Three records will be described here. The first one is known under the journal or book of original entry or prime entry book, in French ( le journal). The second record is called the ledger ,( in French le grand livre) ( The third one is called a trial balance ( in French le bilan de verification). Each one of these terms will be explained below
I : What is the Meaning of a Journal?( Book of Original Entry or Prime Entry Book ( le journal) ?
Prime entry book is an account book in which a business’ s transactions are first recorded. From the prime entry books , records of transactions are passed on to the ledger accounts. A Journal has :
-Debit and Credit on both sides
-a date showing when a particular transaction has taken place
-particulars or what some accounts call a memo, giving the reader an idea about the subject matter of the transaction in question.
Here is an illustration of what a journal is. Seven transactions are described in it.
The above journal/ Book of First Entry shows that :
- On this particular date (1.1.2000), the first transaction occurred ( watch FOUKARA’S video at https://youtu.be/SXFbLbsrIYI
- Thus, I purchased goods using cash rather than purchasing on account.
- So cash has gone out and it was not necessary for me to ratify any loan contract with the bank because I had the total sum ready to be spent.
- Because I spent money on goods, cash is placed under credits.
- And because I bought goods, they come under debits.
- The sentence between brackets is a memo).It explains the details of the transaction occurring on that particular date.
The second transaction featuring on this journal occurred on 2.1.2000.
- I purchased office furniture (stationery) for cash amounting to 500 dirhams
- So, here, stationery comes in and cash goes out
- Therefore, stationary is placed in debits and cash is placed in credits
- A narration known under memo in the language of accounting is written to describe the details of the transaction
The Third Transaction took place on 3.1.2000.
-On this date, I purchased furniture for cash at 200 dollars.
-So, furniture comes in. It is placed under debits
-and cash is paid out. It is placed under credits.
-a memo is written between parentheses to explain what i did on that date in the part called particulars .
Transaction 4
-I sold goods for cash that amounts to 1000 dirhams. Notice : the name of the customer is not mentioned here.
-goods a/c is placed under debits. 1000 dirhams spent on good is placed under credits. This account decreases credits. Contrary to that, goods as an asset increases debits.
– The memo, that is (cash sells narration), is : goods being sold for cash)
Transaction 5
– I sold goods to James for cash at 4000.
-The name of the customer is mentioned here (James). It is just a matter of cash sells.
-This is, therefore, a credit sales, in that, James is a debtor to the company. Note : Goods is to be placed under debits and a
-So, instead of cash, you write the customer’s name (James a/c).
-the account goods is to be placed under debits. It is debited. It decreases debits.
and if it is an account receivable. This means that money paid by James will be received. This account increases credits.
-The memo is : (being sold for cash to James ).It will remind the accountant of the subject matter of the transaction made on this particular date.
Transaction 6
The Date : The journal reveals the fact that the transaction took place on the
-I paid rent at 800 Dirhams.
-Therefore, rent is an expense. Any expense is a nominal account. What is the rule for a nominal expense ?
-When you pay rent, it is an expense, so rent enters uder debit and cash I have spent on it is credited because it has gone out.
-The rent narration (memo) is that (rent is paid out).
Transaction 7
-The Date : the journal reveals the fact that the transaction took place on the 7th of January 2000.
-On this date, a salary amounting to 8000 dirhams was paid out. Here, salary is like rent. It is an expense for the business. It is a nominal account. So I write salary under debit (salary in this case is a debit account It is debited).
-When you pay a salary to someone, cash goes out. So, cash is a real account. You write cash under credit and salary under debit.
-So, remember that debit comes in and credit goes out. Remember also that you write all your business transactions in the book account.
II : The Ledger ,( in French le grand livre)
A ledger is a book in which a bank or a company records its financial accounts. Records of transactions are passed from the prime entry books on to the ledger accounts. The objective is to check errors and this constitutes the first step of the verification process. The other two steps are done through the ledger and the trial balance.
The ledger requires that :
- Transactions will be written in T forms.
- Each transaction needs to be divided into two accounts. One account is for cash and the other account is the asset that is either bought or sold.
- Each account needs to be balanced
- when we run all of these balances, we can then take on the final balances and transform them over to the trial balance.
