BUSINESS ACCOUNTING
BY NADYA NARSIDANI
The primary objective of financial accounting is to record financial transactions to
arrive at the results of the operations of the business during a year.
This is done by preparing financial statements, i.e. Profit and Loss Account and
Balance Sheet at the end of the year.
For preparing these financial statements, a business transaction has to pass
through a number of stages in the accounting process. This means when a business
transaction occurs, the process begins to record the transaction in the account
books.
Steps in The Accounting Cycle
Analyze Journalize Post entries to Prepare a trial
source transactions the accounts balance.
documents. in the general in the general
journal. ledger.
Prepare financial
statements.
1.Source documents: There should be some documentary evidence
(voucher) of each transaction. These documents reveal that transactions
have occurred and initiate the accounting process.
2.Journal: On the basis of documentary evidences, the accountant makes
a record of a transaction in journal in chronological order. Journal is a
subsidiary book.
3.Ledger: Information given in journal is then entered in ledger. This is
known as posting. Ledger is a principal book having a set of accounts.
4.Trial balance: The equality of debits and credits in the ledger accounts is
verified by preparing a trial balance at the end of the period.
5.Final accounts: Profit and Loss Account and Balance Sheet are the two
basic financial statements, also known as final accounts, which are
prepared from information given in the trial balance.
What is a Ledger Account
A ledger is an accounting book that facilitates the transfer of all journal entries in a chronological
sequence to individual accounts. The process of recording journal entries into the ledger is called posting.
The process of transferring entries from a journal to the respective ledger accounts is known as ledger
posting. For this process, first, the entries are recorded in journals and then transferred to their respective
ledger accounts.
Difference between Journal and Ledger
BASIS FOR COMPARISON JOURNAL LEDGER
The book in which all the The book which enables to
transactions are recorded, as transfer all the transactions
Meaning
and when they arise is known into separate accounts is
as Journal. known as Ledger.
What is it? It is a subsidiary book. It is a principal book.
Also known as Book of original entry. Book of second entry.
Record Chronological record Analytical record
The process of recording The process of transferring
Process transactions into Journal is entries from the journal to
known as Journalizing. ledger is known as Posting.
How transactions are
Sequentially Account-wise
recorded?
Debit and Credit Columns Sides
Narration Must Not necessary.
Balancing Need not to be balanced. Must be balanced.
General Ledger Account - T-Account Format
Account Name
Debit Credit
LEDGER POSTING
Posting is the action of transferring debit and credit items from the journal to the designated
accounts in the ledger. The steps involved in posting are
1) recording the pertinent amount on the left side of the account, which the journal instructs be
debited, and
2) writing the amount on the right side of the account, which the journal instructs be credited
Posting the Opening Entry: The opening entry is always for balances of assets, liabilities and
capital in the beginning.
Ledger accounts will be prepared for each of the accounts in the journal and opening balance
will be transferred to respective ledger accounts.
Illustration 1
The above process of recording transactions can be studied with the help of following example;
1) Balance of Cash on 1st January 2018 ` 15,000
2) On 5th January 2018 Raj invested ` 10,000 in the business.
Illustration 1:
Journalize the following transaction sand post them in the Ledger.
1. Ram started business with a capital of Rs10,000.
2. He purchased furniture for cash Rs 4,000.
3. He purchased goods from Mohan on credit Rs2,000.
4. He paid cash to Mohan Rs1,000
