General ledgerThe main accounting record of a business which uses double-entry bookkeeping. It will usuallyinclude accounts for such items as current assets, fixed assets, liabilities, revenue and expenseitems, gains and losses. Each General Ledger is divided into debits and credits sections. The lefthand side lists debit transactions and the right hand side lists credit transactions. This gives a Tshape to each individual general ledger account.A "T" account showing debits on the left and credits on the right.Debits CreditsThe general ledger is a collection of the group of accounts that supports the value items shown inthe major financial statements. It is built up by posting transactions recorded in the salesdaybook, purchases daybook, cash book and general journals daybook. The general ledger can besupported by one or more subsidiary ledgers that provide details for accounts in the generalledger.There are five(seven) basic categories in which all accounts are grouped:1. Assets2. Liability3. Owners equity4. Revenue5. Expense6. (Gains)7. (Loss)The balance sheet and the income statement are both derived from the general ledger. Eachaccount in the general ledger consists of one or more pages. The general ledger is where postingto the accounts occurs. Posting is the process of recording amounts as credits, (right side), andamounts as debits, (left side), in the pages of the general ledger. Additional columns to the righthold a running activity total (similar to a checkbook).The general ledger should include the date, description and balance or total amount for eachaccount. It is usually divided into at least seven main categories. These categories generallyinclude assets, liabilities, owners equity, revenue, expenses, gains and losses. The maincategories of the general ledger may be further subdivided into subledgers to include additionaldetails of such accounts as cash, accounts receivable, accounts payable, etc.
Because each bookkeeping entry debits one account and credits another account in an equalamount, the double-entry bookkeeping system helps ensure that the general ledger is always inbalance, thus maintaining the accounting equation:Assets = Liabilities + (Shareholders or Owners equity)ledger accountDefinitionA separate page in a ledger that records increases and decreases in each balance sheet item, classified underassets, liabilities, or owners equity. Also called an account.VoucherA voucher is a bond which is worth a certain monetary value and which may be spent only forspecific reasons or on specific goods. Examples include (but are not limited to) housing, travel,and food vouchers. The term voucher is also a synonym for receipt and is often used to refer toreceipts used as evidence of, for example, the declaration that a service has been performed orthat an expenditure has been made.Vouchers are used in the tourism sector primarily as proof of a named customers right to take aservice at a specific time and place. Service providers collect them to return to the tour operatoror travel agent that has sent that customer, to prove they have given the service. So, the life of avoucher is as below:1. Customer receives vouchers from tour operator or travel agent for the services bought2. Customer goes to vacation site and forwards the voucher to related provider and asks for theservice to be given3. Provider collects the vouchers4. Provider sends collected vouchers to the agent or operator that sends customers from time totime, and asks for payment for those services5. Uncollected vouchers do not deserve paymentThis approach is most suitable for free individual tourist activities where pre-allocation forservices are not necessary, feasible or applicable. It was customary before the information erawhen communication was limited and expensive, but now has been given quite a different roleby B2C applications. When a reservation is made through the internet, customers are oftenprovided a voucher through email or a web site that can be printed. Providers customarily requirethis voucher be presented prior to providing the service.
