Financial Accounting Lecture – 06

Learning Objective
• This lecture will cover following areas:
 An overview of the flow of transactions.
 An introduction to the basic books of accounts.
 The General Ledger, and
 The ledger balance

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Financial Accounting Lecture – 06
The Flow Of Transactions

Occurrence of an Event

The Voucher

General Journal

General Ledger Cash/Bank Book

Trial Balance Profit & Loss Account Balance Sheet

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Financial Accounting Lecture – 06
The Voucher

Occurrence of an Event

The Voucher

• Voucher is a document in a specific format that records the

details of a transaction.
• It is accompanied by the evidence of transaction.

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Financial Accounting Lecture – 06
A Sample Voucher

Name Of Company
Type Of Voucher
Date: 1-1-20-- No: 01
Description Code Debit Credit
# Amount Amount
Cash 01 100,000
Capital 02 100,000

Total: 100,000 100,000

Narration: Capital Introduced in Cash by Owner
Prepared By: Checked by:

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Financial Accounting Lecture – 06
The General Journal

General Journal

• The Journal used to be a chronological (day-to-day) record

of business transactions. All vouchers were first recorded in
books.
• It was also called the Book of Original Entry or Day Book.
• But in present day accounting and specially with the
introduction of computers for accounting this book is not in
use any more.
• We will therefore not study the use of Journal in detail but
we should know that it is a book that keeps day-to-day
record of transactions.

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Financial Accounting Lecture – 06
The Present Day Flow Of Transactions

Occurrence of an Event

The Voucher

General Journal

General Ledger Cash/Bank Book

Trial Balance Profit & Loss Account Balance Sheet

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Financial Accounting Lecture – 06
General Ledger – The ‘T’ Account
• Ledger – is a book that keeps separate record for each
account (Book of Accounts).
• We know that Account or Head of Account is systematic
record of transactions of one type.
• An account in its simplest form is a T-shape and looks like
this:

Title of Account

Left hand side. Right hand side.

A ‘T’ account
The Debit side. The Credit side.

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Financial Accounting Lecture – 06
A Standard General Ledger
• Since the ledger keeps record of transactions that effect one
head of account, therefore, it should provide all the
information that a user may need.
• Usually the ledger is required to provide following
information:
 Title of account

 Ledger page number, called Ledger Folio / Account

Code
 Date of transaction

 Voucher number

 Narration / particulars of transition

 Amount of transaction

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 Financial Accounting Lecture – 06
A Standard General Ledger

Capital Account (Title of Account) Account Code 02

Date Voucher Particulars / Debit Credit
Number Narration Amount Amount
20--
Jan 01 01 Capital Introduced in cash by Owner 100,000

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Financial Accounting Lecture – 06
Recording From Voucher To General Ledger

Voucher
Date: 1-1-20-- No: 01
Description Code Debit Credit
# Amount Amount
Cash 01 100,000
Capital 02 100,000
Narration: Capital Introduced in Cash by Owner

Capital Account (Title of Account) Account code 02

Date Voucher Particulars / Debit Credit
Number Narration Amount Amount
20--
Jan 01 01 Capital Introduced in cash by Owner 100,000

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Financial Accounting Lecture – 06
Completing The Recording – Both Effects
V
Description Code Debit Credit
O
# Amount Amount
U
Cash 01 100,000 C
Capital 02 100,000 H
E
Narration: Capital Introduced in Cash by Owner R
Capital Account Account Code 02
Date Voucher Particulars / Debit Credit
Number Narration Amount Amount
20-- L
Jan 01 01 Capital Introduced in cash by Owner 100,000 E
D
Cash Account Account Code 01 G
Date Voucher Particulars / Debit Credit E
Number Narration Amount Amount R

20--
Jan 01 01 Capital Introduced in cash by Owner 100,000
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Financial Accounting Lecture – 06
A Simple Presentation Of A Recorded Transaction

Cash Account Code 01

Capital 100,000

Capital Account Code 02

Cash 100,000

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Financial Accounting Lecture – 06
The Ledger Balance
• In the earlier lecture we discussed that in order to have the
total figure in respect of each head of expense/income,
asset/liability we need to maintain different accounts.
• We had also said that each account may have figures on the
debit as well as the credit side.
• Therefore, the difference between the debit and the credit
sides, known as the BALANCE, would represent the
required total of the particular account.
• The total all balances on the Debit side is ALWAYS equal
to the total of all balances on the Credit side. This is called
the balancing of books of accounts. We will study about
this concept at a later stage.
• The balance may be written out after every transaction in a
third column or calculated at the end of a specific time
period (an accounting period).
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 Financial Accounting Lecture – 06
The Ledger Balance
•A Debit balance is shown without brackets and a Credit
balance in brackets (XYZ).
Cash Account Account Code 01
Date Voucher Narration / Debit Credit Balance
Number Particulars Amount Amount Dr/(Cr)
20--
Jan 01 01 Capital Introduced in cash by Owner 100,000 100,000
Jan 01 02 Cash Paid for Purchase of Building 50,000 50,000
Jan 02 03 Cash Paid for Purchase of Furniture 10,000 40,000

Capital Account Account Code 02

Date Voucher Narration / Debit Credit Balance
Number Particulars Amount Amount Dr/(Cr)
20--
Jan 01 01 Capital Introduced in cash by Owner 100,000 (100,000)
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