Financial Accounting 1 Lecture – 06 Learning Objective This lecture will cover following areas: An overview of the flow of transactions. An introduction to the basic books of accounts. The General Ledger, and The ledger balance

Financial Accounting 2 Lecture – 06 The Flow Of Transactions General Journal General Ledger Cash/Bank Book Trial Balance Profit & Loss AccountBalance Sheet The Voucher Occurrence of an Event

Financial Accounting 3 Lecture – 06 The Voucher Occurrence of an Event Voucher is a document in a specific format that records the details of a transaction. It is accompanied by the evidence of transaction.

Financial Accounting 4 Lecture – 06 A Sample Voucher Name Of Company Type Of Voucher Date: No: 01 DescriptionCode # Debit Amount Credit Amount Cash01100,000 Capital02100,000 Total:100,000 Narration:Capital Introduced in Cash by Owner Prepared By:Checked by:

Financial Accounting 5 Lecture – 06 The General Journal The Journal used to be a chronological (day-to-day) record of business transactions. All vouchers were first recorded in books. It was also called the Book of Original Entry or Day Book. But in present day accounting and specially with the introduction of computers for accounting this book is not in use any more. We will therefore not study the use of Journal in detail but we should know that it is a book that keeps day-to-day record of transactions. General Journal

Financial Accounting 6 Lecture – 06 The Present Day Flow Of Transactions General Journal Trial Balance Profit & Loss AccountBalance Sheet The Voucher Occurrence of an Event General Ledger Cash/Bank Book

Financial Accounting 7 Lecture – 06 General Ledger – The ‘T’ Account Ledger – is a book that keeps separate record for each account (Book of Accounts). We know that Account or Head of Account is systematic record of transactions of one type. An account in its simplest form is a T-shape and looks like this: Title of Account Left hand side. The Debit side. Right hand side. The Credit side. A ‘T’ account

Financial Accounting 8 Lecture – 06 A Standard General Ledger Since the ledger keeps record of transactions that effect one head of account, therefore, it should provide all the information that a user may need. Usually the ledger is required to provide following information: Title of account Ledger page number, called Ledger Folio / Account Code Date of transaction Voucher number Narration / particulars of transition Amount of transaction

Financial Accounting 9 Lecture – 06 A Standard General Ledger Capital Account (Title of Account)Account Code 02 DateVoucher Number Particulars / Narration Debit Amount Credit Amount 20-- Jan 0101Capital Introduced in cash by Owner100,000

Financial Accounting 10 Lecture – 06 Recording From Voucher To General Ledger Voucher Date: No: 01 DescriptionCode # Debit Amount Credit Amount Cash01100,000 Capital02100,000 Narration:Capital Introduced in Cash by Owner Capital Account (Title of Account)Account code 02 DateVoucher Number Particulars / Narration Debit Amount Credit Amount 20-- Jan 0101Capital Introduced in cash by Owner100,000

Financial Accounting 11 Lecture – 06 Completing The Recording – Both Effects DescriptionCode # Debit Amount Credit Amount Cash01100,000 Capital02100,000 Narration:Capital Introduced in Cash by Owner Cash AccountAccount Code 01 DateVoucher Number Particulars / Narration Debit Amount Credit Amount 20-- Jan 0101Capital Introduced in cash by Owner100,000 Capital AccountAccount Code 02 DateVoucher Number Particulars / Narration Debit Amount Credit Amount 20-- Jan 0101Capital Introduced in cash by Owner100,000 VOUCHERVOUCHER LEDGERLEDGER

Financial Accounting 12 Lecture – 06 A Simple Presentation Of A Recorded Transaction Capital AccountCode 02 Cash100,000 Cash AccountCode 01 Capital100,000

Financial Accounting 13 Lecture – 06 The Ledger Balance In the earlier lecture we discussed that in order to have the total figure in respect of each head of expense/income, asset/liability we need to maintain different accounts. We had also said that each account may have figures on the debit as well as the credit side. Therefore, the difference between the debit and the credit sides, known as the BALANCE, would represent the required total of the particular account. The total all balances on the Debit side is ALWAYS equal to the total of all balances on the Credit side. This is called the balancing of books of accounts. We will study about this concept at a later stage. The balance may be written out after every transaction in a third column or calculated at the end of a specific time period (an accounting period).

Financial Accounting 14 Lecture – 06 The Ledger Balance Cash AccountAccount Code 01 DateVoucher Number Narration / Particulars Debit Amount Credit Amount Balance Dr/(Cr) 20-- Jan 0101 Capital Introduced in cash by Owner 100,000 Jan 0102 Cash Paid for Purchase of Building 50,000 Jan 0203 Cash Paid for Purchase of Furniture 10,00040,000 A Debit balance is shown without brackets and a Credit balance in brackets (XYZ). Capital AccountAccount Code 02 DateVoucher Number Narration / Particulars Debit Amount Credit Amount Balance Dr/(Cr) 20-- Jan 0101 Capital Introduced in cash by Owner 100,000(100,000)