Question

1. What is the difference between the Journal and the Ledger? Why is each important?

2. Do the terms debit and credit signify increase or decrease or can they signify either? Explain

Answer 1

1. Journal entry is the first step for recording a transaction. Whenever a transaction takes place, a journal entry is recorded. In simple terms the difference between journal and ledger is that, when a journal entry is recorded, the accounts used to credit and debit will never be the same. Different accounts will be used in credit and debit. All the transaction relating a specific account can be found in ledger. Example - All the cash transaction taken place will be found in cash ledger.

Journal and ledger is a very important in accounting because these are the basis on which financial statements of an entity are prepared.

All the transactions irrespective of income, expenses, assets, liability etc.. are recorded in journal.

All the transaction relating to a specific account can be found in that accounts ledger.

2. In accounting there are three accounts. Real, personal and nominal accounts.

For a Real account - Debit means increase and Credit means decrease.

For a presonal account - Debit the person to whom any amount is given or receivable, Credit the person if any amount is taken or payable.

For a nominal account - Debit the expense and Credit the income.

Before passing a journal entry, we should know the account.

A account will be treated as a Real account when we can see, touch, feel, buy and sell. Example - Shares of a company cannot be seen but can be purchased and sold is a Real account. Cash, Equipment etc.. are assets.

An account will be personal when amount is payable or receivable from them. Example - Accounts payable, Accounts receivable, Salaries payable, Rent payable etc..

An account will be treated as nominal account which is an income or expense. Example - Service revenues, Rent expenses, Salaries expense etc..