RECORDING OF TRANSACTIONS

Source Document :

A document which provides evidence of the transactions is called the Source Document such as Cash memo, Invoice etc. At times, there may be no documentary proof for certain items in such case voucher may be prepared showing the necessary details and it must be approved by appropriate authority. All recording in books of account is done on the basis of Voucher.

Classification of Accounting Vouchers :

Debit Voucher :

This voucher is prepared for all the cash payments made by the business e.g. Payment of Salary, Purchases of Goods and services, Payment made to any Creditor etc.

Credit Voucher :

This voucher is prepared by the business in case of cash receipt from any source such as Sale of goods for Cash, Payment received from any of Debtors, Income received etc

Transfer Voucher / Non-Cash Voucher :

This type of vouchers are prepared in those transactions where cash is not involved. e.g.as Credit Sales, Credit Purchases, Bad Debts, Depreciation etc.

Accounting Equation :

An accounting equation is based on the dual concept of accounting. According to this concept every transaction has two aspects - Debit and Credit.
Assets = Capital + Liabilities

A transaction may affect either both sides of the equation by the same amount or one side of the equation only, by both increasing or decreasing it by equal amount. It can be said “Accounting equation holds good under all circumstances.”

RULES OF DEBIT AND CREDIT :

TRADITIONAL APPROACH :

Under this approach, all ledger accounts are mainly classified into two categories:

A. Personal accounts :

It includes all those accounts which are related to any person i.e. individuals, firms, companies, Banks etc. This can further be classified into three categories :

1. Natural persons : All accounts of human beings/persons are included such as Ram’s a/c, Shyam’s a/c etc.


2. Artificial persons : This includes all accounts related to organizations which are treated as persons in the eyes of law and having all the legal rights as a natural person have such as buying/selling assets in its name, suing and be sued etc. Some of the examples are Reliance industries ltd. Punjab National Bank etc.


3. Representative persons : In this category, accounts which represents some person are included e.g. Capital a/c (representing Owner), Outstanding salary (representing the employee to whom salary is due) etc.

B. Impersonal accounts :

all ledger accounts which are not related to persons are included in this category. This can be classified as :

1. Real accounts : under this category, mainly assets (excluding debtors) are included. These assets can be tangible (which can be touched, seen and measured such as furniture, cash, stock etc.) and intangible (which can’t be seen, touched or measured but still have monetary value such as patents, trademark etc.)


2. Nominal accounts : all this, all accounts which are related to income/gain and expenses/losses are included e.g. Salary paid, Commission received etc

JOURNAL :

Journal is a book in which transactions are originally recorded in a chronological order (as per the occurrence) after analyzing the transaction and applying the rules of debit and credit.

PROCESS OF RECORDING :

(1) Identification of financial transactions
(2) Analysis of transactions
(3) Application of rules of debit and credit
(4) Recording in Journal

CLASSIFICATION OF JOURNAL ENTRIES :

SIMPLE ENTRIES             COMPOUND ENTRIES     OPENING ENTRIES
TRANSFER ENTRIES      CLOSING ENTRIES          RECTIFYING ENTRIES

Simple Entries : The entries in which only two accounts are affected, one a/c is debited and other one is credited. All entries in the above illustration 3 are this nature.

Compound Entries : The entries in which there are at least two accounts are debited and at least one account is credited or vice versa.

SPECIAL TRANSACTIONS RELATED TO GOODS :

1. Withdrawal of goods by owner for personal use.

Drawings a/c Dr.

To Purchases a/c

2. Goods given as charity.

Charity a/c Dr.

To Purchases a/c

3. Goods distributed as free samples

Advertisement a/c Dr.

To Purchases a/c

4. Goods lost by fire/ flood/theft etc.

Loss by fire/theft a/c Dr.

To Purchases a/c

Note : Purchases a/c is credited in the above entries because the goods are going out of our business on cost and it is not a sale hence, deducted from the purchases a/c.

CBSE Accountancy Class XI ( By Mr. Kailash Gururani )
Email Id : [email protected]