The process of Financial Accounting entails some essential functions. One of the main functions of financial accounting is recording. Recording of business transactions is regarded as the primary function of financial accounting. Lets discuss the role of journalizing in financial accounting in detail.
The process of recording all transactions, that are of financial character, chronologically in a book called journal or a book of original entry, is known as Journalizing. In this way, an entry which is made in relation to a particular business transaction is called as a Journal entry. Thus, the process of recording every single business transaction includes some necessary steps that are discussed below in brief.
It is important to make a careful analysis before any business transaction is recorded in Journal. It must be noted that merely debiting and crediting is not sufficient, but it is important to ascertain what accounts are involved in that particular business transaction. Ascertaining the nature of account as well as identifying the correct account eliminates the time and efforts for corrections, while it leads to maintain accuracy in the process of recording business transactions.
It is worth mentioning here that the process of recording business transactions requires one to have a good knowledge of accounting principles that are associated with dual aspect concept, meaning every business transaction has two fold effects. In this way, which rule of debit and credit is applicable, must be determined.
It also leads to debit or credit particular account in an efficient manner.
The following details come next in importance:
The recording date of transaction
Writing the name of account to be debited or credited.
Ledger Folio or Reference
Writing a brief narration
It is to be noted that the abbreviation Dr. is used for debit and Cr. is used for credit.
If Microsoft Excel or any accounting software is used, specific columns are to be used to record the business transactions and entering the details accordingly. However, the important aspect of recording business transactions is on the basis of double entry system of accounting that indicates every single transaction has dual aspects that affects changes in the balance sheet and income statement items in such a manner that the basic accounting equation, that is, Assets = Liabilities + Owners' Equity, holds the balance at all times.
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