Accounting Knowledge

 The difference between the totals of two sides of an account is its balance. The balance is written of the lesser side to make the two sides equal.  For example: Total of Dr. Side Rs.20000 Total of Cr. Side Rs.15000 Balance Rs.5000 1. Balancing  The process of equalizing the two sides of an account is known as balancing. 2. Debit balance While finding the balance if total of debit side is greater than that of credit side, the difference is named as debit balance.  For example: Total of Dr. Side of an account Rs.80000 Total of Cr. Side of an account Rs.70000 Balance (Debit balance) Rs.10000 3. Credit balance While finding the balance if total of credit side is greater than that of debit side, the difference is named as credit balance. For example: Total of Dr. Side of an account Rs.35000 Total of Cr. Side of an account Rs.50000 Balance (Credit Balance) Rs.15000

 S.No Journal Ledger 1 Journal is the book of first entry ( original entry) Ledger is the book of second entry 2 Journal is the book for chronological record Ledger is the book for analytical record 3 The unit of classification of data within Journal is the transaction The unit of classification of data within Ledger is the account 4 The process of recording in Journal is called Journalizing or Journalization. The process of recording in Ledger is called posting  5 Journal as a book of source entry ordinarily has greater weight as legal evidence than the Ledger. Q. What is meant by Posting The process of recording information from journal to ledger is called posting.

The ledger is a book which contains a classified record of all similar transactions of the business, brought from the journal or from books of original entry. Note: the record kept in ledger is called “classified record” or “condensed record”. Types of ledger   Ledger accounts can be prepared in the following two ways: 1-       “T” accounts form/Traditional/Standard/Conventional form (British) 2-       Running Balance Form/Modern Form (American)   Different names of ledger Ø   Secondary book Ø   Book of final entry Note: ledger is King of all books of accounts. Sub-division of Ledger: 1.       Debtors’ Ledger or customers’ Ledger or sales Ledger. 2.       Creditors’ Ledger or Suppliers’ Ledger or purchase Ledger 3.       General Ledger or nominal Ledger.

Recording a transaction in an appropriate place of the concerned book of account is called entry. It is of two types: Ø   simple entry Ø   compound entry 1.        Simple entry The entry in which only one account is debited and only one account is credited is named as simple entry. E.g. Goods purchased for cash Rs.9000   Journal Entry:                                      Purchases           9000              To cash                 9000    (Goods purchased for cash)                                                                                                Compound entry An entry in which more than one account is debited or more than one account is credited is called compound entry. E.g. Goods purchased for cash Rs.9000 and on credit from Mr.A Rs.10000. Journal Entry:                                     Purchases           19000                To Cash                9000            To A                     10000         (Goods purchased on cash a

The word “Journal” has been derived from French word “jour” which means day. So Journal means daily. The book in which transactions are first of all recorded chronologically together with its short description is called journal. Journal is also called the Book of Original Entry. It is the first stage of accounting cycle. Different names of Journal Ø   Primary book Ø   Journal Ø   Chronological book Ø   Book of original entry Ø   Preliminary book Ø   Book of first entry Ø   Preliminary book Ø   Book of prime entry Ø   Day book Format of Journal What is meant by Journalizing? Recording a transaction in a journal is called journalizing. What is Narration? Short explanation of a transaction written below each entry in the journal is called narration. e.g. Transaction:                       Business started with cash $50000 Journal entry:  

What is Account? The term “Account” is a record in summarized and classified form of all business transactions that take place between particular person and things specified. Account is the root of accounting. Classification of accounts: To record a transaction in the books of account, the first thing to do is to ascertain which account is to be debited and which account is to credited. In order to ascertain this correctly, a clear idea about the different classes of accounts is essential. Accounts may be divided into the following classes. 1. Personal accounts: Accounts relating to persons or firms are called personal accounts personal accounts can take the following forms: i.                     Natural person’s accounts : for examples Ali’s, Aslam’s account etc ii.                   Artificial person’s accounts : for example HabibBanks A/c iii.                 Representative personal accounts : when an account represents certain person or persons then it is called a

Following are the rules of debit and credit:       Assets When Assets increase then Dr. When Assets decreases then Cr. Purchase Building for Cash $ 10000 Here Building (Assets) increase so Dr Building Account and Cash (Assists) decrease so Cr Cash Account Cr.         Expenses When expenses increase then Dr. When expenses decrease then Cr. We can say that When Assets and Expense increase they are debited (Dr.) and when decrease they are credited. (Cr.)         Liabilities When liabilities increase then Cr. When liabilities decrease then Dr.         Capital / Owner’s equity When Capital / Owner’s equity increase then Cr. When Capital / Owner’s equity decrease then Dr.       Revenues   When Revenues increase then Cr. When Revenues decrease then Dr. We can say that When liabilities, capital and revenues increase they then Cr. and when they decrease then Dr.