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Wednesday, July 21, 2010

Advantages of subsidiary book

The following are the advantages of subsidiary book :-
1) It enables the division of work among accounting personnel by assigning with separate books and it increases efficiency of personnel as they perform same activities daily.

2)It helps to save time and labor by recording similar type of transactions in a separate book.

3)It becomes easy to access the detailed information relating to a particular transaction as the transactions relating to one head are recorded in a separate book.

4) It helps to install internal check system as the subsidiary book maintained by a clerk is automatically checked by another clerk.

5) It helps to maintain accounts and thus avoids the necessity of journal entries.

6) The existence of separate books help in the detection of errors quickly in case of disagreement of trial balance..

Tuesday, July 20, 2010

Subsidiary Books

Meaning
There are numerous transactions which occur so many times in a day. It is inadequate and inconvenient to record the transaction in the book of original entry i.e. journal. Every transaction recorded in journal becomes thick, bulky, tedious and consumes more time, labour and money. So the transactions which are of repetitive nature are recorded in a separate book through special journal. Such separate book of original entry, maintained for recording the similar and repetitive types of transactions is known as subsidiary books. Also known as sub-journal or sub- division of journal, this book includes purchase book, sales book, purchase return book, sales return book and cash book.

Wednesday, June 9, 2010

Objectives of Ledger

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.

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.

Wednesday, June 2, 2010

Modern concept of recording financial transactions

modern concepts 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

Wednesday, May 26, 2010

Traditional concept of recording financial transactions

Traditional concept of recording financial transactions
There are two concepts available for recording financial transactions. They are:

1. Traditional concepts
2. Modern concepts
Traditional concepts- Under this concept, transactions are recorded by classifying accounts into three accounts which are personal accounts, real accounts and nominal accounts. In personal accounts, the transactions relating to persons, firms, organization, etc. are recorded. It's examples are Ram account, debtor's account, creditor's account, Himalayan co. ltd account,etc. The rules of debit and credit for it are
debit: the receiver and credit: the giver.
In real accounts, transactions relating to assets or properties are recorded. It's examples are machinery account, goodwill account, furniture account, Cash account, Bank account, etc. The rules of debit and credit for it are
debit: what comes in and credit: what goes out.
In nominal accounts, transactions relating to expenses, incomes, losses or gains are recorded.It's examples are salary account, rent account, commission account, Wages account, etc.The rules of debit and credit for this account are
debit: all expenditures and losses and credit: all incomes and gains.

Tuesday, May 18, 2010

Journalising and rules of journalising

Journalising
Journalising is a systematic process of recording financial transaction. Such recording are made in terms of debit and credit. In it, financial transactions are recorded in the original book.
Rules of journalising
Every financial transaction of a business organization has dual effect.It means that every financial transaction of a business involves at least two accounts. One account is debited and the other account is credited.
Before journalising a transaction, following three steps must be borne in mind.
1. Firstly, we need to find out the two aspects or two fold effects of a transaction.
2. Secondly, we need to identify the accounts whether they are personal, real or nominal accounts.
3. Finally, we need to use the rules of debit and credit.
There are two concept available for recording financial transactions of business organization. They are:- Traditional concepts and moder concept. Traditional concept of journalising is also known as British Approach and modern concept of journalising is also known as American Approach.