The assets, liabilities, and equity of the business are displayed on the balance sheet, which is a financial statement. Because it has to balance, it is known as a balance sheet. Alternatively stated, the sum of the assets must equal the sum of the liabilities plus equity. The double-entry bookkeeping principle, which is the cornerstone of contemporary accounting, is reflected in what is known as the accounting equation.
All financial transactions are recorded in the prime books of account. These books form the foundation for creating the financial statements. The cash book, journal, ledger, trial balance, and financial statements are among the primary books of account.
The initial records of all financial transactions are kept in the seven original entry books. These are often referred to as daybooks or prime entry books. The cash book, sales daybook, purchase daybook, sales returns daybook, purchase returns daybook, journal, and petty cash book are the seven original entry books.
The cash book serves as both a ledger and a journal. Because all currency transactions, including cash receipts and cash payments, are recorded there, it qualifies as a journal. Because it is used to keep track of the balances of cash on hand and cash in the bank, it qualifies as a ledger.
The ledger is a book that contains all of the accounts. It is used to keep track of a company’s whole financial activity. The balances of each account are displayed permanently in this document. On the other hand, the journal is a book where all financial transactions are initially documented. It is used to document each transaction’s specifics, including the time, value, and accounts involved. The information is transferred from the journal to the ledger as a temporary record. The ledger offers a permanent record of all financial transactions and summarizes the data from the diary.
The phrase “footing” in accounting describes the process of calculating the sum of a column of numbers. To prevent errors and give trustworthy information for decision-making, it is crucial to maintain accurate footing in financial accounts, such as the balance sheet.
A record of all financial activities pertaining to a certain asset, liability, revenue, expense, or equity item is called an account. A ledger, on the other hand, is a group of accounts that includes a company’s whole transaction history. In plain English, a ledger is a group of records, whereas an account is a single record.