Table of Contents
3.1 Business Transactions and Source Documents
A business transaction is an economic event that affects the financial position of a business and can be measured in terms of money. Each transaction has a give-and-take aspect, where one party provides something, and another receives it.
Example: Buying a computer for cash involves paying money (giving) and receiving a computer (taking).
To maintain records, businesses rely on source documents, which serve as proof of transactions. Examples include:
- Cash Memo: Issued when goods are sold for cash.
- Invoice/Bill: Issued when goods are sold on credit.
- Cheque: Used for payments.
- Pay-in-slip: Records bank deposits.
- Salary Slip: Records employee salaries.
These documents ensure accuracy and serve as the foundation for accounting entries.
3.2 Accounting Vouchers
An accounting voucher is a written document used to record transactions before entering them in the books of accounts. There are different types:
- Cash Vouchers: Used for cash receipts and payments.
- Debit Vouchers: Used for expenses and payments.
- Credit Vouchers: Used for sales and receipts.
- Journal Vouchers: Used for transactions not recorded in cash/bank books.
Format of a Transaction Voucher:
Name of Firm: ______
Voucher No: ______
Date: ______
Debit Account: ______
Credit Account: ______
Amount (₹): ______
Narration: ______
Authorized By: ______
Prepared By: ______
3.3 Accounting Equation
The accounting equation represents the relationship between assets, liabilities, and capital:
Every business transaction affects this equation while maintaining its balance.
Example: Rohit starts a business with ₹5,00,000.
- Assets (Cash) = ₹5,00,000
- Capital = ₹5,00,000
If he purchases furniture for ₹60,000 using cash:
- Assets (Furniture) increase by ₹60,000
- Assets (Cash) decrease by ₹60,000
The equation remains balanced.
3.4 Books of Original Entry (Journal)
The journal is the primary book where transactions are recorded in chronological order.
3.4.1 Rules of Debit and Credit
Accounting follows double-entry system, meaning every transaction affects at least two accounts.
| Type of Account | Debit Effect | Credit Effect |
| Assets | Increase | Decrease |
| Liabilities | Decrease | Increase |
| Capital | Decrease | Increase |
| Revenue | Decrease | Increase |
| Expenses | Increase | Decrease |
3.4.2 Journal Format
Date | Particulars | L.F. | Debit (₹) | Credit (₹)
—————————————————————
01-02-2024 | Furniture A/c Dr. | | 60,000 |
| To Cash A/c | | | 60,000
| (Purchased furniture) | | |
- Date: Date of transaction.
- Particulars: Accounts affected.
- L.F.: Ledger Folio (page number in ledger where entry is posted).
- Debit & Credit Amounts: Reflect the transaction impact.
3.5 Ledger Posting
Once transactions are recorded in the journal, they are transferred to ledger accounts for classification. The ledger helps in preparing financial statements.
Example:
- A debit to Furniture A/c will be posted on the debit side of the Furniture Ledger.
- A credit to Cash A/c will be posted on the credit side of the Cash Ledger.
Summary
- Business Transactions involve exchange of economic values.
- Source Documents serve as proof of transactions.
- Accounting Vouchers help record transactions systematically.
- Accounting Equation ensures balance in financial records.
- Books of Original Entry (Journal) record transactions in chronological order.
- Double-Entry System maintains financial accuracy.
- Ledger Posting classifies transactions for financial reporting.
This chapter lays the foundation for accurate and systematic bookkeeping, essential for financial decision-making.