Unit-2 The Accounting Process

This unit discusses how various transactions are recorded in the Journal and how they will be posted into the concemed ledger accounts.

What is the purpose of writing narration?

{{currentAnswerList.length}}   Answers

1   Answers


Written on {{ansDate($index)}}


Learning Pundits Content Team

Written on Apr 16, 2019 12:29:36 PM

Receipts and Payments by Cheque

  • You must be aware that most of the payments in business are made by cheques these days. This involves the bank where the firm has opened its account. Hence, when payment is made by cheque, you will credit the Bank Account because bank is the giver. Similarly, when payment is received by cheque, the amount will be debited to the Bank Account because cheque is deposited in the bank who is the receiver.

Transactions with the Proprietor

  • We have learnt that the business and its proprietor are treated as separate entities. This implies that separate accounts must be maintained in the ledger for recording transactions between the proprietor and the business. Usually, two accounts viz., Capital Account and Drawings Account are maintained for this purpose. Whatever the proprietor brings into the business is treated as his capital and credited to his Capital Account.
  • Similarly, when he withdraws cash from the business for his personal use, he is to be debited with the amount withdrawn by him. Such a debit is given to his Drawings Account. Drawings Account is also debited when the proprietor takes goods from business for domestic use. Note that the proprietor can be charged only by the cost of goods taken and not its selling price.
  • In practice, the cost of such goods are credited to the Purchases Account because it is assumed that it was purchased for him and should therefore be excluded from the purchases for the business.