Accounting: Columnar Accounting Mechanics, and Journalising

A business transaction is first recorded in a journal, also called a Book of Original Entry. Journalising is the process of recording a business’s financial transactions in a journal.

The transactions entered in a Journal are the basis for posting to ledgers. Journal entries are also used for cross-checking when the ledger balance is not tallying.

Process of recording in the journal:

Step 1: Determine the accounts related to a particular transaction.

Step 2: Find the nature of the related account viz. Assets, Liabilities, Equity, Revenue, or Expenses.

Step 3: Determine the rule of debit and credit, applicable to the related account.

Step 4: Record the date of the transaction in the ‘Date Column’.

Recording rules for journal entry:
(I) There should be two accounts one each for debit and credit.
(II) Debits are listed first and then the credits.
(iii) The debit amount shall be equal to the credit amount.
For large frequently occurring transactions, many organisations maintain multiple journals related to specific types of transactions.

Ledger Columnar accounting mechanism:

A ledger is a book of accounts or a second book of entry where account transactions are recorded. Here, each account has an opening or carry-forward balance. This book of account records every transaction as either credit or debit in separate accounts with a closing balance. This book of accounts consists of information that is required for preparing financial statements. The ledger form has three to four columns and some offices maintain a format of six columns: Date, Item, Debit, Credit,   Debit (Balance), and Credit (balance). The first set of Debit and Credit columns is where amounts from the journal transactions are copied. The second set of Debit and Credit columns is where the account’s running total is maintained.

Steps for Creating Ledger

All journal entries must be approved and tallied for accuracy.

Format should be formulated by drawing credit and debit sides into three to four columns, where each column must be labeled.

Every journal entry must be posted into individual ledger accounts.

Each account has its own ledger page. The account name appears across the top.

The following is a sample ledger for the Cash account.

CASH ACCOUNT:

Note: The first set of Debit and Credit columns (3) and (4) are where amounts from the journal transactions are copied. The second set of Debit and Credit columns (5) and (6) is where the account’s running total is maintained.

IMPORTANT: Information entered in the ledger is always copied from what is already in the journal.

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