 Accounts payableA voucher is an accounting document representing an internal intent to make a payment to anexternal entity, such as a vendor or service provider. A voucher is produced usually afterreceiving a vendor invoice, after the invoice is successfully matched to a purchase order. Avoucher will contain detailed information regarding the payee, the monetary amount of thepayment, a description of the transaction, and more. In Accounts Payable systems, a processcalled a "payment run" is executed to generate payments corresponding to the unpaid vouchers.These payments can then be released or held at the discretion of an Accounts Payable supervisoror the company Controller. The term can also be used with reference to accounts receivable,where it is also a document representing intent to make an adjustment to an account, and for thegeneral ledger where there is need to adjust accounts within that ledger; in that case it is referredto as a journal voucher...Petty Cash Book:Learning Objectives:1. Define and explain petty cash book.2. What is the imprest system of petty cash?3. What are the advantages of Imprest system?4. Prepare a petty cash book.Definition and Explanation:In almost all businesses, it is found necessary to keep small sums of ready money with thecashier or petty cashier for the purpose of meeting small expenses such as postage,telegrams, stationary and office sundries etc. The sum of money so kept in hand generallytermed as petty cash and book in which the petty cash expenditures are recorded is termedas petty cash book.In large business houses , the cashier has to handle every day a large number of receiptsand payments and if in addition to this he is further saddled with petty cash payments, hisposition becomes embarrassing. Besides, it is most common to find with large commercialestablishments that all receipts and payments are made through bank. Since expenses likepostage, telegrams, traveling etc, cannot be made by means of cheques, the maintenanceof a small cash balance to meet these petty payments becomes all the more necessary.A petty cash book is generally maintained on a columnar basis - a separate column beingallotted for each type of expenditure. The is only one money column on the debit side andall sum received from time to time by the petty cashier from the chief cashier are entered init. The credit side consists of several analysis columns. Every payment made by the pettycashier is entered on this side twice - Firstly it is recorded in the total column and then tothe appropriate column to which the expense is concerned. The total of the "total column"will naturally agree with the total of all subsidiary columns. The difference between the totalof the debit items and that of the "total column" on the credit side at any time will representthe balance of the petty cash in hand and this should tally with the petty cashiers actualholding of cash.
The posting from the petty cash book to the respective accounts in the ledger are madedirectly in total at the end of every month or any other fixed period.Matching ConceptThe matching concept is an accounting principle that requires the identification and recording ofexpenses associated with revenue earned and recognized during the same accounting period.Accordingly, under the matching concept the expenses of a particular accounting period are thecosts of the assets used to earn the revenue that is recognized in that period. It follows, therefore,that when expenses in a period are matched with the revenues generated for the same period, theresult is the net income or loss for that period.ACCOUNTING TERMSWhile in everyday vernacular, the terms "cost," "expenditure," and "expense" are used almostinterchangeably; in discussing accounting principles, these terms have distinctly differentmeanings. A cost is the amount of money, or other resources, used for a specific purpose. Whena cost is incurred, it is associated with an expenditure; expenditures can either result in thedecrease of an asset, such as cash, or the increase of a liability, such as accounts payable. Thus,expenditures result in either assets or expenses. If the expenditure will benefit future periods,such as the purchase of office equipment, it is an asset. If it will benefit the current period, suchas the purchase of supplies needed to fill immediate manufacturing needs, it is an expense of thatperiod. Logically, then, it follows that an expense is a cost item that is specifically applicable tothe current accounting period used during that period to earn revenue.THE CONSERVATISM CONCEPTOftentimes, when deciding which revenues and expenses to match in a given accounting period,accountants have a difficult time recognizing which revenues and expenses are certain for thatperiod. Like many people, accountants and other business professionals tend to be overlyoptimistic concerning the revenues that their companies generate but tend to be more realisticconcerning the associated expenses. Thus, certain accounting principles have been developed tooffset the tendency toward optimism. These principles recognize that increases in reported netincome require stronger proof than do increases in expenses. Therefore, when deciding whichexpenses and revenues to acknowledge during a given accounting period, accountants aresupposed to apply the conservatism concept. This concept has two conditions associated withit—firms can recognize expenses as soon as they are reasonably possible, and firms canrecognize revenues as soon as they are reasonably certain.REVENUE AND EXPENSE RECOGNITIONThe best matching of revenues and expenses occurs under the accrual basis of accounting. Underthe accrual basis, revenue (as well as expenses, and other changes in assets, liabilities, andequity) is generally recognized in the period in which the economic event takes place, usually atthe point of sale—not when the cash actually changes hands. Revenue recognition occurs at this
