1. Conventional Method, Traditional Method or Theoretical Method of Book-Keeping:
Under the conventional or theoretical method of book-keeping, the book-keeping work consists of the following phases or steps:
1. Recording of all the transactions in a single journal:
First, all the transactions of the business are recorded in s single book of original entry, prime entry or first entry called the journal, General Journal or Ordinary Journal, as and when they take place. That is, first, all the transactions are journalised, or journal entries are passed for all the transactions of the business.
2. Preparation of ledger accounts:
Secondly, the entries in the single journal are posted or transferred to the appropriate accounts in the book of second or final entry called the Ledger, periodically, i.e., either weekly, fortnightly, monthly or quarterly, depending upon the convenience of the business, to ascertain the exact position of each account on any particular date. That is, secondly, from the entries in the journal, accounts are prepared in the ledger.
3. Preparation of final accounts:
Finally, after checking the arithmetical accuracy of the entries in the ledger accounts, through the preparation of a trial balance, from the ledger account balances found in the trial balance, final accounts, viz., (a) the trading and profit and loss account and (b) the balance sheet, are prepared at the end of the accounting year. The trading and profit and loss account is prepared to know the net profit or net loss of the business for the accounting year. The balance sheet is prepared to know the financial position of the business as on the last day of the accounting year.
Under the conventional or theoretical method of book-keeping, the book-keeping work consists of the following phases or steps:
1. Recording of all the transactions in a single journal:
First, all the transactions of the business are recorded in s single book of original entry, prime entry or first entry called the journal, General Journal or Ordinary Journal, as and when they take place. That is, first, all the transactions are journalised, or journal entries are passed for all the transactions of the business.
2. Preparation of ledger accounts:
Secondly, the entries in the single journal are posted or transferred to the appropriate accounts in the book of second or final entry called the Ledger, periodically, i.e., either weekly, fortnightly, monthly or quarterly, depending upon the convenience of the business, to ascertain the exact position of each account on any particular date. That is, secondly, from the entries in the journal, accounts are prepared in the ledger.
3. Preparation of final accounts:
Finally, after checking the arithmetical accuracy of the entries in the ledger accounts, through the preparation of a trial balance, from the ledger account balances found in the trial balance, final accounts, viz., (a) the trading and profit and loss account and (b) the balance sheet, are prepared at the end of the accounting year. The trading and profit and loss account is prepared to know the net profit or net loss of the business for the accounting year. The balance sheet is prepared to know the financial position of the business as on the last day of the accounting year.
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