Short Notes: Recording of Transactions - I | Accountancy Class 11 - Commerce PDF Download

Introduction

Accounting involves identifying, analysing, recording, classifying, summarising, and communicating financial transactions.

• Identify transactions using source documents.
• Record transactions in the journal (primary book).
• Post journal entries to the ledger (main book).
• Classify and summarise to prepare financial statements.
• Communicate results to stakeholders.

Business Transactions and Source Documents

• Business Transactions: Economic exchanges with a dual effect (e.g., buying a computer for cash affects cash and computer accounts).
• Source Documents: Evidence like cash memos, invoices, cheques, or salary slips; arranged chronologically and numbered.
• Vouchers: Documents proving transactions, prepared for petty expenses if no evidence exists, approved by authority.
• Recordings in books of account are based on vouchers/source documents.

Accounting Vouchers

• Cash Vouchers: For cash transactions.
• Debit Vouchers: Record amounts to be debited.
• Credit Vouchers: Record amounts to be credited.
• Journal Vouchers: For adjustments/non-cash transactions.
• Compound Vouchers: Multiple debits/credits (e.g., debit voucher: multiple debits, one credit).

• Good-quality paper, firm’s name, transaction date, voucher number.
• Account names, amounts, transaction description, preparer/authorised signatures.

• No fixed format; varies by business needs, often uses different colors/fonts.

Accounting Equation

• Represents: Assets (A) = Liabilities (L) + Capital (C).
• Rearranged: A – L = C or A – C = L.
• Also called Balance Sheet Equation, as assets equal liabilities plus capital.
• Example: Rohit starts business with ₹5,00,000 cash; assets (₹5,00,000) = capital (₹5,00,000).
• Profits increase capital; losses decrease it.

Debit and Credit Rules

• Double-Entry System: Every transaction affects two accounts; total debits equal total credits.
• T-Account: Left side (debit or Dr) records increases; right side (credit or Cr) records decreases.

• Assets/Expenses: Increase (Debit), Decrease (Credit).
• Liabilities/Capital/Revenues: Increase (Credit), Decrease (Debit).

Example: Cash purchase of goods debits Purchases (expense), credits Cash (asset).

Journal

• Journal: Primary book for recording transactions chronologically.
• Format: Includes date, accounts (debit/credit), amounts, narration, ledger folio.
• Simple Entry: Two accounts (e.g., credit purchase: debit Purchases, credit Creditor).
• Compound Entry: Multiple accounts (e.g., furniture purchase: debit Furniture, credit Cash/Creditor).
• Subdivided into Journal Proper, Cash Book, Purchases/Sales Books, etc.

Ledger

• Ledger: Main book where transactions are posted from journal to individual accounts.
• Utility: Shows net result of transactions for an account (e.g., customer/supplier balances).
• Format: T-account with Dr./Cr. sides, date, particulars, journal folio, amount.
• Posting: Transferring journal entries to ledger accounts, done periodically.
• Classification:
  1. Permanent Accounts: Assets, liabilities, capital (carried forward).
  2. Temporary Accounts: Revenues, expenses (closed at period end).

Accounting Entries under GST

• GST (CGST/SGST @ 5%): Recorded for transactions like purchases, sales, expenses.
• Example: Purchase ₹1,00,000 on credit; debit Purchases ₹1,00,000, Input CGST/SGST ₹5,000 each, credit Creditor ₹1,10,000.
• Net GST payable calculated as Output GST minus Input GST (e.g., ₹6,750 - ₹6,000 = ₹750 each for CGST/SGST).