What went wrong when the king rode under the arch?

It was too low and knocked off his crown

How does the chain of blame unfold in the poem?

Each accused person blames another, ending with the king's own changes

What is a source document?

It is the documentary evidence of a transaction, such as a cash memo, invoice, receipt or pay-in-slip, on the basis of which entries are recorded.

What is an accounting voucher?

It is a document prepared from source documents to record a transaction, and may be a cash, debit, credit or journal voucher.

The journal is the book of original entry in which transactions are first recorded in chronological order with their two-fold effects.

The ledger is the principal book of accounts containing separate accounts for each item, to which journal entries are posted.

Distinguish between journalising and posting.

Journalising is recording a transaction in the journal, while posting is transferring that entry to the relevant ledger account.

How does a transaction affect the accounting equation?

Every transaction has a two-fold effect that keeps both sides of the equation Assets = Liabilities + Capital equal.

What is a compound or journal voucher?

It is a voucher used to record a transaction that involves more than one debit or credit, also called a complex voucher.

What do CGST, SGST and IGST stand for in recording transactions?

CGST is Central GST and SGST is State GST charged on intra-state sales, while IGST is Integrated GST charged on inter-state sales.

Recording of Transactions - I

Q: State the rules of debit and credit for assets and expenses.

For assets and expenses, an increase is debited and a decrease is credited.

Q: State the rules of debit and credit for liabilities, capital and revenues.

For liabilities, capital and revenues, an increase is credited and a decrease is debited.

Class 11 Accountancy · Financial Accounting Part I · Chapter 3

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Summary

This chapter explains the first steps of the accounting process: identifying transactions, preparing source documents, applying the accounting equation, recording entries in the journal and posting them to the ledger. A business transaction is an exchange of economic consideration with a two-fold effect, evidenced by a source document or voucher such as a cash memo, invoice or receipt. Accounting vouchers may be cash, debit, credit or journal (complex) vouchers. Every transaction affects the accounting equation Assets = Liabilities + Capital, keeping both sides equal. The rules of debit and credit are applied: for assets and expenses, an increase is debited and a decrease is credited; for liabilities, capital and revenues, an increase is credited and a decrease is debited. The journal is the book of original entry where transactions are recorded chronologically with debit and credit accounts, amounts and a narration; this process is called journalising. The ledger is the principal book containing individual accounts, and transferring entries from the journal to the ledger is called posting. The chapter also illustrates the recording of transactions involving GST (CGST, SGST and IGST). The journal records data by transaction while the ledger classifies it by account, and ledger accounts are later balanced to find their net positions.

Business transactions and source documentsPreparation of accounting vouchersAccounting equation and rules of debit and creditJournal and journalising (including GST)Ledger and posting of entries

Key terms

Source Document

A document such as a cash memo, invoice or receipt that provides documentary evidence of a business transaction.

Voucher

An accounting document prepared on the basis of source documents to record a transaction; types include cash, debit, credit and journal vouchers.

Accounting Equation

The relationship Assets = Liabilities + Capital that remains balanced after every transaction.

Journal

The book of original entry in which transactions are recorded chronologically with their debit and credit aspects and a narration.

Ledger

The principal book of accounts containing individual accounts to which journal entries are posted.

Posting

The process of transferring entries from the journal to the respective accounts in the ledger.

Extra questions & answers

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Subsidiary books into which the journal is sub-divided are also called:

Flashcards & interactive practice