| From the ledger accounts we can determine the financial condition of the business by creating financial statements. Note that in the Journal and in the Ledger, debits always equal credits.|
Recording transactions is as simple as following these steps. Note that each document references another document, leaving a trail from source to final total on a financial statement. In this example, the bank deposit is not the original source document, but might serve as a summary of the receipts for the day and the source documents could be attached, the whole filed away for reference. The source documents in this case are a check receipt (c201) and a sales receipt (r500). If bank deposit slips were filed separately and you needed to verify the source of the deposit, you could easily find the source documents because they are noted on the slip. If you were looking at the Ledger and wanted to verify the source of the $11,875 posted to cash, you look at the POST REF. column containing "J1," which means page 1 in the Journal, go to page 1 of the Journal and see that the total of receipts for April 1 was posted. From here you can look at the DOC. NO. column and retrieve the original source documents from a file.
When transactions are properly recorded, accounting is easy. When transactions are not properly recorded, accounting can be a nightmare, not to mention the threat to a business should decisions be made on the basis of incorrect financial statements.
Copyright © 1997-2007 Kathleen A. O'Connell, ALL RIGHTS RESERVED. Last updated Dec. 28, 2007