Question

Analyzing and Recording Transactions accounting system, Do debits represent positive numbers, and Debits and Credits are the foundation for recording tr credits negative? Why?f we record each transaction that occurs in the journal, why do we need to post each of them to the ledger? What is the significance of the ledger? Reply

Answer 1

Answer-

As we know, Debit and Credit are two basic Foundation to record transactions in accounting system.

a) Yes, Debit represents positive numbers and credit represents negative numbers. As debit represents the values of Assets, expenses and losses and Credit represents liabilities(loan) etc.

• For example- So, when we purchase the assets, it increases the debit balance of an account in positive numbers(On the asset side of Balance sheet) and On the other hand, when we sell those assets, it decreases the balance of an account (On Balance sheet).That's how Debit represents positive numbers and Credits represents negative numbers.

As, debit increases the value of assets and Credit decreases it.

b) It is an accounting process, which states that first, we have to journalise each transactions, then we should have to post it into ledgers and then third step, is to post each accounts balances into the correct side of trial balance and then last step is to make correct Balance sheet. This is all the steps to prepare financial reports.

So, it is importance and necessity of an accounting system, for posting each journalise transactions into ledgers and so on. For correct preparation of financial statements and reports.

c) Importance of Ledgers:-

• Ledger account shows detailed information about each account like debtors, creditors etc.  
• Ledger account keeps a permanent record of all the financial transactions in a classified way.
• Ledger account helps us to prepare trial balance and further financial statements.
• Ledger account helps us to prepare Profit and loss account to check the profit and loss of the firm.
• Ledger account also helps to prepare Balance sheet to ascertain the financial position of the firm.