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Lesson # 6
FLOW OF TRANSACTIONS
Learning Objective
Occurrence of an Event
The Voucher
General Journal
Event
Event is the happening of any thing but in accounting we discuss monetary events
Monetary Events
If the financial position of a business is change due to the happening of event that Event is
called Monetary Event
The Voucher
Voucher is documentary evidence in a specific format that records the details of a transaction.
It is accompanied by the evidence of transaction.
Name Of Company
Type Of Voucher
Date: 1-1-20-- No: 01
Description Code Debit Credit
# Amount Amount
Cash 01 100,000
Capital 02 100,000
The Journal is used to record financial transactions in chronological (day-to-day) order. All
vouchers were first recorded in books of accounts. It was also called the Book of Original Entry
or Day Book. But in present day accounting and especially with the introduction of computers
for accounting, this book is not in use any more.
Ledger – is a book that keeps separate record for each account (Book of Accounts). The
Account or Head of Account is systematic record of transactions of one type.
Title of Account
Since the ledger keeps record of transactions that affect one head of account, therefore, it
should provide all the information that a user may need.
Usually the ledger is required to provide following information:
o Title of account
o Ledger page number, called Ledger Folio / Account Code
o Date of transaction
o Voucher number
© Copyright Virtual University of Pakistan 22
Financial Accounting - I – MGT101 VU
o Narration / particulars of transaction
o Amount of transaction
Voucher
Date: 1-1-20-- No: 01
Description Code Debit Credit
# Amount Amount
Cash account 01 100,000
Capital account 02 100,000
Narration: Capital Introduced in Cash by Owner
Capital
Cash 100,000
In the earlier lecture, we have discussed that in order to have the total figure in respect of each
head of expense/income, asset/liability, we need to maintain different accounts. We had also
said that each account may have figures on the debit as well as on the credit side. Therefore, the
difference between the debit and the credit sides, known as the BALANCE, would represent the
required total of the particular account.
The total of all balances on the Debit side is ALWAYS equal to the total of all balances on the
Credit side. This is called the balancing of books of accounts. We will study about this concept
at a later stage. The balance may be written out after every transaction in a third column or
calculated at the end of a specific time period (an accounting period).