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.

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.

Objectives and Types of Journal

The objectives of journal are :-
1. To record the financial transactions in a systematic way.
2. To show necessary information of the transactions.
3. To provide legal evidences of business.
4. To provide date wise record of transactions.
5. To help in the preparation of ledger accounts.

The types of journal are:-
1. General Journal
2. Special Journal
General journal records all types of business transactions in systematic,scientific and sequential order. It is used when the nonmember of transaction is limited and manageable in a single book. Normally, the term 'journal' is referred as general journal.
On the other hand, in large organization , it may not be possible to record the transactions as
and when they occur because of voluminous transactions. Therefore, these business houses divide journal into several division depending upon the need. For example, purchase book is maintained for the goods purchased on credit, sales book is maintained for the goods sold on credit, cash book is used for recording cash and banking transactions and so on. Thus, journal is divided into several books requiring separate persons. Such books as Purchase Book, Cash Book, etc. are called special journal.

Books of original entry

Journal
Journal is a book which records every financial transaction of business organization. The financial transactions are firstly recorded into journal in chronological order. It is known as "Book of original entry ." Journal is a book of prime or original entry in which all the transactions pf a business are systematically recorded according to their dates of occurrence and is maintained with a view to help prepare the subsequent ledger book.
Journal is derived from the word 'jour' which means a diary or long book i.e. daily books. Journal can be defined as a book which records financial transactions of each day based on the principle of double entry book keeping.
According to R.N. Carter, 'The journal' or 'daily record' as originally used was a book of prime entry inn which transactions were copied in order of date from a memorandum or waste book. The
entries as they were copied, were classified into debits and credits, so as to facilities their beings correctly posted afterward in the ledger.'

Meaning and Features of Single Entry Book keeping System

Meaning of Single Entry Book Keeping System
Under single entry book keeping system, only one aspect of a transaction is recorded, so it is known as incomplete system of recording transactions. Under it only records of cash and personal accounts are maintained. In it, accounts relating to debtors , creditors and cash are prepared. It ignores all impersonal account like salaries, wages, sales, purchases,etc. It maintains a cash book and personal accounts but does not record nominal and real accounts. It is not a reliable system but it is still used by small organizations to keep the records of transactions.

Features of Single Entry Book Keeping System
1. It maintains only accounts relating to person but it ignores the real and nominal accounts.
2. It prepares the cash book but both personal and business cash transactions are recorded in the same book.
3. It is suitable to small traders having lesser numbers having lesser number of transactions.
4. It lacks the specific rules of maintaining books of accounts as a result there is no uniformity in accounts of
different firms.
5. Trial balance cannot be prepared under this system.
6. The profit or loss calculated under this system is only a guess.

Advantages of Double Entry Book Keeping System

The following are the advantages of double entry book keeping system:
1. Complete records of each transaction- It keeps the records of personal accounts relating to debtors and creditors as well as impersonal accounts relating to goods, profits, losses,etc. Thus, all the information regarding purchases, sales, expenses, incomes, profits, losses, debtors, creditors, etc. are available in this system.
2. Checking of arithmetical accuracy- Under this system, there is every debit amount for a credit amount, as a result, the total of all debits and all credits is equal. It can be tested by the preparation of trial balance from the ledger
balances. It helps to prevent frauds and manipulations.
3. Result of business- Since it keeps a complete records of business transactions, it is possible to determine the net profit earned or net loss suffered by the preparation of profit and loss account and income and expenditure account during the year.
4. Knowledge of financial position- It helps to know about the capital, liabilities and assets of a firm with the help of balance sheet prepared immediately after trading and profit and loss accounts. Moreover, it also helps to ascertain the amount of debtors and creditors.