The compilation of these Recording Transactions Notes makes students exam preparation simpler and organised.
Posting from Journal and Cash Book
During the preparation of accounts, an accountant is required to post various entries from various journals and cash books to the ledger accounts. Let us take a look at the process of posting such journal entries from the books of accounts in various ledgers.
Journal and Ledger
A Journal is simply a chronological record of all the business transactions that take place in an organization. However, if we want to know the net effect of various transactions that affect an item, we need to go through the entire journal, which takes a lot of time.
A Ledger is a book which contains a summarized and classified form of the complete record of all transactions. Since it contains complete information about various transactions, it is called the ‘Principal Book’.
Is the Cask Book also a Journal?
A cashbook plays the role of a book of original entry, as well as a ledger. The cash book is a subsidiary book because all cash transactions are firstly recorded in the cash book and then after recording them there, they are posted to various accounts in the ledger. The recording of transactions in the cash book takes the shape of a ledger account.
As receipts of cash are entered on the debit side and cash payments on the credit side, there is no need for a cash account in the ledger books of a firm. Thus Cash Book serves the purpose of a ledger account as well as a journal.
Posting from Journal to Ledger
Final accounts of a business are prepared on the basis of the ledger. The following is a format of a ledger account:
Posting into a ledger is made from the journal entries which are passed in the journal. It is important to mention that every journal entry will have to be posted to all accounts which have been debited and credited in the journal entry.
For example, for goods purchased for cash, Purchases Account is debited and Cash Account is credited. While posting this entry into the ledger, it will be posted both in Purchase Account as well as in Cash Account. All real accounts relate to assets, hence, show the debit balance only. The balance in nominal accounts indicates profit and loss. The balance in nominal accounts is transferred to the Profit and Loss Account.
Let us take the example of the following journal entries to illustrate how the posting process is accomplished:
Introduction of cash, Rs 50,000 in the business of Mr. A:
Cash A/c – Dr. 50,000
To Capital A/c 50,000
Purchase of furniture for Rs 10,000
Furniture A/c – Dr. 10,000
To Cash A/c 10,000
These entries shall be displayed in their respective accounts as follows:
Post the following transactions in the Purchases account.
Bought goods from Mr. A on credit for INR 65,000
Purchased computer and printer for INR 70,000 for office use
The accounts will be as follows:
The second effect of the entry will be recording it on the credit side of Mr. A’s account.
As for the second entry, it will not be recorded in the purchases account.