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Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce PDF Download

Recording of Transactions

LEARNING OBJECTIVES
After studying this chapter, you will be able to:

  • Explain how to prepare accounting Vouchers.
  • Apply accounting equation to explain the effect of transactions.
  • Record transactions using rules of debit and credit.
  • Record transactions in journal
  • Meaning and Importance of Ledger.
  • Format of Ledger.
  • Posting from Journal.

Accounting Equations

An Accounting Equation is based on the dual concept of accounting, according to which, every transaction has two aspects namely- Debit and Credit. It means that every transaction in accounting effect both Debit (Dr.) and Credit (Cr.) side equally.
Total assets of the business firm are financed through the funds raised from either the outsiders (which consists generally Creditors and Lenders) or the Owners(which is called Capital).
According to Business entity concept, Business is separate legal entity from its owner thus the amount invested by the owner in the business is liability of the business is called Capital. Accounting equation thus referred to a equation in which total assets is always equal to total Liabilities (i.e. Capital + Liabilities)

Assets = Capital + Liabilities

Question for Chapter Notes - Recording of Transactions-I
Try yourself:
Which concept of accounting is based on the dual aspect of every transaction?
View Solution


Analysis of Business Transactions

Business transaction may effect either both sides of the equation or one side of the equation but the ultimate effect must be equal on the both sides. Some of the effects are as follows:-
1. Transaction affecting both sides of the equation: 
A. Commenced business with Cash Rs. 3,00,000. 
Effect
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation: As Cash is invested by the owner, it should be shown in Capital (anything which is bring in by the owner is termed as Capital) and Business is receiving asset in the form of cash, it is to be shown in the Assets side as Cash.

B. Bought goods from Ram worth Rs.30,000.
 Effect

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Explanation:- As goods are purchased on credit, one effect is that it should be shown in the assets side as Goods and other effect is that goods are purchased on credit so it is to be shown in Liabilities as Creditors.

C. Sold goods (costing Rs.10000) for cash at Rs.13000.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:-The transaction will affect both sides as cash has been received so it is to be added back in cash (Rs.13,000) and Goods are to be reduced by 10,000 as goods have been sold. Also profit of Rs 3,000 is to be added back in Capital. Net effect will remain same for both sides.

D. Paid to creditors Rs. 20,000. 
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce 
Explanation:-The transaction will affect both sides as cash has been paid so it is to be deducted from cash as well from creditors as payment is made to them.

E. Rent paid Rs. 5,000.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Explanation:-The transaction will affect both sides as cash has been paid so it is to be reduced as well as Capital is to be reduced because expense is to be born by the owner.

  • Transaction related to Expenses- All the expense or Losses is to borne by the owner although business is separate legal entity from its owner as he/she is the person who has taken risk to do business.

F. Commission received Rs. 8,000.
Effect

  • Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Explanation:-The transaction will affect both sides as cash has been received so it is to be added back in cash as well as in Capital.

  • Transaction related to Income- Income or Profit is the reward for taking risk, as risk is taken by the owner so it is to be added in Capital.

G. Accrued Interest Rs. 10,000.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:- The transaction will effect both sides as Accrued Income has been added back to the capital & as it is not received so it is to be shown in the assets side as an asset.

  • Transaction related to Accrued/Outstanding Income- Income is to be added back into the capital but as it is not received should be shown in the Assets Side as accrued Income because it meant to be received in this financial year.

H. Rent received in advance Rs. 5,000.
 Effect

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:-The transaction will effect both sides as Advance Income is a Liability should be shown in the Liability side & Cash received by the business should be added back to the Cash column of assets side.

  • Transaction related Advance Income- As Income received in advance so it does not belong to current financial year, so it can not be added back to the Capital. It is an amount which is received by the business firm for the future course of activity till the activity not happened it is the Liability of the business.

2. Transaction affecting one side of the equation:
(I) Transaction affecting Assets side of the equation: 

I. Prepaid insurance paid Rs 4,000.
Effect

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Explanation:-The transaction will affect one side as Prepaid expense is a Asset, it should be shown in the Assets side & Cash paid by the business should be deducted from Cash column of assets side.

  • Transaction related to Prepaid or Advance Expense- As Expense paid in advance so it does not belong to current financial year, so it can not be deducted from Capital. It is an amount which is paid by the business firm for the future course of activity as the activity is not happened, it is the Asset of the business.

