Books of Accounts

Books of Accounts

In accounting there are two main books of accounts i.e. Journal and Ledger. In this article these books of accounts have been explained in details. Books of accounts are used to record the financial transactions. It is important to note that trial balance & financial statement are reports generated from the books of accounts.

Manual & Computerized Books of Accounts

In manual system Books of accounts are maintained manually by accountant, in computerized environment books of accounts are automatically maintained by accounting software. In computerized environment books of accounts are automatically updated.   Accountant only needs to enter accurate amount in accurate heads of accounts.

1.   General Journal:

In first place the transactions are recorded in the General Journal. In Journal transaction are recorded in chronological order (Date wise). Transactions are recorded with help of debit & credit rules. There are two basic rules for double entry system. Every transaction shall have two aspects (Debit & Credit) and debit aspect must be equal to credit aspect. Some important characteristics of General journal are listed below

1.    Journal is primary book.

2.    Two aspect of a transaction is recorded.

3.    Entries are recorded in chronological order.

4.    Special journal are used for high volume of transaction (Explained).

Special journal may be maintained for credit sales and credit purchases in large organizations due to high volume of transactions.  Total of such special journal is posted in General ledger (total credit purchase, total credit sales, total debtor account, total creditor account).

1.    Special Journal is maintained in addition to General journal.

2.    Special Journal totals are recorded in the General Ledger.

3.    Special Journal form part of Double entry system.

4.    Special Journal is maintained for high volume transactions like (Sales Journal)

2.   General Ledger:

A register which contains both individual accounts and total accounts of special journals is known as General ledger. It is important note that, when there is no special journal, then all account are maintained in General ledger, and there is no need of total account.

However, when special journal are maintained, then individual account of creditor and customer are not part of general ledger, instead the total accounts for debtor and creditor are maintained and individual accounts are maintained as memorandum account.

3.   Trial Balance:

Closing balance of General ledger is extracted in the form a report known as trial balance. This balance can be extracted any time, because it is a report, which can be extracted or prepared anytime. Trial balance provides a foundation for the preparation of financial statement. It is to be noted that trial balance extracted from General ledger may require some adjustment for doubtful debt, prepaid expenses, accruals etc.

1.    Trial balance extracted from General Ledger.

2.    Trial balance is summary of closing balances of General Ledger.

3.    Trial balance is a report, which is extracted from General Ledger.

4.    Trial balance may required  adjustment  (Depreciation ,accruals etc)

4.   Financial Statements:

Financial statement is prepared from the trial balance extracted from the General ledger. Like trial balance, financial statements are also reports and can be prepared any time; however, financial statement are prepared at least once in the financial year. Financial statements contain statement of financial position, statement of comprehensive income, statement of cash flows, and statement of changes in equity.