time because the earnings process is complete and there is evidence supporting the sale price.Earnings, however, can be identified at other times, such as during an items production, at theend of an items production but prior to its sale, or when the money is collected, as withpayments made on installments. Costs are recognized as expenses in a particular period if (1)there is a direct association between costs and revenues for the period or (2) the costs cannot beassigned to the generation of revenues of any period in the future.The recognition of revenues and expenses can become more complicated, however, becausecompanies often spend money or assume liabilities for non-monetary assets affecting more thanone accounting period. Examples of transactions affecting more than one period are: (1) suppliespurchased in a prior accounting period but used for several later periods; (2) insurance premiumspaid that cover more than one period; (3) buildings and equipment; and (4) expenses—such assalaries—paid after a service has been rendered. Initially, these expenses are recorded at theiroriginal amounts, which represents the future benefit that the company anticipates receiving fromthese items. As they are used, the related costs must be matched against the revenues earned forthe particular period. For example, for equipment and buildings, accountants gradually expensethe costs of these assets over their estimated service life, a concept known as depreciation.Dual Aspect Concept of AccountingDual aspect is the foundation or basic principle of accounting. It provides the very basis forrecording business transactions into the book of accounts. This concept states that everytransaction has a dual or two-fold effect and should therefore be recorded at two places. In otherwords, at least two accounts will be involved in recording a transaction.For example Tom started business with a sum of $50000; the amount of money brought in byTom will result in an increase in the assets (cash) of business by $ 50000. At the same time, theowner’s equity or capital will also increase by an equal amount. It may be seen that the two itemsthat got affected by this transaction are cash and capital account. In the same way suppose tombuy goods of $20000 on credit then at one hand assets will increase by $20000 and on other handliabilities will increase by $20000The duality principle can be expressed in terms of fundamental Accounting Equation that can bewritten as follows: Assets = Liabilities + CapitalPayrollIn a company, payroll is the sum of all financial records of salaries for an employee, wages,bonuses and deductions. In accounting, payroll refers to the amount paid to employees forservices they provided during a certain period of time. Payroll plays a major role in a companyfor several reasons. From an accounting point of view, payroll is crucial because payroll andpayroll taxes considerably affect the net income of most companies and they are subject to lawsand regulations (e.g. in the US payroll is subject to federal and state regulations). From an ethicsin business viewpoint payroll is a critical department as employees are responsive to payrollerrors and irregularities: good employee morale requires payroll to be paid timely and accurately.
The primary mission of the payroll department is to ensure that all employees are paid accuratelyand timely with the correct withholdings and deductions, and to ensure the withholdings anddeductions are remitted in a timely manner. This includes salary payments, tax withholdings, anddeductions from a paycheck.RevenueIn business, revenue is income that a company receives from its normal business activities,usually from the sale of goods and services to customers. In many countries, such as the UnitedKingdom, revenue is referred to as turnover. Some companies receive revenue from interest,dividends or royalties paid to them by other companies.Revenue may refer to business incomein general, or it may refer to the amount, in a monetary unit, received during a period of time, asin "Last year, Company X had revenue of $42 million." Profits or net income generally implytotal revenue minus total expenses in a given period. In accounting, revenue is often referred toas the "top line" due to its position on the income statement at the very top. This is to becontrasted with the "bottom line" which denotes net income.For non-profit organizations, annual revenue may be referred to as gross receipts.Thisrevenue includes donations from individuals and corporations, support from governmentagencies, income from activities related to the organizations mission, and income fromfundraising activities, membership dues, and financial investments such as stock shares incompanies.Balance sheetIn financial accounting, a balance sheet or statement of financial position is a summary of thefinancial balances of a sole proprietorship, a business partnership or a company. Assets,liabilities and ownership equity are listed as of a specific date, such as the end of its financialyear. A balance sheet is often described as a "snapshot of a companys financial condition".Ofthe four basic financial statements, the balance sheet is the only statement which applies to asingle point in time of a business calendar year.A standard company balance sheet has three parts: assets, liabilities and ownership equity. Themain categories of assets are usually listed first, and typically in order of liquidity.Assets arefollowed by the liabilities. The difference between the assets and the liabilities is known asequity or the net assets or the net worth or capital of the company and according to theaccounting equation, net worth must equal assets minus liabilities.Another way to look at the same equation is that assets equals liabilities plus owners equity.Looking at the equation in this way shows how assets were financed: either by borrowing money(liability) or by using the owners money (owners equity). Balance sheets are usually presentedwith assets in one section and liabilities and net worth in the other section with the two sections"balancing."