J. Purchased Machinery for Cash Rs. 80,000.
 Effect

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Explanation:- The transaction will affect one side as cash has been paid for purchase of machinery & Machine is a fixed asset so it is separately shown in the asset side as well as cash is to be reduced.
(II) Transaction affecting Liability side of the equation: 
K. Salary outstanding Rs.8,000.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:-The transaction will affect Liability side as outstanding expense is a Liability should be shown in the Liability side and Expense should be deducted from Capital.

  • Transaction related to outstanding Expense- As Expense not paid yet or Outstanding but belong to current financial year so it is deducted from Capital & business has to pay it in near future so it is the liability of the firm.

L. Interest on Capital Rs. 10,000.
 Effect

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:- The transaction will affect Liability side as Interest of Capital should be added back & deducted from Capital as both of them belong to the owner.

  • Transaction related to Interest on Capital- As interest on capital is the Expense of business it should be shown or deducted in the capital as well as interest of capital is the amount which is to be given to the owner as capital is the amount which is invested by the owner, therefore it is to be added back to Capital.

M. Interest on Drawing Rs. 10,000.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:- The transaction will effect Liability side as Interest of Drawing should be added back & deducted from Capital as both of them belong to the owner.

  • Transaction related to interest on Drawing- As interest on Drawing is the Income of business it should be shown or added back in the capital as well as interest of Drawing is the amount which is to be given by the owner to the business so it is treated as drawing and deducted from the Capital.

N. Owner withdrew cash of Rs. 10,000 for personal use.
Effect
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Explanation:- The transaction will effect both sides as Drawing should be deducted from Capital & also deducted from Cash as withdraw by owner.

  • Transaction related to Drawing- As Drawing is the amount withdrawn by owner from business for personal use so it is to be deducted from Capital & also from the Cash.

Illustration: 1.

Prepare the Accounting Equation for the year ended on 31st March 2017 on the basis of the following information:

  1. Mr. X Started business with Cash Rs.1,50,000, Furniture Rs.50,000, Goods/Stock Rs.30,000 & Machinery Rs.2,00,000.
  2. He sold goods Costing Rs.25,000 at a profit 20% above cost & half of the payment received in Cash and received a bill for the remaining balance.
  3. He paid salary Rs.10,000, commission Rs.2000 & Commission Still outstanding Rs.1,000.
  4. He purchased goods from Ram of Rs.25,000.
  5. Depreciate Machinery at 20% p.a. & Furniture at 10 % p.a.
  6. He paid Insurance Rs.12,000 p.a. (from 1 st October to 30th September every year)
  7. He withdrew Rs.10,000 for personal use.
  8. He paid to Ram Rs.23,500 in full settlement of his account.
  9. He received cash on the maturity of Bill.
  10. Interest on Capital is to be credited at 5 % p.a.

Solution: Accounting Equation
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Note-Insurance premium paid for a year from October to September- Half year insurance is related to current year and remaining half year insurance is for the next year which is considered as prepaid insurance(asset) in this particular year. Thus, Rs.12,000 being an expense is deducted from cash and Rs.6,000 being an expense related to current year is deducted from Capital account.

Rules of Debit & Credit

Every business transaction affects two or more accounts. An account is summarized record of transaction at one place relating to a particular head. An account is divided into two parts i.e. debit and credit. Debit refers to the left side of an account and Credit refers to the right side of an account.

Approaches for the rules of Debit & Credit 
1. Traditional Approach Under this approach, all ledger accounts are mainly classified into two categories:-
(I) Personal Accounts:- It includes all those accounts which are related to any person i.e. Individuals, firms, companies, Banks etc. This can further classified into three categories:-

  1. Natural Persons: All the accounts of human beings/ Persons are included such as Ram A/C, Shyam A/c etc.
  2. Artificial Persons: This includes all such accounts which are treated as persons in the eyes of law & have separate legal entity such as Reliance Ltd., XYZ Ltd.
  3. Representative Persons: This includes all such accounts which represents some persons such as Capital (Represent Owner), Outstanding Salary (Represent Employee).

(II) Impersonal Accounts:- It includes all those accounts which are not related to any person. This can be classified as-

  1. Real Accounts: Under this all accounts related to assets are included ( except Debtors). These can be Tangible i.e. Machinery, Furniture, Building, Cash etc. and Intangible I.e. Goodwill, Trade Mark, Patents, copy Rights etc.
  2. Nominal Accounts: This includes all the accounts related to Expenses/Losses & Incomes/Gains e.g. Salary, Rent, Commission received etc. They are used to record the transaction in the books of accounts.

