RECORDING BUSINESS

TRANSACTION
• ACCOUNT: A device use to record
increases and decreases in specific asset,
liability, and owners’ equity items.

• LEDGER: It is a group of accounts – in a

manual system it may be a bound book
titled as ‘General Ledger’.
 CLASSIFICATION OF
COMMONLY USED ACCOUNTS
• Assets – Fixed & Current
• Liabilities – Long-term & Short-term
• Owners’ Equity – Capital, Retained earnings
(Revenues & Expenses)
• Each of the above accounts is numbered to form
the ‘Chart of Accounts’
Assets: Liabilities:
Equipments 103 Creditors 201
Inventory 109 Expenses:
Cash 113 Advertisement 509
 DOUBLE ENTRY SYSTEM
• Every transaction must be recorded with
equal debits and credits and the total of
debits must be equal to total of credits.
• Left hand side of any account is arbitrarily
called ‘Debit Side’ (dr.) and the right hand
side is called ‘Credit Side’ (cr.).
• Standard form of an account:
Date Explanation Ref. Dr. Cr. Bal.
• ‘T Form’ of Account
 DEBIT & CREDIT RULES
• A = L + OE or, A = L + OE + RE
• Or, A = L + OE + (Rev. - Exp.)
• Or, A = L + OE - Drawings+ Rev. -Exp.
• A + D + E = L + OE + R
• Debit to Increase Credit to Increase
(LHS) (RHS)
• Credit to Decrease Debit to Decrease
(RHS) (LHS)
DEBIT & CREDIT RULES……..

• Or, A & E L, OE & R

• To increase Debit Credit
• To Decrease Credit Debit
 DEBIT & CREDIT RULES
• Type of Increase Normal
Accounts Recorded by Balance
• Asset Debit Debit
• Liability Credit Credit
• Owner’s Equity:
Share Capital Credit Credit
Dividend Debit Debit
Revenue Credit Credit
Expense Debit Debit
RECORDING TRANSACTIONS
• JOURNAL: A chronological record of
transactions entered into by a business.
• Also called as the ‘Book of Original Entry’
or ‘Primary Book’ as the transactions are
recorded here first.
• JOURNAL ENTRY: An analysis of the
effects of a transaction on the accounts,
usually accompanied by an explanation.
 JOURNAL ENTRY EXAMPLE
• Date Particulars Ref Debit Credit
200X Rs. Rs.
Jan.1 Cash 2 50,000 -
Share Capital 1 - 50,000
(Cash invested in the business)

Jan.15 Inventory 9 11,000 -

Cash 2 - 9,000
Acct.s Payable 13 - 2,000
(Purchase of inventory on part payment)
 Transferring Journal to Ledger
• Locate in the ledger the debit account in the
journal entry.
• Enter date of the transaction in the Ledger.
• Enter Ref. column in the Ledger, the page no. of
journal from which entry is being posted.
• Enter in the debit column of the ledger the
amount of debit as shown in the journal.
• Enter in the ref. column of the journal the
account no. to which the debit was posted.
• Repeat the above for credit side posting.
 BALANCING THE LEDGER

• It refers to closing of the Ledger account

with the difference between the total of left
side and right side amounts in the account
at any particular time.
 TRIAL BALANCE
• A list of all accounts in the general ledger
with their balances reflected either in ‘dr.’
or in ‘cr.’ column.
1. It shows whether the equality of debits
and credits has been maintained;
2. It provides a convenient summary
transcript of the ledger records as a
basis of making the adjusting and closing
entries.
 ERROR IDENTIFICATION
• If trial balance total does not agree,
following errors may be taking place:
1. A debit may be posted in an account as
a credit or vice-versa;
2. An account balance may be computed
incorrectly;
3. Amount of an account balance may be
recorded incorrectly.
 CORRECTING ERRORS

1. Identify Correct Entry;

2. Pass Correct Entry & Compare;
3. Pass an additional correcting error entry
to neutralize the effect.
Example: A repair Expense was erroneously debited to
equipment on July 27; error was discovered on July 31.

• Erroneous Entry:
27/7 Equipment ………….500
Cash …………………….500
• Correct Entry:
27/7 Repair Expense……500
Cash ……………………500
• Correcting Entry:
31/7 Repairing Expense……500
Equipment………………….500