Question

Please describe what an account is and discuss three examples. Please discuss what a chart of accounts is and why it is important. Please also discuss the ledger and journal and their purpose.

Answer 1

An account refers to the statement of asset, liability, income or expenses shown by way of debit and credit to record the activities undertaken in respect of that account. They are represented by indiviual ledger page and have chronologival recordings of events. Examples include plant and machinery account, depreciation account, accounts payable account, revenue account

Every organisation has its own chart of accounts showing the name of accounts used in the ledger. It is used to assemble data in accounts and statement based upon the characteristics of the accounts into meaningful information and reports like Trial balance, Balance Sheet, Income Statement etc.

Journal also known as book of original entry is the first place where transaction is recorded after being incurred. It is 4 types, cash journal, sales journal, purchase journal and general journal. Its purpose is to record the activities and post it into summarise form to ledgers.

Ledger is the second point where transactions are recorded after book of original entry or journals and then prepare information in such a way as to manage those accounts and prepare reports like trial balance, balance sheet etc