Rules of Debit/Credit under Traditional Approach
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Illustration 2:
Analyse the following transactions by using the "Traditional Approach" of Debit/ Credit
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Solution : Analysis of Transactions
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Example:- Vimal wants to start transport business. He introduces initial Capital of Rs.1,50,000. He took a Bank loan(Liabilities) to purchase a truck(Assets) costing Rs.20,00,000.
So in this case Diesel (Fuel) is an example of Expense to run the truck  and freight charged from customers is Revenue.
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Rules of Debit/Credit under Modern Approach.
Modern Rules of Debit and Credit 
i) lncrease(+) in assets are debits; decreases(-) are credits.
ii) Increase in expenses(+) are debits; decreases(-) are credits.
iii) lncrease(+) in liabilities are credits; decreases(-) are debits.
iv) lncrease(+) in revenues are credits; decreases(-) are debits.
v) lncrease(+) in owner's capital are credits; decreases(-) are debits.

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
NOTE -The accounts of Assets and Expenses show Debit Balance and accounts of Liabilities, Capital and Revenue show Credit Balance.
Illustrations 3:
Analyze the transactions of illustration 2 by using the "Modern Approach" of Debit/Credit
Solution: Analysis of Transactions
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce


Source Documents

A written document which provides evidence of the transactions is called the Source Document. Source document is the first evidence of a transaction which takes place such as Cash Memo, Bill or Invoice, Receipt, Pay-in-slip, cheques, Debit-Note & Credit -Note. 
(a) Invoice (Bill):-An invoice is prepared by Seller at the time of sale of goods on credit. It contains details such as the goods sold, the party to whom goods are sold, sales amount, date etc.
(b) Cash Memo: It is prepared by the Seller at the time of Sale of goods on Cash. It contains details such as goods sold, quantity, amount received, date etc.
(c) Pay-in-Slip:-It is used to deposit cash or cheque into bank. It has a counterfoil which is returned to the depositor with the Signature of the authorized person.
(d) Receipt:- It is used when a customer give cash to the Business firm. It is an acknowledgment of payment or cash received by firm.
(e) Cheque:- A cheque is a order in writing, drawn upon a specified banker and payable on demand. 
(f) Debit Note:- It is prepared when a buyer returned goods to seller or when purchased return transaction is entered in the books of accounts. It is prepared by the buyer of the goods.
(g) Credit Note:- It is prepared when a seller received goods from buyer or when Sales return transaction is entered in the books of accounts. It is prepared by the Seller of the goods.

Question for Chapter Notes - Recording of Transactions-I
Try yourself:
What is the purpose of a source document in accounting?
View Solution

VOUCHER

A voucher is a document evidencing a business transaction. Recording in books of accounts is done on the basis of voucher. It is an accounting evidence of a business transaction.
Classification of Accounting Vouchers

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
CASH VOUCHERS
Cash voucher is prepared to record all the transactions which involve cash either in the form of receipt or payment. Thus, cash voucher is further classified into Debit Voucher & Credit Voucher.
Debit Voucher: Debit voucher is prepared for all cash payment made by the business firm such as Payment of Rent. Payment of salary, payment for purchase of goods etc.
Format of Debit Voucher

Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Illustration: 4.
Prepare a Debit vouchers of XYZ traders, 10, Patel Nagar, New Delhi from the following information. Aug. 1 2017 Salary paid for the Month of July 2017 vide salary sheet No. 7 Rs. 15,000
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Credit Voucher : Credit voucher is prepared for cash received by the business firm Such as Sale of goods for Cash, Payment received from any of Debtors, Income received etc.
Format of Credit Voucher
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Illustration: 5.
Prepare a Credit vouchers of Shyam traders, 156, Subhash Nagar, New Delhi from the following information.:- Oct.5, 2015 Sold goods for cash vide cash memo no. 401 Rs. 16,600
Credit Voucher
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Transfer Voucher/Non-Cash Voucher: This type of vouchers are prepared in those transactions which do not involve Cash. Such as Credit Sales, Credit Purchases, Bad Debts, Depreciation charged etc.
Transfer Voucher
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Illustration: 6 Prepare a Transfer voucher of Shyam traders. 156. Subhash Nagar, New Delhi from the following information.:- Feb. 15. 2015 Sold goods to Ram Traders vide Invoice/Bill no. 120 Rs. 24.000
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

LEDGER

Meaning: After recording the business transactions in the Journal or special purpose Subsidiary Books, the next step is to transfer the entries to the respective accounts in the Ledger. Ledger is a book where all the transactions related to a particular account are collected at one place.

