You are on page 1of 18
CHAPTER 2 ACCOUNTING BOOKS
CHAPTER 2
ACCOUNTING
BOOKS
ACCOUNTING CYCLE  An accounting cycle is the process of recording business transactions. This cycle involves
ACCOUNTING CYCLE
 An
accounting
cycle
is
the
process
of
recording business transactions. This cycle
involves several stage over a particular
period of time.
 An
accounting cycle shows the steps to
collect and record business information
systematically so that the financial reports
or statements can be presented to the
management and analysed
JOURNAL 1. Journal is a sheet in which all business transaction entries are recorded in chronological
JOURNAL
1.
Journal is a sheet in which all business
transaction entries are recorded in
chronological order.
2.
Journal can be categorised as:
• General journal – basic journal used to
record all business transactions that
cannot be recorded in cash book or
special journal.
• Special journals – used to record a
specific type of transaction only.
Examples:
JOURNAL • Purchase journal • Sales journal • Purchase returns journal (returns outwards journal) • Sales
JOURNAL
• Purchase journal
• Sales journal
• Purchase returns journal (returns
outwards journal)
• Sales returns journal (returns inwards
journal)
3.
Journal entries must be posted to the
ledger of related account based on the
double-entry system.
4.
Journal is a sheet in which all business
transaction entries are recorded in
LEDGER  A ledger is the principal book for recording and totalling economic transactions measured in
LEDGER
 A ledger
is
the principal
book for
recording
and
totalling economic transactions measured in terms of
a monetary unit of account by account type, with
debits and credits in separate columns and a
beginning monetary balance and ending monetary
balance for each account.
 All ledger’s account must be balanced before a trial
balance is prepared.
 All ledger’s account is balanced by comparing the
total debit amount with the total credit amount, and
determining which amount is larger.
LEDGER Types of Ledger Subsidiary account  Account receivable (debtors)  Account payable (creditors) Non-subsidiary account
LEDGER
Types of Ledger
Subsidiary account
 Account receivable (debtors)
 Account payable (creditors)
Non-subsidiary account
Real accounts
 Liabilities &Owner’s equity
 Assets:
 a) Current assets. E.g.: cash, bank, and account receivable
 b) Non-current assets. : Eg: Building, land, motor vehicle
Nominal account
 Expenses. E.g.: Discount allowed, rent, salaries
 Revenue. E.g.: Commission received, discount received, rent
received.
FIRST BOOK Types Books of Prime Entry  Each type of day book or book original
FIRST BOOK
Types Books of Prime Entry
 Each type of day book or book original
entry is used to record a specific types of
transaction.
 Types of book prime entry:
 General journal – basic journal used to
record all business transactions that cannot
be recorded in cash book or special journal.
FIRST BOOK Special Journal:  Sales journal – to record credit sales  Purchase – to
FIRST BOOK
Special Journal:
 Sales journal – to record credit sales
 Purchase – to record credit purchases
 Sales return journal – to record sales
return from debtors
 Purchase return journal – to record
purchase return from creditors
FIRST BOOK  Cash Book – used to record receipts and payments by cash or cheque
FIRST BOOK
 Cash Book – used to record receipts
and payments by cash or cheque
 Cash book two-column – exclude
discount allowed & discount receive
column
 Cash book three-column- include
discount allowed & discount receive
column
Source Documents, Transactions and Book of Prime Entry Source Transaction Document Book of Prime Entry Invoice
Source Documents, Transactions
and Book of Prime Entry
Source
Transaction
Document
Book of Prime
Entry
Invoice
received
Invoiced
Credit
purchase
Credit sales
Purchase
journal
Sales journal
issued (sent)
Cash
bill
Cash
purchase
Cash sales
Cash
book
received
(cr)
Cash
bill
Cash
book
issued
(dr)
Receipt
Cash
Cash
book
received
payment
(cr)
Source Documents, Transactions and Book of Prime Entry Source Transaction Document Book of Prime Entry Credit
Source Documents, Transactions
and Book of Prime Entry
Source
Transaction
Document
Book of Prime
Entry
Credit note
received
Purchase
Puchase
returns
returns
(Returns
journal
outwards)
(Returns
Overstated
outwards
purchase
journal)
price
General
Credit note
issued
Sales returns
(Returns
journal
Sales returns
journal
inwards)
(Returns
Source Documents, Transactions and Book of Prime Entry Source Transaction Document Book of Prime Entry Debit
Source Documents, Transactions
and Book of Prime Entry
Source
Transaction
Document
Book of
Prime Entry
Debit note
received
Debit
Understated
General
purchase price journal
note
General
issued
Cash voucher
Understated
sales price
Payment
made by cash
journal
Cash book (cr
cash’s
but no receipt column)
issued
Payment
Payment
voucher
made
by –
Cash book (cr
bank’s
cheque but no column)
recei t issued
Source Documents, Transactions and Book of Prime Entry Source Transaction Document Book of Prime Entry Cheque
Source Documents, Transactions
and Book of Prime Entry
Source
Transaction
Document
Book of
Prime Entry
Cheque butts
Payment
by
cheque
Cash book (cr
bank’s
Memos
Additional
capital
Drawings
assets
Drawings
goods
column)
General
journal
of General
journal
of General
journal
Source Documents, Transactions and Book of Prime Entry Narration of Journal  The sentences that appears
Source Documents, Transactions
and Book of Prime Entry
Narration of Journal
 The sentences that appears below the
line containing the account heads that
are debited and credited.
 The narration is a brief explanation for
the
entry. It include certain
details in
relation to the transactions.
 The purpose of the narration is to enable
anyone who reads it to get a preliminary
idea of why the entry is being recorded.
Source Documents, Transactions and Book of Prime Entry Subsidiaries ledgers  Subsidiaries account are accounts related
Source Documents, Transactions and
Book of Prime Entry
Subsidiaries ledgers
 Subsidiaries account are accounts related
to
account
receivable
of
goods
sold
(debtors) and account payable of goods
purchased (creditors)
 Non-subsidiary accounts are all accounts
other than account receivable and account
payable accounts.
 Example of subsidiary ledger