It discloses complete effect of transaction. It means every transaction has a debit and credit effect on different accounts which the journals helps to record.
2. Journal provides with the chronological record of the transaction.
3. Journal helps to prevent or locate errors because debit and credit amount can be easily compared.

Journalizing

Journalising is the process of entering transaction data in the journal. Companies make separate Journal entries for each transaction.
A complete entry consists of:
1. a date of transaction
2. the account and amount to be credited and debited
3. a brief explanation of the transaction.
journal in accounting

  • Date of transaction is entered on date column.
  • Debit account title and its amount is entered first followed by that of credit account.
  • A space is left between journal entries which makes it easy to read.
  • Reference is left blank when the journal entry is made. This column is used for later when journal entry are transferred to ledger.

Simple and Compound Entries

Entries consisting of two accounts is called simple entry.
Entries consisting three and more accounts is called compound entry.

The Ledger

The ledger provides a balance in each of the account of the journal. Companies arrange ledger of each individual account in the same order as in the financial statements, beginning with balance sheet account. First in order are assets, followed by liability account, stockholder's equity, revenue, expense. Each account is numbered for easier identification.
Ledger provides balance in each of the account. The Cash ledger shows the amount of cash available,the Account Receivables ledger shows the payment that is due from customers.

Standard Form of Account

In practice the format of ledger is called three-column form of account. It has three money columns- debit, credit, and balance. The balance is determined after each transaction.
ledger in accounting

Posting

Transferring journal entries to the ledger is called posting.
posting should be done in chronological order i.e. the company should post all the debit and credit of one journal entry before proceeding to the next journal entry.
The reference column of ledger indicates the journal page from which the transaction was posted. Reference column of journal indicates the ledger page.
the explanation column of ledger is used infrequently because an explanation is already appears on the journal.

Chart of Accounts

This chart list the account and the account number that identify their location in the ledger. The numbering system starts with the accounts of balance sheet and ends with income statement.

The Trial Balance

It is the list of accounts of ledger with their balances at a given time. The list is in the order in which they appear in the ledger. It helps to uncover the errors in journalizing and posting as the debit and crdit side should be equal.
the trial balance in accounting

Comments

Post a Comment

Popular posts from this blog

Here's Why You Need to know Accounting

It's not only accountants who need accounting.Now you must be wondering"If I am not going to be an accountant, why do I need to know accounting..." But it seems like you don't really have to be an accountant to know about accounting.Accounting possesses far more benefits than being a professional one. Now to begin with, business. Business as we are aware that it's a numbers game. Now' if you are planning to be an entrepreneur or start a business, you not only have to know the numbers, but also be able to comprehend and communicate it. Accounting and financial statements are the means of communicating these numbers. If you don't know how to read a financial statement you can't really know your business. Also, your employees being able to read financial statement might be beneficial to your company as they understand how their actions have the financial impact on the business. Good financial information does not only helps in making effective business de
Post a Comment
Read more

Users of Accounting Information/ Internal/ External

Accounting involves the process of identifying, recording and communicating the economic events to the interested users. Now, who are these interested users of accounting? Users of Accounting Information are divided into two groups: Internal and External. Internal Users of Accounting Internal  users of accounting information are the owners, managers who plan, organise and run the business.Following are the types of internal users: Owners Owners need to asses the overall performance of their business and to do so, financial statements are used. Owners use information from financial statements to estimate the profitability, losses and the risk factor of the overall business. Managers Managers use the accounting information for the purpose of planning, monitoring and decision making in business. Manager through accounting information, decides how much finance is to be used in the production process and allocates the finance among various resources. Manager uses the data for the budgeting
Post a Comment
Read more

GAAP and IASB/ TYPES OF BUSINESS

Generally Accepted Accounting Principle (GAAP) Common set of standards that are generally accepted and universally practised . These set of standards indicate how to report economic events. Primary accounting standards setting bodies in US is Financial Accounting Standard Board (FASB) and is called U.S. GAAP and are used by companies in U.S. International Accounting standard Board (IASB) sets Standards which are called International Financial reporting Standards (IFRS) . These sets are usually followed by the international countries than U.S. As markets are becoming more global we need a system which allows easy comparison among the companies. So as to increase comparability the two standard setting bodies have made efforts to reduce the difference between U.S. GAAP and IFRS. Measurement Principles Generally Accepted Accounting Principles (GAAP) uses two measurement principles. Selection of which principle to follow depends on the relevance and faithful representation which
Post a Comment
Read more