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6 Books of Original Entry and Ledgers
I. What is Ledger?
Ledger is an account book to record all the accounts.
However, transactions are rarely recorded directly in one ledger (book of accounts) because:
? Many transactions happen each day for medium-size or large firm
? Internal control of separate duties is essential.
Therefore, several ledgers should be kept by different accounts clerks for better control and handling.
II. Type of Ledgers
Type Types of accounts kept Examples Purchases Ledger To keep all trade creditor accounts Chan Ltd.
Wong’s Co. Sales Ledger To keep all trade debtor accounts Cheung’s Co.
Lee’s Co. Cash Book To keep Cash
1. Bank account Bank
2. Cash account Petty cash
3. Petty cash book
General Ledger To keep all other accounts: Premises
1. Real accounts (all assets’ accounts) Machinery
2. Nominal accounts Rent
? all revenue and expense accounts Wages
Rental income ? purchases and sales
Sales ? returns inwards and outwards accounts
Purchases ? all liabilities accounts
Capital ? capital and drawings accounts
Loan from HK Bank
III. What are books of original entry?
Before recording any transaction in double entry accounts in various ledgers, transactions are first recorded
in the books of original entry. For different transactions, different types of books of original entry are used.
IV. Types of Books of Original Entry
Purchases Journal Credit purchases
Sales Journal Credit sales
Returns Outwards Journal Returns outwards
Returns Inwards Journal Returns inwards
Cash or bank received and paid Cash Book *
General Journal Other item not entered
* Except the cash book, the above journals are not part of double entry system.
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V. Diagram of a Simple Accounting System
The diagram below shows the sequence of book-keeping procedures under the double entry system.
Classify the business transactions in following types
Credit Credit Returns Returns Cash Others
receipts & Sales Purchases inwards outwards
Sales Purchases Returns Returns Cash The
inwards outwards Journal Journal Book Journal
Enter in double entry accounts in
the various ledgers:
? General ledger
? Purchases ledger
? Sales ledger
Year-end adjustments for final accounts Final accounts Trading, Profit & loss Balance Sheet