Accounting is defined as a service activity.

Its function is to provide quantitative information,

primarily in nature about economic entities that is intended to be useful in making economic
decisions. (Accounting Standards Council, par 1). It is the most important part of any successful
business. It is considered the lifeblood of any business. It records all profits, losses, credits and
debits. It tells the state of the business in numbers, not words. It is the prime way for a company
to determine its productivity and profit. It allows you to see where your business at stands and
how it is performing financially. Accounting provides important information to make economic
decisions in a business. If you don’t have an effective accounting system in place, your business
is susceptible to a downfall since you take the risk of making serious errors in financing. You
cannot identify elements that are succeeding and whether to make adjustments or not.

I. Chart of Accounts

“A chart of accounts is a listing of the names of the accounts that a company has identified and
made available for recording transactions in its general ledger. A company has the flexibility to
tailor its chart of accounts to best suit its needs, including adding accounts as needed.’’

Within the chart of accounts you will find that the accounts are typically listed in the following
order:

Figure1.
Within the categories of operating revenues and operating expenses, accounts might be further
organized by business function (such as producing, selling, administrative, financing) and/or by
company divisions, product lines, etc.

Sample Chart of Accounts for a Small Company

This is a partial listing of another sample chart of accounts. Each account is assigned a three-
digit number followed by the account name. The first digit of the number signifies if it is an
asset, liability, etc. For example, if the first digit is a "1" it is an asset, if the first digit is a "3" it is
a revenue account, etc. The company decided to include a column to indicate whether a debit or
credit will increase the amount in the account. This sample chart of accounts also includes a
column containing a description of each account in order to assist in the selection of the most
appropriate account.
Figure 2. Asset Accounts

Figure 3. Liability Accounts

Figure 4. Owner’s Equity Accounts

Figure 5. Operating Revenue Accounts

Figure 6. Operating Expense Accounts

Figure 7. Non-Operating Revenues,

Expenses, Gains and Losses
 Accounting software frequently includes sample charts of accounts for various types of
businesses. It is expected that a company will expand and/or modify these sample charts of
accounts so that the specific needs of the company are met. Once a business is up and running
and transactions are routinely being recorded, the company may add more accounts or delete
accounts that are never used.

At Least Two Accounts for Every Transaction

The chart of accounts lists the accounts that are available for recording transactions. In
keeping with the double-entry system of accounting, a minimum of two accounts is needed for
every transaction—at least one account is debited and at least one account is credited.

When a transaction is entered into a company's accounting software, it is common for the
software to prompt for only one account name—this is because the software is programmed to
automatically assign one of the accounts. For example, when using accounting software to write
a check, the software automatically reduces the asset account Cash and prompts you to designate
the other account(s) such as Rent Expense, Advertising Expense, etc.

Some general rules about debiting and crediting the accounts are:

 Expense accounts are debited and have debit balances

 Revenue accounts are credited and have credit balances
 Asset accounts normally have debit balances
 To increase an asset account, debit the account
 To decrease an asset account, credit the account
 Liability accounts normally have credit balances
 To increase a liability account, credit the account
 To decrease a liability account, debit the account
 II. Journals

“ Journal is a detailed account that records all the financial transactions of the business,
to be used to future reconciling of and transfer to other official account in records.”

Journal is really important to any businesses because it can maintain the chronological
approach of recording all the transactions. Therefore, it becomes easier to retrieve data regarding
a particular transaction on a specified date and it can have very low chances that you will
exclude a transaction that matters to the business. Then, it will explain the whole financial event
and ensures mathematical accuracy in accounting process. Lastly, it is really helpful to keep the
ledger concise and tidy.

In terms of any inconsistencies or mistakes in the ledger of trial balance, then the journal
can also act as a reference to the financial statement.

