Question

1. Explain, in writing, how you would develop and maintain an asset register. What would be your source information and what would be included in the register?

2.Explain what a general journal entry is and why journal entries are necessary.

3, Explain double‑entry principles and how and why they are used.

4. Explain a general ledger system.

Answer 1

1. In order to develop and maintain an Asset Register, the major source of information shall be the purchase invoices of the assets. Firstly all the assets shall be recorded serially in the asset register. Then the same should be physically verified for their existence. After verification assign  serial numbers to all the assets. Finally all the details relating to the asset are to be recorded in the register like asset description, serial number assigned to asset, invoice number, date of acquisition, amount paid, taxes paid, date of payment etc should be included in the asset register.

2. Journal entry is a method used to record accounting transactions in the records of the business.Journal entries can be recorded into a general ledger or in various sub-ledger. This is later on used to prepare financial statements. Journal entries are the first step of keeping accounting record. They are also used by auditors to analyze how financial transactions impact a business.

The following are the importance of journal entries:-

1. Each transaction is recorded as soon as it takes place. So there is no possibility of any transaction being omitted from the books of account.
2. Since the transactions are kept recorded in journal chronologically with narration, it can be easily ascertained when and why a transaction has taken place.
3. For each and every transaction which of the two concerned accounts will be debited and which account credited, are clearly written in journal. So, there is no possibility of committing any mistake in writing the ledger.
4. Since all the details of transactions are recorded in journal, it is not necessary to repeat them in ledger. As a result ledger is kept tidy and brief.
5. Journal shows the complete story of a transaction in one entry.
6. Any mistake in ledger can be easily detected with the help of journal.

3. Whenever you create an accounting transaction, at least two accounts are always impacted, with a debit entry being recorded against one account and a credit entry against the other account. In every transaction, the account receiving a benefit is debited and the account giving benefit is credited.

Principles of Double Entry System;

• Two parties: Every accounting entry involves two parties – debit and credit. According to the main principles of this system, every debit of some amount creates corresponding credit or every credit creates the corresponding debit for the same amount.
• Giver and receiver: Every transaction has one giver and one receiver.
• Exchange of equal amount: The amount of money the party gives in a transaction shall be equal to amount the party receives.
• Separate entity: Under this system business is treated as a separate entity from the owner. As a result business and its owners are separate entity.
• Dual aspects: Every transaction is divided into two aspects i.e. the left side of the transaction is debit and the right side is credit.
• Results: Under double entry system totality of debit is equal to the totality of credit. In it ascertainment of the result is easy.
• Complete accounting system: Double entry system is a scientific and complete accounting system.

The advantages of double entry system is:

1. Complete accounts of transactions: Since every transaction is recorded completely i.e. every outgoing part has a corresponding incoming part. As a result the entire transaction is recorded properly.

2. Verification of arithmetical accuracy: Arithmetical accuracy of accounting can be verified by preparing trial balance. Under the double entry system since every debit has a corresponding credit, any mismatch helps to identify errors.

3. Knowing asset and liabilities: Since all assets and liabilities are recorded thus when summarised, it shall help in knowing the assets and liabilities.

4. Future reference: Under this system as every transaction is permanently recorded properly and completely, any necessary information can be detected easily in future.

4. A general ledger system represents the record-keeping system of a company's financial data with debit and credit account records. The said data is validated by a trial balance. This ledger is used to provide a record of all the financial transactions  that takes place. The transactions of the company are posted to individual sub-ledger accounts and then the transactions are closed or summarised to the general ledger. After summarising a trial balance is generated in which balance of each ledger account’s balance is reported. The trial balance is then checked for errors and adjusted by posting additional necessary entries. Later on the resultant adjusted trial balance is used to prepare the financial statements.