Slide 1

ACCOUNTING BOOKSCHAPTER 2

ACCOUNTING CYCLEAn accounting cycle is the process of recording business transactions. This cycle involves several stage over a particular period of time.An accounting cycle shows the steps to collect and record business information systematically so that the financial reports or statements can be presented to the management and analysed

JOURNALJournal is a sheet in which all business transaction entries are recorded in chronological order.Journal can be categorised as:General journal basic journal used to record all business transactions that cannot be recorded in cash book or special journal.Special journals used to record a specific type of transaction only. Examples:

JOURNALPurchase journalSales journalPurchase returns journal (returns outwards journal)Sales returns journal (returns inwards journal)

Journal entries must be posted to the ledger of related account based on the double-entry system.Journal is a sheet in which all business transaction entries are recorded in chronological order.

LEDGERA ledger is the principal book for recording and totalling economic transactions measured in terms of a monetary unit of account by account type, with debits and credits in separate columns and a beginning monetary balance and ending monetary balance for each account.

All ledgers account must be balanced before a trial balance is prepared.

All ledgers account is balanced by comparing the total debit amount with the total credit amount, and determining which amount is larger.

LEDGERTypes of LedgerSubsidiary account Account receivable (debtors)Account payable (creditors)Non-subsidiary account Real accountsLiabilities &Owners equityAssets:a) Current assets. E.g.: cash, bank, and account receivableb) Non-current assets. : Eg: Building, land, motor vehicleNominal accountExpenses. E.g.: Discount allowed, rent, salariesRevenue. E.g.: Commission received, discount received, rent received.

FIRST BOOK Types Books of Prime EntryEach type of day book or book original entry is used to record a specific types of transaction.Types of book prime entry:General journal basic journal used to record all business transactions that cannot be recorded in cash book or special journal.

FIRST BOOKSpecial Journal:Sales journal to record credit salesPurchase to record credit purchasesSales return journal to record sales return from debtorsPurchase return journal to record purchase return from creditors

FIRST BOOKCash Book used to record receipts and payments by cash or chequeCash book two-column exclude discount allowed & discount receive columnCash book three-column- include discount allowed & discount receive column

Source Documents, Transactions and Book of Prime EntrySource DocumentTransaction Book of Prime EntryInvoice receivedCredit purchasePurchase journalInvoiced issued (sent)Credit salesSales journalCash bill receivedCash purchaseCash book (cr)Cash bill issuedCash salesCash book (dr)Receipt receivedCash paymentCash book (cr)Receipt issuedCash receivedCash book (dr)Source Documents, Transactions and Book of Prime EntrySource DocumentTransaction Book of Prime EntryCredit note receivedPurchase returns(Returns outwards)Overstated purchase pricePuchase returns journal(Returns outwards journal)General journalCredit note issuedSales returns(Returns inwards)Understated purchase priceSales returns journal(Returns inwards journal)General journalSource Documents, Transactions and Book of Prime EntrySource DocumentTransaction Book of Prime EntryDebit note receivedUnderstated purchase priceGeneral journalDebit note issuedUnderstated sales priceGeneral journalCash voucherPayment made by cash but no receipt issuedCash book (cr cashs column)Payment voucherPayment made by cheque but no receipt issuedCash book (cr banks column)Source Documents, Transactions and Book of Prime EntrySource DocumentTransaction Book of Prime EntryCheque buttsPayment by chequeCash book (cr banks column)MemosAdditional capitalDrawings of assetsDrawings of goodsGeneral journalGeneral journalGeneral journalSource Documents, Transactions and Book of Prime EntryNarration of JournalThe sentences that appears below the line containing the account heads that are debited and credited.The narration is a brief explanation for the entry. It include certain details in relation to the transactions. The purpose of the narration is to enable anyone who reads it to get a preliminary idea of why the entry is being recorded.

Source Documents, Transactions and Book of Prime EntrySubsidiaries ledgersSubsidiaries account are accounts related to account receivable of goods sold (debtors) and account payable of goods purchased (creditors) Non-subsidiary accounts are all accounts other than account receivable and account payable accounts.Example of subsidiary ledger