Question

what is the basic accounting equation?

What are the main benefits of a journal?

What is “posting”? What is the recording process of transactions?

What are the limitations of the trial balance (e.g., E3-19)?

Answer 1

a)Basic accounting equation is stated as below

Assets = Liabilities + Equity share capital

That is nothing but total assets of the business is equal to its liabilities and share capital

b)Below are the benefits of journal

1. Journal provides records of all business transactions in one place on the time and date basis.
2. There is minimum chance to avoid any particular transaction because in journal transactions are recorded date basis
3. Journal is the basis of posting in ledger accounts. With making of journal, accountant can not make ledger accounts.

c)The procedure of transferring an entry from a journal to a ledger account is known as posting. It involves transferring of debits and credits from journal book to the ledger accounts, if an account in a journal entry has been debited it will be posted in the ledger account by entering the same amount on the debit side/column of the respective ledger account and vice versa

Process of Recording the transactions involves below steps.

1)First to check which accounts will be effected

2)Next we have to decide which account will be debited and which account will be credited

3)Finally we have to record the transaction in journal.

d) Below are the limitations

1) If a trasaction is completed omitted to be entered in a day book then it will not affect the total of the trial balance

2)  If an entry is posted to correct side but in to a different account head then also the total of trial balance will not affected

3)the errors which arises due to excess-debits or under-debits of accounts but the same are neutralized by excess-credits or under-credits in same account or other accounts - compensative errors