Definition: The Ledger is the main or Principal book of accounts in which all the business transactions would ultimately find their place under various accounts in a duly classified form.
From journal each transaction is posted to at least two concerned accounts - debit side of one account and credit side of another account. Remember that, if there are two accounts involved in a journal entry, it will be posted to two accounts in the ledger and if the journal entry consists of three accounts (compound entry) it will be posted to three different accounts in the ledger. The process of transferring information from journal to ledger accounts is known as posting. The goal of all transactions is ledger. Ledger is known as the destination of entries in journal but it must be remembered that transactions cannot be recorded directly in the ledger - they must be routed through journal. This concept is illustrated below:

Transaction
Journal
Ledger

UTILITY OF LEDGER

To know the collective effect of all the transactions pertaining to one particular account.
By this classification, we are able to know the following-

  • It provides complete information about all accounts.
  • It provides position of Assets and Liabilities.
  • It facilitates to prepare Trial Balance.

Important: Ledger is also called the Principal Book of Accounts. Performa for Ledger Each ledger account is divided into two equal parts.
Left Hand Side -→ Debit side (Dr.)
Right Hand Side -→ Credit side (Cr.)
Name of the Account
  Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Posting in the Ledger : This will be dealt separately from Journal Entries and each Subsidiary Book.
Case I: Posting from Journal Entries

  • If an account is debited in the journal entry, the posting in the ledger should be made on the debit side of that particular account. In the particulars column the name of the other account (which has been credited in the Journal entry) should be written for reference.
  • For the A/c credited in the Journal entry, the posting in the ledger should be made on the credit side of that particular A/c. In the particulars column, the name of the other account that has been debited (in the Journal entry) is written for reference.

Important

  • 'To'' is written before the A/cs which appear on the debit side of Ledger
  • "By" is written before the A/cs appearing on the credit side Ledger.
  • Use of these words 'To' and 'By' is optional.

Example 1: Simple Journal Entry On 1st August 201 5 goods are sold for cash Rs. 12.000.
Solution:
Journal Entry
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Ledger A/c
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Sales A/c (extract)
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Example 2: Compound Journal Entry Received Rs. 14.000 in full settlement of a debt of Rs. 15,000 from Ram on Aug 8.2015.
Solution:
Journal Entry
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Ledger A/c
Cash Account
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Discount Allowed Account
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Ram's Account
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Case II: Ledger Postings from Cash Book 
Important Points

  1. Cash Book itself serves as a cash A/c also, therefore when cash book is maintained, cash A/c is not opened in the ledger.
  2. When Bank column is maintained in the Cash Book, Bank A/c is also not opened in the ledger. The Bank column itself serves the purpose of Bank A/c.
  3. Opening and closing balances of Cash Book will not be entered in the ledger.
  4. As Cash Book serves the purpose of Cash/Bank A/c, it means that, only the second A/c (other than Cash A/cor Bank A/c) is to be opened in the ledger and posting is to be made for each entry in the Cash Book.

Rules of Posting

(a) Posting from the Debit Side of Cash Book Entries appearing on the debit side of Cash Book are to be posted to the Credit Side of respective accounts in the Ledger by writing the words.
By Cash A/c → if it is from the Cash Column. By Bank A/c → if it is from the Bank Column.
(b) Posting from the Credit Side of Cash Book. By Cash A/c → if it is from the Cash Column By Bank A/c if it is from the Bank Column
(c) All contra entries marked "C" are ignored while posting from the Cash Book to the Ledger because double aspect of such transactions is completed in the Cash Book itself.
Example : Given some Cash Book entries Post them into ledger Accounts.
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Solution: 

  • 15th Jan. entry will not be posted (Contra Entry).
  • Closing Balance will not be posted in the ledger.

 Capital Account
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Sales Account
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Anil's Account
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Purchase Account
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce

Sumit's Account
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Case III: Ledger posting from Purchases book Journal Entry for Credit Purchases is Purchases A/c      Dr.
To Supplier 
Therefore the rules of posting from Purchases Book are:

  1. The total of the Purchase Book will be posted to the Debit side of Purchase A/c and the words "To Sundries as per Purchase Book" will be written in the particulars column.
  2. Each of the Supplier's A/c will be Credited and the words. "By Purchases A/c" will be written in the particulars column.

