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Lesson 9-Books of Account
Lesson 9-Books of Account
Books of Account
• The term "books of account" refers to the formal records where financial
transactions of a business are systematically and chronologically recorded.
These records serve as the foundation for preparing financial statements
and are crucial for maintaining accurate financial information.
• Traditionally, "books" referred to physical ledgers or journals where
transactions were manually recorded, but with the advent of accounting
software, these records are often digital. The purpose of books of account is
to provide a detailed and organized record of all financial activities
undertaken by a business, enabling management to make informed
decisions, comply with legal and regulatory requirements, and
communicate the financial position and performance of the business to
stakeholders.
JOURNALS VS. LEDGERS
The main difference between journals and ledgers lies in their
function and structure: journals serve as the initial recording of
individual financial transactions in chronological order, providing detailed
information about each transaction such as dates, accounts involved,
amounts, and descriptions, while ledgers summarize and categorize this
information into specific accounts, maintaining consolidated records of
account balances and serving as a centralized source for tracking financial
activity, preparing financial statements, analyzing performance, and
facilitating auditing and regulatory compliance.
JOURNALS
• A journal is a chronological record of all company’s transactions listed
by date often referred to as the book of original entry. This is because
we first record the business transaction in this book. The recording of
financial information into the journal is known as the process of
journalizing.
GENERAL JOURNAL
• Most business especially large companies, may adopt different kinds of
journals but all business organizations use the most basic type of
journal which is the general journal.
The General Journal typically displays:
• Date
• Account titles and explanation
• Reference number
• Debit
• Credit
DATE
• The date at which the transaction occured,.
ACCOUNT TITLES AND EXPLANATION
• The account to be debited and the account to be credited are recorded.
REFERENCE NUMBER
• Reference number of each account journalized
• The ref column is left blank during the journalizing process and is filled
out during the posting process.
DEBIT
• Represent increases in assets or expenses and decreases in liabilities or
equity.
CREDIT
• Credits represent increases in liabilities, equity, or revenue accounts,
and decreases in asset or expense accounts.
On May 25, 2024, ABC Company received a $2,000 loan
from a bank.
DATE ACCOUNT DEBIT CREDIT
May 25 Cash 2,000
Cash 600
On March 15, 2024, XYZ Company paid $1,500 in
cash for salaries and wages to its employees.
DATE ACCOUNT DEBIT CREDIT
Salaries and Wages 1,500
March 15 Expense
Cash 1,500
On May 25, 2024, ABC Company received a
$2,000 loan from a bank.
DATE ACCOUNT DEBIT CREDIT
May 25 Cash
2,000
• In simpler terms, a ledger is like a big notebook where all the money-related
activities of a business are written down and organized neatly so that it's easy to
understand how the money flows in and out of the company.