The following are the objectives of ledger:-
1. To provides information about incomes and expenditures- For each head of expenditure and each income, a separate account is opened.It helps to know the amount spent and the incomes on different expenditure and income heads respectively.
2. To provide information about the position of assets and liabilities- A separate ledger account is prepared for the individual asset and liability which helps to know its effect on financial position of business during a particular period.
3. To provide information regarding the purchase and sales- A business firm can have several purchases and sales. A purchase account is prepared to know the total purchase made duriing the period and similarly, sales account is prepared to know the total sales during the period.
4. To help in th preparation of trial balance- Trial balance is prepared on the basis of information provided by the ledger account. So, ledger account is immense help for preparing trial balance.
Wednesday, June 9, 2010
Ledger
Introduction and meaning
The records of transactions in the journal may run into thousands of pages and it may be difficult to find out the details about a particular transaction. It doesnot provide the information about the details about the position of a particular account. So, to find these transactions easily, all transactions of the same nature are grouped into one place. This is done by opening accounts in a book called "ledger". So, a ledger is a statement prepared to collect and record transactions re;ating to similar nature or subject into one place. It is a book of secondary entry because it is prepared from journal. When any transactions occur, a recording is made in the journal and then it is re-recorded in the ledger.This process of re-recording is known as posting.
The records of transactions in the journal may run into thousands of pages and it may be difficult to find out the details about a particular transaction. It doesnot provide the information about the details about the position of a particular account. So, to find these transactions easily, all transactions of the same nature are grouped into one place. This is done by opening accounts in a book called "ledger". So, a ledger is a statement prepared to collect and record transactions re;ating to similar nature or subject into one place. It is a book of secondary entry because it is prepared from journal. When any transactions occur, a recording is made in the journal and then it is re-recorded in the ledger.This process of re-recording is known as posting.
Wednesday, June 2, 2010
Modern concept of recording financial transactions
Modern concept of recording financial transactions
Under this concept, any increase or decrease in assets, liabilities, capital, revenue, expenses or losses is examined.
Assets are the properties of the business organization which are not for resale purpose. It includes cash, plant and machinery, land and building,etc.
Liabilities are the economic obligations of business firm that have been incurred as a result of transaction which can be measured in monetary term. It includes loans, debentures,bills payable, creditors,etc.
Capital is the amount invested in a business by the proprietor. It is considered as a liability.
Revenue is the amount received from customers for the transfer of goods or services regularly during a period of time.It includes the amount received from the sale of trading goods, rent, commission, interest,etc.
Expenses are those costs, which are incurred to produce and sell goods or services like purchase of material, payment of salary, etc. Loss is occurred when expenses exceed the incomes.
The rules of debit and credit for the five types of transactions are:
Increase in assets: debited and decrease in assets: credited
Increase in liability: credited and decrease in liability: debited
Increase in capital: credited and decrease in capital: debited
Increase in revenue: credited and decrease in revenue: debited
Increase in expenses or losses: debited and decrease in expenses or losses: credited
Under this concept, any increase or decrease in assets, liabilities, capital, revenue, expenses or losses is examined.
Assets are the properties of the business organization which are not for resale purpose. It includes cash, plant and machinery, land and building,etc.
Liabilities are the economic obligations of business firm that have been incurred as a result of transaction which can be measured in monetary term. It includes loans, debentures,bills payable, creditors,etc.
Capital is the amount invested in a business by the proprietor. It is considered as a liability.
Revenue is the amount received from customers for the transfer of goods or services regularly during a period of time.It includes the amount received from the sale of trading goods, rent, commission, interest,etc.
Expenses are those costs, which are incurred to produce and sell goods or services like purchase of material, payment of salary, etc. Loss is occurred when expenses exceed the incomes.
The rules of debit and credit for the five types of transactions are:
Increase in assets: debited and decrease in assets: credited
Increase in liability: credited and decrease in liability: debited
Increase in capital: credited and decrease in capital: debited
Increase in revenue: credited and decrease in revenue: debited
Increase in expenses or losses: debited and decrease in expenses or losses: credited