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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

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