BOOK-KEEPING & BOOKS OF ACCOUNT

BOOK-KEEPING AND BOOKS OF ACCOUNT

Book-keeping and Accounting are not the same, although two are closely related.

Generally, book-keeping means recording of business data (transactions) in a prescribed manner. So in a way, it includes the functions of Recording and Classifying of transactions.

On the other hand, Accounting is primarily concerned with the design of the system of records, the preparation of reports based on the recorded data and the interpretation of the reports. So in a way it includes the functions of Summarizing and Interpreting, in addition to the designing of the system.

This also means that Book-keeping provides a basis for the real Accounting function.

BOOKS OF ACCOUNT

JOURNAL
Once you have analyzed the business transaction, you have to record it in the books of accounts. Writing of transaction in the books is called Recording or Journalizing. The first book where it is recorded is called the journal. That is why it is considered as the Book of Prime Entry, also as the Book of Original Entry.

A journal is a book in which business transactions are written in accounting terms in chronological order (as they occur i.e. date wise). The journal has a specific format and the transaction is written based on the rules of Debit and Credit, along with a brief description of the transaction.

You may have one journal for all types of transactions or you may divide it in different types of journals depending upon the number of transactions, like a Sales Journal, Purchase Journal, Cash Payment Journal, Cash Receipt Journal, and General Journal (for remaining types of transactions).


M/S AMJAD TRADING CORPORATION

JOURNAL for the month of February, 2010
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(Date)(V.No.)(Details.............)(Post Ref.)(Debit...)(Credit...)
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LEDGER
As against Journal, which is a record of transactions in chronological order related to various elements (Account Heads or Titles), a Ledger is the record of same transactions in a classified manner i.e. all transactions related to one element (Account Head) are recorded (posted) on the page specified for that element, again in chronological order.

So the transactions recorded in Journal are posted to Ledger where each element (Account Head) is allocated a specific space (pages) for this purpose. A Ledger therefore provides information related to one element at a single place.

A Ledger is a book that contains all the elements (account heads) within an organizational accounting system. It is collection of all the ledger accounts. You may call each element as a Ledger Account. You may have all the ledger accounts in one Ledger Book or you may divide it like the Journal and have a sub-ledger for customers (Accounts Receivable), a sub-ledger for vendors (Accounts Payable), a Fixed Assets Ledger and all other ledger accounts in General Ledger. (But then you will have a Control Account in General Ledger for each sub-ledger divided by you.

The standard format of Ledger page is given below.


M/S AMJAD TRADING CORPORATION

LEDGER ACCOUNT OF -----------------------------------------------------
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(Date)(V.No.)(Details........)(Post Ref.)(Debit)(Credit)(Dr/Cr)(Balance)
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