It is difficult to find out effect and information relating to the transaction if all the
transactions are recorded in a single journal and also recording of all transaction in one general
journal is a time consuming, laborious, and troublesome task. That is why the use of many
journals instead of one journal has been introduced, these are the purchase journal, sales journal,
cash receipts journal, cash disbursement journal, purchase return journal, sales return journal and
general journal.Definition and uses of different types of Journal in Accounting

1. Purchase journal - special journal used for recording credit purchase of merchandise but the
purchase of assets and other thing on credit should not be recorded in purchase journal rather it is
more acceptable in general journal.

2. Sales journal - used for recording the credit sales of merchandise only. Cash sale of
merchandise is recorded in the cash receipt journal and a credit of asset is recorded in general
journal.

3. Cash receipt journal - special journal used for recording all types of cash receipt. The
introduction of cash receipt journal is in the practice of medium and large size business
organizations. Then main source of cash receipts are cash from sale and cash from accounts
receivables.
4. Cash disbursement journal - special journal used for recording various transactions relating
to cash payments. The usual concerns of business is to pay debts by cheques. For acceptability
for cash payment, business organization pay bills by cheques and cheques are treated as cash
payment.

5. Purchase return journal - special journal, where the purchase returns of credit purchase is
recorded.

6. Sales return journal - special journal, where the credit sales return are recorded. It is
prepared from debit notes sent by the buyers with returned goods.

7. General journal - used to record transaction other than the transaction recorded in cash
receipts journal, cash payment, purchase journal, sales journal etc. The journal, wherein the
transactions which cannot be directly recorded in a particular journal. In this journal the
transaction is recorded through the following:

 opening entry
 closing entry
 adjustment entry
 restification entry
 transfer entry
 credit purchase and sale of assets
 other entries

All of these types of journals can help for convenient keeping of accounts. Then,
everything in recording will be easy in the business process especially in finding out the effects
and information of different transaction.

III. Voucher

“A voucher is a pre-numbered document used in processing payments’’. This document is

typically prepared by the accounts payable department after receiving the supplier's invoice. In
the process, the supplier's invoice is matched with the related purchase order and receiving report
to ensure that only goods received and services rendered to the company will be processed for
payment. Matching these three documents prevents the company from paying incorrect and
sometimes fraudulent invoices.

A voucher can be electronic, but most often, it is a manual, paper document.

The Voucher System

It is important to note that the voucher system is not only used to process payments but
also for goods and services. A voucher is prepared every time the company makes a payment.
Hence, vouchers are prepared for other disbursement transactions like cash purchases, payment
of payroll, replenishment of petty cash and other funds, payment of debts and other obligations,
and even payment of dividends.

What's in a Voucher?

The detailed information contained in a voucher includes the payee's or vendor's name,
the invoice date, the monetary amount and the due date of payment, details of the transaction, the
accounts or account codes to be debited and credited in the accounting books, and other relevant
information. The voucher is also serially numbered to facilitate control.

Upon verification, the voucher is submitted to an authorized official for approval. Once
approved, the voucher is recorded in the voucher register. The voucher register takes the place of
the purchases journal. The journal entry in the voucher register often includes a debit to an asset
and an expense or purchases account, with a corresponding credit to vouchers payable or
accounts payable.

Unpaid Vouchers

Unpaid vouchers are then filed in the unpaid vouchers file, together with the supporting
documents--purchase order, supplier's invoice, etc. The total of unpaid vouchers in the unpaid
vouchers file actually represents the balance of vouchers payable or accounts payable in your
balance sheet.

Example of a Voucher

You could think of the voucher used in accounts payable as a cover sheet to which
necessary supporting documents and approvals are attached. Some of the supporting documents
include:

 The vendor's invoice

 The company's purchase order
 The company's receiving report
 Payee/vendor name
 Discount terms
 Amount and date to be paid
 General ledger account numbers to be charged
 Authorizing signatures

The voucher is then recorded in the voucher register.

The unpaid vouchers provide the detail for the total amount reported as vouchers payable
or accounts payable.

As a voucher's payment date comes near, the voucher is forwarded to an authorized person
for payment. After making payment, a copy of the check is attached and the voucher is stamped
"Paid." It is then filed in the paid voucher file in order to prevent a duplicate payment.