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Recording of Transactions

Source Documents

Various business documents such as invoice, bills, cash mimeos, vouchers, which form the basis and evidence of business transactions recorded in the books of account are called source documents.

Double Entry System

A system of accounting in which every transaction affects at least two accounts on the opposite sides.

Accounting Equation

A statement of equality between debits and credits signifying that the assets of a business are always equal to the total of liabilities and owners equity.

Rules of Debit And Credit

An account is divided into two sides. The left side of an account is known as Debit and the right side is known as Credit. The rules fo Debit and Credit depend on the nature of an account. Debit and Credit both may represent either increase of decrease, depending on the nature of an account. These rules are summarized below:

Books of Original Entry

Those books in which a transaction is recorded for the first time from a source document. The following are the important books of original entry:

(i)    Journal. Basic book of original entry.
(ii)    Cash Book. A book used to record all cash receipts and payments.
(iii)    Petty Cash Books. A book used to record small cash payments.
(iv)    Purchases Journal. A special Journal (day book) in which returns of  merchandise purchased on credit are recorded.
(v)    Sales Journal. A special journal (day book) in which only credit sales are recorded.
(vi)    Purchases Return Journal. A special Journal (day book) in which return of merchandise purchased on credit are recorded.
(vii)    Sales Return Journal. A special journal ( day ook) in which returns of merchandise sold on credit are recorded.


A book containing all the accounts to which entries are transferred from the books of original entry

Posting- A process of transferring entries from books of original entry to the ledger.

Balancing of account- Ascertaining the balance of an account after totaling all the debits and credits for a given period.

Bank Reconciliation Statement

A statement prepared to reconcile the bank balance as per cash book with the balance as per bank pass book or statement, By showing the items of difference between the two accounts.

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