2. Modern Method, Practical Method or English Method of Book-Keeping:
The conventional or theoretical method of book-keeping was found inconvenient and unsuitable for big concerns with a large volume of transactions. So, to serve the needs of big concerns, a new method of book-keeping has been developed later on. The new method of book-keeping is known as the modern method, practical method or english method of book-keeping.
Under the modern method or practical method of book-keeping, the book-keeping work consists of the following phases or steps:
1. Recording of the transactions in a number of subsidiary books or special journals:
First, the various transactions of the business are recorded in a number of books of original entry or first entry called the subsidiary books or special journals, as and when they take place.
2. Preparation of ledger accounts:
Secondly, the entries in the various subsidiary books are posted or transferred to the appropriate accounts in the book of second entry 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 various subsidiary books, necessary 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., (1) the trading and profit and loss account and (2) 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.
The conventional or theoretical method of book-keeping was found inconvenient and unsuitable for big concerns with a large volume of transactions. So, to serve the needs of big concerns, a new method of book-keeping has been developed later on. The new method of book-keeping is known as the modern method, practical method or english method of book-keeping.
Under the modern method or practical method of book-keeping, the book-keeping work consists of the following phases or steps:
1. Recording of the transactions in a number of subsidiary books or special journals:
First, the various transactions of the business are recorded in a number of books of original entry or first entry called the subsidiary books or special journals, as and when they take place.
2. Preparation of ledger accounts:
Secondly, the entries in the various subsidiary books are posted or transferred to the appropriate accounts in the book of second entry 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 various subsidiary books, necessary 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., (1) the trading and profit and loss account and (2) 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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