Therefore, remember : Three Records are made. The first record is known under journal. The second one is known under ledger and the third one is known under trial balance ( Balance de compte/de vérification). The objective is to identify errors in recording data before they are entered into statements of accounts. The data that will be dealt with in this vidéo were recorded in the journal drawn below. Here is the link to details relevant to it : https://www.youtube.com/watch?v=_Fmh7O2EOac
The ledger is the second important step in the accounting cycle. Now, the ledger requires that for every transaction, you need to have a particular account where items could be grouped togeter for the identification of errors. Here is a set of examples showing how entries derived from the journal can be recorded in the ledger before they are grouped together. But firstly, it is important to know that in the ledger, entries are recorded in accounts having the form of a T like this :
Two T forms need to be drawn for each transaction :
T Form one for transaction 1:
| You mark 10.000 for cashed goods in here on the left side for debit
|
This is for transaction 1
|
Figure 1.a : T Form 1 for transaction 1
Cash A/C
|
This is for transaction 1 |
You mark the credited corresponding 10. 000 here on the right side |
Figure 1.b : T Form 2 for transaction 1:
& The second T Form is stationery account=A/C with debit and credit sides
| Stationary A/C | |
| To cash 500 here on the debit side
|
This is for transaction 2 |
Figure 1 : : T Form 1 for transaction 2:
| Cash A/C | |
| This is for transaction 2 | To credit 500 here
|
Figure 2 : : T Form 2 for transaction 2:
& the third one is furniture account with debit and credit sides.
| Furniture A/C | |
|
2000 is debited here
|
This is for transaction 3 |
Figure 3 : T Form 1 for transaction 3
| Cash A/C | |
|
This is for transaction 3
|
2000 is credited |
Figure 3 : T Form 2 for transaction 3
& the fourth one is sales account with debit and credit sides.
| Sales A/C | |
|
The sale is debited here |
This is for transaction 4 |
Figure 4.a : T Form 1 for transaction 4
| Cash A/C | |
| It is a matter of selling here. Therefore, the item sold has left the company at 1000. It credited | |
Figure 4.a : T Form 2 for transaction 4
& the fifth one is James with a debit and credit side
| Sales A/C | |
|
The sale is debited here |
This is for transaction 4 |
Figure 5 : Figure b : T Form 1 for transaction 5
& the sixth one is rent account with debit and credit sides.
| Rent A/C | |
| To cash 800
10000 |
By balance
800 10000 |
Figure 6 : Figure a : T Form 1 for transaction
& the seventh one is the salary account with credit and debit sides.
| Salary A/C | |
| To cash 8000
8000 |
By balance
8000 8000 |
Figure 7 . a : T Form 1 for transaction
Balance for Purchase A/C
As it is shown below, now that all the transactions are posted in the ledger, the debit and the credit sides need to be balanced. As far as the purchase account is concerned, you write on the right side (in the credit side) by balance carried out (C/C) and you write the amount that this debited next to it. This is because no amount is written on the credit side. Then, far below at the bottom line, you write this amount again and you draw two lines below it.
Note that this is a debit balance because the debit side is higher than the credit side. This means that you have brought balance to it.
Balance for Cash C/A
You mark the amount on the debit side. You draw a line at the bottom of the debit side, then, you mark the amount and you draw two lines below it preceded by balance brought down.
Note : This account called cash will assemble different cash spent on different transactions. If the debit side is more than the credit side when the amounts are totalled, you will have a debit balance . if it is the other way rount, you will have a credited balance. You have thus brought balance to it and for this reason, this a debit balance.
III : Trial Balance (
-all business transactions recorded so far in the journal and the ledger should be systematically marked in the trial balance
-all debit and credit balances should be equal. Otherwise, an error must have been made during data-entry either in the journal or in the ledger.
– Note : all the accounts are summarized in the following trial balance column
| S.N
|
Name of Account | Debit | Credit |
| 1 | Purchase A/C | 10.000 | |
| 2 | Cash A/C | 78.7000 | |
| 3 | Stationary A/C | 500 | |
| 4 | Furniture A/C | 2000 | |
| 5 | Sales A/C | 4000 (revenue) | |
| 6 | James A/C
Cash is received and is marked on the debit side. He was a debtor |
4000 | |
| 7 | Rent A/C | 800 (this is a debit | |
| 8 | Salary A/C | 8000 | 8000 |
| TRIAL BALANCE | |||
Read the above trial balance :
The most important thing to remember about the trial balance is that the two sides : debit and credits should in the end be equal.
Therefore, all the debits are grouped and are recorded on the debit side.
-Sales is the only account that is recorded on the credit side. Once it is settled, it is placed on the debit side.
So :
| Purchase A/C | 10.000 |
-Purchase is always a debit balance. Note, under debit, 10.000 is marked.
| Cash A/C | 78.7000 |
-Cash is a debit balance. Payments are made.
| Stationary A/C | 500 |
-there is a debit balance for stationary.
| Furniture A/C | 2000 |
-furniture is an asset. It is a debit balance.
James A/C
-James was a debtor because goods were sold to him (this was an account payable). Then, James paid us the due amount.
Rent A/C
-Rent is a nominal account. It is an expense. Any expense is a nominal account. It is a debit balance.
Salary A/C
-Salary is an expense. When you pay it, cash goes out. It is a nominal account. It is a debit balance.
OUR NEXT COURSE WILL DEAL EXCLUSIVELY WITH THE TRIAL BALANCE .
Enjoy this accounting rap song at https://www.youtube.com/watch?v=j71Kmxv7smk
Title : Colin Dodds – Debit Credit Theory (Accounting Rap Song)
foukara 