Question

a)What is the relationship between the General Journal and the General Ledger? Define both and explain how they are used.

b) What are the steps in processing and recording business transactions?

c) Explain how a proper journal entry should be written.

d) What is the purpose of posting? How is it used?

Answer 1

a) A general journal is a book of original entry in which accountants and bookkeepers record business transactions according to dates of events occurred.

A general ledger tracks five prominent accounting items : assets, liabilities, owner's capital, revenue and expenses.

The relationship between these two, namely, Journal and Ledger is that they both are the basic books of double entry accounting system. Once the transactions are recorded in journals, they are classified in different accounts by referring the journal and each separate account is posted as a Ledger.

The entries made in the ledger have their sources in the journal. The journal as a book of first entry, has a greater weight as legal evidence than the ledger.

Journals and Ledgers are used as:

Journals are used to record the individual transactions and keep the record of all transactions date wise.

Ledger is used to maintain different accounts of various transactions and accordingly classifying all the transactions.

If further any problem arises because if transactions or the accounts are not matching, then these journals and ledgers can be viewed and rechecked.

b) Steps in processing and recording business transactions :

i) Identification of transactions : There are many transactions in the accounting cycle of a company. Every transaction which is of monetary value are recorded in the books of company in a chronological order of their occurance.

ii) Recording transactions in journals: All the transactions are classified and it is recognised that which transactions are affecting which account and accordingly they are recoded in journal. With double entry accounting, each transaction has a debit and a credit equal to each other. Single entry accounting is comparable to managing a checkbook. It gives a report of balances but does not require multiple entries.

iii) Posting to Ledger : Once the journal is recorded, it is now posted in Ledger. The general ledger provides a breakdown of all accounting activities by account.

iv) Unadjusted Trial balance : At the end of the accounting cycle, a trial baslace is prepared where credit balance should be equal to debit balance and now this will go fir testing and analysis.

v) Adjusting journal entries : Wherever it is required, adjustments should be made.

vi) Income statement and Profit and Loss Account : These are prepared which contain the incomes and losses incurred by the company and various expenses incurred by the company.

vii) Balance sheet and cash flow statements : These are financial statements. Balance sheet is a summary of financial balances of a company and a cash flow statement shows the changes in the balance sheet accounts and income on the income statement affect a company's cash position.

c) Steps of writing a proper journal entry :

i Every transaction should have a date according to which transactions are recorded. A coloum of date is prepared where dates are to be mentioned for each transaction.

ii All the transactions should have one debit and one credit. After writing date, accounts are recognised which are debited and credited. A coloum for writing debit and credit entry is made named 'Particulars'

iii The account which is being debited is mentioned above and 'dr' is added to it that signifies that this account is debited.

iv The account which is credited is mentioned below and it is self understood that if above account it debited then this account which is below must have been credited.

v Now two columns next to particulars is prepared :'debit amount' and ' credit amount', where we write the debit and credit amount respectively in front of their entries.

vi The balance of both the debit and credit side is matched. If they have equal balance means the journal entry is done correctly.

d) Posting is the act of moving credit and debit account balance from individual journal to their respective ledger.

It helps in recognising and preparing separate transactional records of different accounts. Whenever company nerds to collect information regarding a particular account, there is no need to study the whole journal and find the transactions of a particular account. We can easily open the ledger of that particular account and go through the transactions taking place in that account. It makes the work easy going.