Journal, Ledger and Trial balance

Accounting Procedures
This module describes some of the accounting
procedures that are used in practice.
Mechanical means that makes it easier to record and
summarize transactions.
Manual and computer based systems.
Basic steps are the same.
Account
Account is a device used of calculating the net change
of an item
T account
T account
 Debit Credit rules
Debit = Credit
Assets = Liabilities + Owners Equity
Assets=Liabilities+(Capital-withdrawals+Revenue-Exp)
Assets+withdrawals+Exp= Liabilities+Capital+Revenue
Normal balance
Debit Credit
Assets Liabilities
Expenses Owners Equity
Withdrawals Capital
Revenues
Normal balance
Increases same as normal balance
Decreases Opposite of normal balance
Rules of debit and credit
Debit [dr.] and Credit [cr.] denote entry on left side
and right side of an account.
No value connotations.
Increase in assets Debit
Decrease in assets Credit
Increase in Liabilities and OE Credit
Decrease in Liabilities and OE Debit
Rules of Debit and Credit
Revenues Credit
Expenses Debit
Dividends Debit
Drawings Debit
Recording Process
Transaction ---------Documentation-----------Journal-----
-Ledger---------Trial balance---------Financial
statements.
Journal is a chronological record of transactions.
Ledger contains the records for a group of related
accounts.
Trial balance is a list of all the accounts with their
balances.
Permanent or Real Accounts
The accounts maintained for the various items on the
balance sheet.
Balances in these accounts are reported in the balance
sheet as of the end of the period.
The year end balances in the permanent account are
carried forward into the next accounting period as the
beginning balance.
Temporary or Nominal Accounts
Revenue and expenses increases and decreases
retained earnings respectively.
Though they can be directly entered in the retained
earnings account , this is not done in practice.
To avoid cluttering/ intermingling of various items, a
temporary account is maintained for each revenue and
expense item that will appear in the income statement.
These accounts are closed every year
Chart of accounts
The accounts included in a companys system are listed
in a chart of accounts.
For most items, there are detailed accounts and there
may be several levels of this detail
For quick and easy reference , accounts are usually
numbered or coded.