Recording of Transactions - I
Bills that provide evidence of a transaction are called source documents. On the basis of the source documents, entries are first recorded on the vouchers and then on the basis of the vouchers, entries are made in Journal. Accounting equation means assets is equal to liabilities plus capital. Each transaction affects changes in assets, liabilities or capital in such a way that an accounting equation is completed and equated. Balance Sheet is the statement of Assets, Liabilities and Capital. Left hand side records sources of funds (liabilities), while right hand side records application of funds (Assets). Book of original entry is the book in which the transaction is recorded for the first time from the source document. A Journal is a book where transactions are recorded from the source document in a chronological order. There are three types of accounts viz. real account, nominal account and personal account. The rule of real account is debit what comes in and credit what goes out. The rule of personal account is, debit the giver and credit the receiver. The rule nominal account is debit all expenses and losses and credit all profits and gains.
Process of journalising include, identifying the affected accounts, recognising the kinds of affected accounts and applying the rules of debit and credit. Increase in assets and expenses are debited, while decreases are credited. Increase in liabilities, capital and income are credited, while decreases are debited. A ledger is collection of all the accounts debited or credited in the journal. Posting is the process of transferring all the entries from journal to the ledger. Balancing of ledger account is the process of equalising the two sides of an account.