The compilation of these Recording Transactions Notes makes students exam preparation simpler and organised.
Books of Original Entry
The art of accounting and its related study is a very interesting and vital component of maintaining accounts. The books of double-entry hold a very vital and important role in the preparation of accounts. It is because of these books that an accountant is able to compile financial data about a firm. To understand accounting treatments, let us read further.
Books of Original Entry in Accounts
If we follow the order in which an accounting entry finds a record in original documents, we will come across journals and ledgers. The Books of original entry usually refer to the accounting journal. In this, you record any business transaction that occurs at a firm initially.
Keeping in mind the double-entry system of accounting, the information in these books is summarized and then posted into a general ledger. From such ledgers, firms create financial statements. Each accounting journal contains detailed records for the types of accounting transactions pertaining to a specific area.
There are several types of journals, such as
- Sales Journal
- Cash Journal
- Purchase Journal
- General Jornal
Generally speaking, the general ledger does not fall under the category of a book of original entries. This is so because it only contains summarized entries posted to it from one of the accounting journals. However, if one records the transactions directly into the general ledger, it then becomes one of the books of original entry.
So the double-entry system of accounting starts with recording the transactions in the journals, and then their eventual posting in their respective accounts. And hence journals are generally the first step of the double-entry system.
Books of original entry also serve various functions. They aid in investigating individual accounting transactions. Auditors too access the books for proper audit. The job of such auditors is to verify that a selection of business transactions was recorded correctly and appropriately.
This concept however only applies to manual record-keeping. A computerized accounting system no longer makes reference to any of the accounting journals. Instead, it focuses on recording all business transactions in a central database.
Give examples of business transactions and show how they will appear as journal entries.
Consider the following business events: