Accounting Lesson 6: Books of Account

Study Notes

This lesson covers fundamentals of accountancy, business, and management.
Learning objectives include differentiating journals from ledgers, illustrating general and special journals, and illustrating general and subsidiary ledgers.
Accounting books are crucial for recording and summarizing transactions to facilitate financial statements.
Journals are the books of original entry. They record valid business transactions according to debit and credit rules.
Special journals record repetitive transactions like cash receipts, cash disbursements, purchases, etc.

Accounting is a process where each step corresponds to a specific accounting book or report.
The process moves from analysis and recording, to classifying and summarizing.

General Journal: Records non-repetitive business transactions. Entries include the date of the transaction, account name and reference number, debit and credit amounts, and transaction description.
Special Journal: Records repetitive transactions, such as those involving cash, sales, and purchases. This improves monitoring and management of specific transactions and accounts. Specific examples include cash receipts, cash disbursements, purchases, etc.

Ledger: The book of final entry. It records transactions not covered in special journals.
General Ledger: Includes all accounts from the trial balance.
Subsidiary Ledger: Provides details for controlling accounts within the general ledger.

A financial transaction affects at least two accounts. One is debited, the other is credited.
The rules of debit and credit ensure the accounting equation remains balanced.
Specific accounts have specific normal balances:
- Assets: Debit
- Liabilities: Credit
- Equity: Credit
- Revenue: Credit
- Expense: Debit

Purchase of assets (inventory, supplies, equipment, or property) in cash: Affects inventory or supplies, equipment, furniture or property and cash accounts.
Borrowing funds from the bank through a promissory note: Affects cash and notes payable accounts.
Provision of services for cash or on account: Affects cash or accounts receivable, and service revenue accounts.
Collection of account from a customer: Affects cash and accounts receivable.
Payment of salaries to employees: Affects cash and salaries expense accounts.
Payment of utilities: Affects cash and utilities expense accounts.

Entries are chronologically ordered by dates.
Debits and credits are recorded based on the normal balance of each account.
Total debits must equal total credits in the journal entry.
Examples of journalizing are provided including purchase of office supplies, rendering services on account, and rendering services for cash.