Example:
Purchases Book
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Solution: LEDGER A/cs 
Purchases Account
  Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Sahil & Co.
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Geeta Industries
Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
Vijay & Co.
 Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce
CASE IV: Ledger Posting from Sales Book Journal Entry for Credit sales is
Customer   Dr.
To Sales A/c 
Hence rules for posting from sales Book are

  1. Total of the Sales book will be posted to the credit side of sales A/c by writing the words "By sundries as per Sales Book"
  2. Customer's personal A/cs are debited by writing the words "To Sales A/c"

Case V: Ledger Posting from Purchase Return
Book Journal Entry for purchase Return is
Personal A/C of Supplier   Dr.
To Purchase Returns A/c 
Hence the rules for posting are:

  1. Supplier's A/c (to whom the goods are returned) is debited by writing the words "To Purchase Return A/c"
  2. The total of the Purchases return Book is credited to the Purchases Return A/c by writing the words "By Sundries as per Purchases Return Book"

Case VI: Ledger Postings of Sales Returns Book. Journal Entry for the sales Return is -Sales Returns A/c
Dr.
To Customer 
Hence the Rules for Posting are

  1. Individual Customer's A/cs by whom the goods are returned are Credited by writing the word "By Sales Return A/c."
  2. The total of the Sales Returns Book is posted to the Debit of Sales ReturnsA/c by writing the words. "To Sundries as per Sales Returns Book".

Closing and Balancing of Account

Normally after every month or whenever a businessman is interested in knowing the position of various A/cs, the accounts are balanced. Various steps for this purposes are:

  1. Debit and Credit sides of each A/c are totalled.
  2. The difference between the two sides is inserted on the side which is shorter so as to make their totals equal.
  3. The words 'Balance c/d' i.e., the balance carried down and written against the amount of difference.
  4. In the next period, the balance is brought down on the other side by writing the words 'Balance b/d'.
  5. If the Debit side exceeds the Credit Sides the difference is a Debit Balance whereas.
  6. If the Credit side exceeds the Debit side the difference is a Credit Balance.

Important points-

  1. Debit Balance of a Personal A/c means the person is a Debtor of the firm whereas Credit Balance of a Personal A/c indicates that the person is a Creditor of the firm.
  2. Real A/cs (which include Cash and all other Assets A/cs) will usually show Debit Balances.
  3. Nominal A/cs (A/cs of Income and Expenses) are transferred to Trading and Profit and Loss A/c of the firm at the end of the Accounting Period.
  4. Debit Balance of any A/c means an Asset or an Expense whereas Credit Balance means a liability, Capital or revenue.
The document Recording of Transactions-I Chapter Notes | Accountancy Class 11 - Commerce is a part of the Commerce Course Accountancy Class 11.
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FAQs on Recording of Transactions-I Chapter Notes - Accountancy Class 11 - Commerce

1. What is the purpose of recording transactions in accounting?
Ans. The purpose of recording transactions in accounting is to maintain a systematic and accurate record of all financial activities of a business. This helps in tracking the flow of money, analyzing financial performance, and ensuring compliance with accounting standards and regulations.
2. What are the different types of transactions that need to be recorded?
Ans. There are several types of transactions that need to be recorded in accounting, including sales, purchases, expenses, payments, receipts, and investments. Each transaction should be accurately documented to provide a clear picture of the financial position of the business.
3. How can transactions be recorded in accounting?
Ans. Transactions can be recorded in accounting through various methods. The most common method is the double-entry system, where each transaction is recorded with a debit entry and a corresponding credit entry. Additionally, accounting software and spreadsheets can be used to automate and streamline the recording process.
4. What is the importance of accurately recording transactions?
Ans. Accurately recording transactions is crucial for several reasons. It ensures that financial statements are reliable and provide a true and fair view of the business's financial position. It helps in making informed business decisions, enables proper tax compliance, facilitates audits, and enhances accountability and transparency.
5. How long should transaction records be maintained?
Ans. The duration for which transaction records should be maintained depends on the legal and regulatory requirements of the respective jurisdiction. In general, it is recommended to retain transaction records for a minimum of five to seven years. This ensures compliance with tax laws, facilitates audits, and provides historical data for analysis and reference.
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