Question

Ms. Black started her own gardening business a year ago. She knows you are taking an accounting course so you get into a conversation about the details of accounting for transactions. She tells you that because her business is so small she doesn't use a journal but just posts directly to the general ledger. She goes on to say that she doesn't bother with revenue and expense accounts but just records these items in the retained earnings account because that is where they really belong anyway.

Instructions

Comment on Holly's method of recording information. Include in your response the reasons for, and benefits of, using journals and revenue and expense accounts.

ReplyForward

Answer 1

Maintain journal, Expenses and revenue Accounting has its advantages :

1) Provide record for all transactions. Making it easier to track the origin and nature

2) Authenticity : All journal will be accompanied by bills. Therefore, it provides authentication to the transaction.

3) All transaction will be recorded if journal are maintained and thus it will not lead to missing out on a transaction.

4) Less chance of mistake as accounts will be maintained in double entry system

5) Helps is Audit : Journal are important documents when auditing the books of accounts.

6) Reduce chance of duplication : If the records are maintained properly there will be less chance of duplication or double entry of same income or Expenses.

7) Record purposes : Bifurcation of is easily done if they are maintained properly.