A business operating entirely in cash can measure its profits by withdrawing the entire bankbalance at the end of the period, plus any cash in hand. However, many businesses are not paidimmediately; they build up inventories of goods and they acquire buildings and equipment. Inother words: businesses have assets and so they can not, even if they want to, immediately turnthese into cash at the end of each period. Often, these businesses owe money to suppliers and totax authorities, and the proprietors do not withdraw all their original capital and profits at the endof each period. In other words businesses also have liabilities.Trial balanceA trial balance is a list of all the nominal ledger (general ledger) accounts contained in theledger of a business. This list will contain the name of the nominal ledger account and the valueof that nominal ledger account. The value of the nominal ledger will hold either a debit balancevalue or a credit value balance. The debit balance values will be listed in the debit column of thetrial balance and the credit value balance will be listed in the credit column. The profit and lossstatement and balance sheet and other financial reports can then be produced using the ledgeraccounts listed on the trial balance.The name comes from the purpose of a trial balance which is to prove that the value of all thedebit value balances equal the total of all the credit value balances. Trialing, by listing everynominal ledger balance, ensures accurate reporting of the nominal ledgers for use in financialreporting of a businesss performance. If the total of the debit column does not equal the totalvalue of the credit column then this would show that there is an error in the nominal ledgeraccounts. This error must be found before a profit and loss statement and balance sheet can beproduced. Trial balance limitationsA trial balance only checks the sum of debits against the sum of credits. That is why it does notguarantee that there are no errors. The following are the main classes of error that are notdetected by the trial balance:An error of original entry is when both sides of a transaction include the wrong amount.Forexample, if a purchase invoice for £21 is entered as £12, this will result in an incorrect debitentry (to purchases), and an incorrect credit entry (to the relevant creditor account), both for £9less, so the total of both columns will be £9 less, and will thus balance.An error of omission is when a transaction is completely omitted from the accounting records.As the debits and credits for the transaction would balance, omitting it would still leave thetotals balanced. A variation of this error is omitting one of the ledger account totals from thetrial balance.An error of reversal is when entries are made to the correct amount, but with debits instead ofcredits, and vice versa.For example, if a cash sale for £100 is debited to the Sales account, andcredited to the Cash account. Such an error will not affect the totals.
An error of commission is when the entries are made at the correct amount, and theappropriate side (debit or credit), but one or more entries are made to the wrong account of thecorrect type.For example, if fuel costs are incorrectly debited to the postage account (bothexpense accounts). This will not affect the totals.An error of principle is when the entries are made to the correct amount, and the appropriateside (debit or credit), as with an error of commission, but the wrong type of account is used.For example, if fuel costs (an expense account), are debited to stock (an asset account). This willnot affect the totals.Compensating errors are multiple unrelated errors that would individually lead to an imbalance,but together cancel each other out.A Transposition Error is an error caused by switching the position of two adjacent digits. Sincethe resulting error is always divisible by 9, accountants use this fact to locate the misenterednumber. For example, a total is off by 72, dividing it by 9 gives 8 which indicates that one of theswitched digit is either more, or less, by 8 than the other digit. Hence the error was caused byswitching the digits 8 and 0 or 1 and 9. This will also not affect the totals.Double-entry bookkeeping systemA double-entry bookkeeping system is a set of rules for recording financial information in afinancial accounting system in which every transaction or event changes at least two differentnominal ledger accounts.The name derives from the fact that financial information used to be recorded using pen and inkin paper books - hence "bookkeeping" (whereas now its recorded mainly in computer systems)and that these books were called journals and ledgers (hence nominal ledger, etc.) - and that eachtransaction was recorded twice (hence "double-entry"), with the two transactions being called a"debit" and a "credit".It was first codified in the 15th century by Luca Pacioli. In deciding which account has to bedebited and which account has to be credited, the golden rules of accounting are used. Inmodern accounting this is done using debits and credits within the accounting equation: Equity =Assets - Liabilities. The accounting equation serves as an error detection tool. If at any point thesum of debits does not equal the corresponding sum of credits, an error has occurred. It followsthat the sum of debits and the sum of the credits must be equal in value.Double-entry bookkeeping is not a guarantee that no errors have been made - for example, thewrong ledger account may have been debited or credited, or the entries completely reversed.