Page 25 - DMGT104_FINANCIAL_ACCOUNTING

Unit 1: Introduction to Accounting

Journal Notes

The journal is used for recording all transactions which cannot be recorded in the Cash Book.
Sometimes it is supported by some subsidiary books e.g. Purchase Book, Sales Register, etc.

General Ledger

The General Ledger contains all the accounts of an enterprise. Since the final information
pertaining to the financial position of a business emerges only from accounts and, therefore, the
Ledger is also called the Principal Book.

Trial Balance

In accounts every amount that is placed on the debit side of an account must have a corresponding
entry on the credit side of some other account. This is the technical aspect of the principle of double
entry system. This being the case, it is but natural that the total of all debit balances should agree
with the total of all credit balances. In fact, all businesses periodically tabulate the debit and credit
balances separately in a statement to see whether the total of debit balances agrees with the total
of credit balances or not. Such a statement is known as Trial Balance. The accountant heaves a sigh
of relief when the Trial Balance drawn by him tallies because it is a good proof that the ledger has
been correctly written up. However, it is not a conclusive proof of accuracy.

Profit and Loss Account

This is prepared to see the loss incurred or profit earned by an enterprise within specific period.
This is usually made on a yearly basis.

Balance Sheet

The Balance Sheet is a statement summarizing the financial position of a business on a given
date. It summaries on the right hand side the assets of the business and on the left hand side the
liabilities of the business including what the business owes to the proprietor viz., the capital
invested by him. The total of all the assets must be equal to the total of all the liabilities.

So an accountant has to write the cash book and journal first, and then post all those entries
written in cash book and journal to general ledger. Then he prepares the Trial Balance – the most
difficult job. After this he prepares the Profit & Loss Account and Balance Sheet. He also has to
reconcile the banks, prepares other report like sale register, inventory position, list of debtors
and creditors, purchase and sales returns etc. Doing all this work manually not only requires lot
of patience but it is a time consuming and very much laborious job.

Self Assessment

17. The …………………… is used for recording all transactions which cannot be recorded in
the Cash Book.

18. The …………………… contains all the accounts of an enterprise.
19. …………………… was used to record all cash and bank related transactions.

1.7 Accounting Cycle

Accounting Cycle starts from recording individual transactions in the books of accounting and
ends at the preparation of financial statements and closing process. The financial accounting
cycle is the process of recording business transactions and processing accounting data to generate

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