Journal, Ledger and Trial balance Chapter No.1
What is accounting?
“Accounting is act of Recording, classifying, Summarizing and interpreting the monetary transactions.
What is bookkeeping?
“Book keeping is the act of Recording Monetary transactions in the books of account.”
Define business?
Any legal activity undertaken for the purpose of earning profit is called business
e.g General Store, Book shop.
Define proprietor
“The owner of business who actually INVEST
money in business.”
money in business.”
e.g Mr. ASAD started a business, Mr. ASAD is Proprietor of the business.
Define capital?
“INVESTMENT by the owner of business to start a business”
by the owner of business to start a business”
e.g Mr. ASAD started a business with Rs.100000, Rs. 100000 is his Capital.
What is drawing?
“The cash or goods taken away by the proprietor from the business are called drawings”
What is transaction?
“Any dealing between two persons or things is called transaction”
Mr. ASAD sales goods to Mr. Ishaq at certain price is called transaction between Mr.ASAD and Mr. Ishaq
Define double entry system?
A system in which we consider both aspects (Dr and Cr) of transactions.
What is trade discount?
“A Trade discount is allowed by the manufacturer or the wholesaler on the list price/Retail price of goods or services from one party to other party.”
What is cash discount?
Any Deduction which is allowed by the seller to the purchaser at the time of Payment is called cash Discount.”
What is sale?
“When goods are sold to customer at specific price called sale”
e.g when books sold by book shop to students
What is sale return/return inward?
“When goods are returned by customer to Business recorded in sales return book”
What are purchases?
“When goods are purchased by business for selling purpose are called purchases”
e.g books purchased by book shop for sales.
Types of Purchases
1. Cash Purchases
“When goods are purchased by business for selling purpose on credit are called Cash Purchases”
2. Credit Purchases
When goods are purchased by business for selling purpose on Cash are called Credit Purchases”
What is purchases return/return outward?
“When Goods returned by Business to supplier is called purchases return due to any defects are purchased return.”
What is account?
“A summarized record of business transactions relating to a person or a thing.”
What are assets?
“Assets are Economic resources of business are called assets of business.”
(Cash. Account receivable and debtors)
Define liabilities?
“Any kind of debts of business is liabilities”
e.g (Account Payable, creditors)
What is account equation?
“Assets = Liabilities + Capital (Owner’s Equity)”
Define debtors or Account Receivables?
“A Person to whom goods are sold on credit, it is consider as assets of the business”
e.g Mr.A Sold Goods to B for Rs. 10000, B is Debtors from A Point of View.
Define creditors or Account Payable?
“A Person who sold the goods on credit and to whom Money is Payable (Due), it is consider as Liability of the business”
e.g Mr.A Sold Goods to B for Rs. 10000, A is Creditors from B Point of View.
What is commission?
“It is a form of remuneration for services rendered by one person to another”
What is difference between double entry system and single entry system?
“A system in which we follow two folded aspects (debit and credit) of entry is called double entry system one is debit (Dr) and other is credit (Cr)”
“A system in which we follow only one aspect (debit or credit) is called single entry system. It is only partial record of small business”
What are dual aspect concepts?
“Dual aspect concepts may be stated as for every debit there is a credit, and for every credit there is a debit.”
How many kinds of account?
The two types of account
- Personal account
- Impersonal account
- Real account or property account
- Nominal account
What are personal accounts?
“Accounts relating to person or firms are called personal accounts.”
e.g Like ahmed account, bank alfalah.
What are real accounts?
“All those account which keep record of properties or things owned by a trader are called real accounts.”
e.g building account, furniture account
What are nominal accounts?
Nominal accounts are for those that record income, expenses, gains and losses “
e.g such as Discount account, Salaries, Rent, Repair account.
What is journal/Book of original entry?
“The book of accounts in which business transactions are originally recorded in chronological order is called journal.”
Define narration?
“A short explanation of each transaction in journal in written end of each entry which is called. “
What is journalizing?
“The act of recording transaction in journal in called journalizing.”
What in compound entry?
“The entry which involve only one debit and only one credit is called simple entry.”
What in compound entry?
“The entry in which more than one account is debited or credited is known as compound entry.”
What is ledger?
“A book in which all the transactions of a business concern are finally recorded in the concerned accounts in summarized and classified form is called ledger.”
Explain the term balance?
“The process of equalizing the two side of account is known as balancing.”
Sketch the standard form of ledger account?
Dr Cr
Date
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Particulars
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Folio
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Amount
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Date
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Particulars
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Folio
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Date
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Define zero balance?
“If the two sides of an account are equal the account will show zero balance.”
Define Debit balance?
“Debit balance meant where total of debit side exceeds than credit side is written on credit side of account.
Define Credit balance?
“Credit balance meant where total of credit side exceeds than credit side is written on debit side of account”
What is trial balance?
“An accounting schedule that lists the ledger account balance at a point in time and total of debit balances is equal to the total of credit balance.”
Define the term merchandise?
“Merchandise are the Goods which are purchased by business for selling.”
e.g Books purchased by Shopkeeper are the Merchandise for the business.
What is inventory?
“Goods on hand those remaining unsold at the end of the year is also called stock.”
e.g Book Remain unsold at the end of the year called stock or ending inventory.
Define bank?
“A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save in the form of deposits and it lends money to those who need it.”
.What is cheque?
“A cheque is unconditional order in writing drawn by customer on his bank, requesting to pay on demand certain sum of money.”
How many kinds of cheques?
Bearer cheques is one on which “bearer” is written after the name of payee. It is payable to bearer.
Order cheques is one on which “order “ is written after the name of payee. It is payable to person whose name is written before order.
Crossed cheques when two parallel line are drawn on the side of cheque is payable only through a collecting banker and not directly at the counter of the bank.
What is bank draft?
“A bank draft is mean of transferring money from one place to another, is a written order in the form of a check instructing the payment of money to the individual named on the bank draft.”
How many functions of bank.
Primary function is to borrow and lend money.
General function is to issue important documents, and keep valuable things in safe custody.
Agency function is bank collect and pay cheques and realizes interest and dividend on customer behalf.
How may kinds of accounts?
Current accounts in this case the customer can deposit or withdraw money any time within banking hours. Bank does not pay any interest or Profit/Loss.
Saving account customer deposits its saving into the bank for specific period,Bank will share profit and loss with customer.
Fixed Deposit account in which money is deposit for fixed time period, Banks Pay very high interest rates.
Bank pass book issued by a bank to record deposits, withdrawals and balance in Account holder account.
Date
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Particular
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Deposits
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withdrawals
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Balance
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initial of officer
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Bank Overdraft
“Any Excess amount withdrawn from bank by the account holder is called bank overdraft”
Accounting Cycle
- Transaction
- Journal
- Ledger
- Trial Balance
- Final Account (Trading and Profit and Loss, Balance Sheet)
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