Subject: Business Class: Form two

Unit Four: Accounting treatment of financial transaction

Lesson Two: Recording Process
Companies initially record transactions in chronological order (the order in which
they occur) thus, the journal is referred to as the book of original entry.
Typically journal entry has spaces for:-
 Dates
 Account titles and expectations
 References
 Two amount columns
The journal makes several significant contributions to the recording process
Examples include:-
 Complete effect transaction
 Chronological record
 Prevent or locate errors
Journalizing
Entering transaction data in the journal is known as Journalizing.
Companies make separate journal entries for each transaction
A complete entry consists of:-
 The date of the transaction
 The accounts and amounts to be debited and credited
 A brief explanation of the transaction
Chronological order is listing, describing, or discussing when events happened as
they relate to time.
Lesson Three: Posting to the general ledger
Posting from general journal o general ledger is a process in which entrées from the
general a journal re periodically transferred to ledger accounts also known as
Transaction accounts. It is the second step of the accounting cycle become
business transactions are the first recorded in the journal.
Ledger accounts are a way of presenting and grouping transactions relating to a
particular account in one place.
The ledger
The entire group of accounts maintained by a company is the ledger. The ledger
keeps in one place all the information about changes in a specific account balances
A general ledger contains all the assets, liabilities and owner’s equity accounts
Individual asset account
Equipment, land, supplies, cash

PR BY: - HUSSEIN HASSAN OSMAN

Individual liability account
Interest payables, salaries and wages, account, note payable
Individual owner’s equity account
Salaries and wages expense, service revenue, owner’s drawings, owners capital
The ledger provides the balance in each of the accounts
 The cash account shows the amount of available
 The amounts receivable shows amounts due from customers
 Accounts payable shows amounts owned to creditors
The format of ledger account and posting process
The process of posting journal entries to ledger accounts is straightforward.
The information recorded in the journal is transferred to the relevant ledger accounts
in the general ledger.
Posting to general ledger
Transferring journal entries to the ledger accounts are called posting
This phase of recording process accumulates the effects of journalized transactions
into individual accounts
Posting involves the following steps:-
 In the ledger in column of the accounts (Dr)
 In the reference column of the journal
 In the ledger in column of the accounts (Cr)
 In the reference column of the journal
Lesson Four: Trial Balance
A trial balance is a list of accounts and their balances at a given time.
Companies prepare a trial balance at the end of an accounting period then list
accounts in the order in which they appear in the ledger.
The trial balance proves mathematical equality of debits and credits after posting.
The steps for preparing a trial balance
 List accounts title and their balances
 Total debit and credit column
 Prove the equality of two columns
Financial statements from the trial balance
The necessary process is to transfer amounts from the general ledger to the trial
balance then into the financial statements.
General ledger _________ Trial balance ___________Journal report
A trial balance is a necessary checkpoint for uncovering certain types of errors
Types of errors
 Data entry errors

PR BY: - HUSSEIN HASSAN OSMAN

  Error of omission
 Error of commission
 Error of transposition
 Error of duplication
 Error of principle
 Error of entry reversal
Limitations of trial balance
A trial balance does not guarantee free from errors
The trial balance may balance even when:-
 A transaction is not journalized
 A correct journal entry is not posted
 A journal entry is posted twice
 In correct accounts are used in journalizing or posting
 Off setting errors made in recording the amount of transaction

END OF THE BOOK

PR BY: - HUSSEIN HASSAN OSMAN