The Different Types of Accounting Records

Table of Contents

Introduction 1

The Different Types of Accounting Records (1.1) 1

The Accounting System (M1, M3) 3

Fundamental Accounting Concepts (1.2, M2) 8

The Nature and Structure of Accounting Systems (1.3, M1, M2) 11

Components of Business Risk (2.1, M3) 14

Introduction

Many business concerns have countless business transactions each day. It is highly unlikely and impracticable to prepare a balance sheet after each transaction. Besides it is rather quite unnecessary to do so. Instead, many individual transactions can be recorded in accounting records. These accounting records hold the sources of information that provide basis for the timely preparation of periodic financial statements at the end of an accounting period. Moreover, accounting records may also be used to verify and audit financial reports. An accounting system includes a separate record for each asset, liability, capital, revenue and expense item that appears in the balance sheet that show all increases and decreases during a specific period. The type of record traditionally used for this purpose is called an account. A group of related accounts that comprise a complete unit, such as all of the accounts of a specific business enterprise, is referred to as a ledger. Maintaining accounting records is important because it constitutes an efficient information system that allows an enterprise to have the day-to-day documentation of their business transactions readily available when needed for the use of decision makers.

The Different Types of Accounting Records (1.1)

“The Chart of Accounts is a list of account titles and numbers showing the location of accounts in a ledger. It is similar to a system of indexing wherein accounts may be numbered consecutively like the pages of a book. The number of accounts to be kept for a particular business will depend on three things: the nature of its operations, its volume of business, and the extent to which details are desired. The Chart of Accounts can be classified into Real Accounts or Nominal Accounts. Real Accounts are accounting values shown in the balance sheet which accounts represent remaining unused and unconsumed values. Nominal Accounts are accounting values shown in Income Statements which accounts represent used, consumed, or expired values, and earned revenue.” (Salvador 2010)

The Journal, also called the book of original entry is a chronological record showing for each transaction the debit and credit changes caused in specific ledger accounts. Many businesses maintain several types of journals. The nature of operations and