Recording of transaction- I is a process of accounting transactions of the business in several books of accounts like cash book, journal book, a ledger account, profit & loss account, etc. These entries are a source of documents which act as evidence for all the transactions taking place in the company. The main reason for the recording of the transaction- I, is to ascertain the financial status of an organization at the end of every financial year.
The recording of transaction – I, involve steps like recognizing the transaction to register and prepare the source documents which are registered in the basic book called journal. It is then reported in private accounts in the principal book called Ledger.
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Fundamental steps of Recording Of Transaction – I
|(i) Financial Transaction Identification From voucher|
|(ii) Transaction recording in the original entry In a journal|
|(iii) Arrange in Individual account Report in a ledger account|
|(iv) Plan financial statement Balance Sheet and Profit & Loss account|
|(v) Communicating with various customers|
Understanding Recording Transaction Rule
In accounting, to execute recording transaction it is important to understand the financial accounting rule. According to dual entry concept, there are two ways of a transaction, one is a deduction from the total principal amount and also owed to the owner which is known as a debit. The other transaction is credit which refers to an increase in the total principal amount and also owed to the owner.
The three rules are:
- Nominal Account- Credit all incomes and debit all losses & expenses
- Personal Account- Credit the provider and debit the taker
- Real Account- Credit what goes out and debit what comes in
The principal of Recording Transaction
- The personal account trade with the credit or lending of money by a company
- The account of assets and liabilities deals in the real account
- The expense and the revenue of a company deals in the nominal account
Important of Source Documents in Transaction
- The documents are the physical evidence for the transaction that took place
- It gives all the necessary and key details like the time, date, amount and the nature of the transaction
- In the court of law, it can act as a proof
- In the auditing process, the documents help in verifying the transaction
Few Examples of Documents
- If the sale and purchase of a product are Rs. 1,000 on credit, it is supported by sale and purchase invoice/bill copy
- If the sale and purchase of a product are Rs. 5,000, it is supported by a cash memo
- If the goods purchased is returned on credit Rs. 400, it is supported by a debit note
The above mentioned is the concept, that is elucidated in detail about ‘Recording Of Transaction – I’ for the Commerce students. To know more, stay tuned to BYJU’S.