what are the 7 books of accounts with examples?

 Let's look into the 7 books of accounts with examples in simple words. Let's dive right in

What are books of accounts? It's meaning & definition

Books of accounts are the systematic records that a business or individual maintains to document their financial transactions and to prepare financial statements. These transactions may include sales, purchases, expenses, revenues, and other financial activities. Keeping accurate and up-to-date records is crucial for financial reporting & analysis, and to comply with the accounting standards and taxation requirements. 

They are defined as the place where all documents and financial records are kept relating to a person or a business. They are maintained under the Income tax act, companies act 2013 and also as per the GST act.

It also includes those records and documents used for preparation of financial statements. It includes journal, ledger, cash book, other subsidiary books, fixed assets register, stock register and other records.

These are used to prepare financial statements, which provide a snapshot of a company's financial performance and position. The three main financial statements are income statement/profit&loss a/c, balance sheet and cash flow statement

What are the 7 different types of books of accounts?

There are different types of books of accounts. The most important are discussed below.

Journal: The Journal is the original entry for all the transactions. It provides an audit trail and ensures that no transaction is missed or duplicated during the posting process to the ledger accounts. The process of recording all the transactions in journal is called journalising

 It records transactions in chronological order, including the date, accounts involved, and corresponding debit and credit amounts. Transactions from the journal are later posted to their respective ledger accounts. This book helps in maintaining an accurate record of all transactions before they are classified into specific accounts.

 The journal is where transactions are initially recorded in chronological order. It serves as a source document for entries into other records. Transactions are categorized by accounts and their respective debit and credit aspects.

Ledger: This is one of the types of books of accounts. The ledger is a collection of all individual accounts, each representing a specific type of asset, liability, equity, income, or expense. It provides a comprehensive view of each account's balance and activity, facilitating the preparation of financial statements

Each account in the ledger summarizes all related transactions, showing the balance and activity over time. Ledger accounts are organized in a standardized format, facilitating the preparation of financial statements.

It classifies the transactions from the Journal into specific accounts. This classification enables the organization to monitor each account's individual activity and balance. The Ledger forms the foundation for preparing financial statements such as Income Statement and Balance Sheet, which provide insights into profitability and financial position.

It contains individual accounts for various categories, such as assets, liabilities, equity, income, and expenses. Each account in the ledger summarizes all related transactions, showing the balance and activity over time. 

Cash Book: This book records all cash transactions, including receipts and payments. It provides a detailed overview of cash flow, ensuring accurate tracking of funds entering and leaving the organization.

 It is divided into two sides: the debit side for cash receipts and the credit side for cash payments. This book provides an immediate overview of the organization's cash position, helping with cash management and ensuring proper control over cash flows.The Cash Book serves as a real-time record of cash transactions, making it crucial for tracking the organization's liquidity. 

It's often divided into multiple columns, allowing for the differentiation of various cash inflows and outflows, such as cash sales, cash purchases, expenses, and income. It provides insights into the daily cash position. It helps in budgeting, forecasting, and managing short-term financial needs.

Petty Cash Book: It keeps the track of small and regular expenses that are not recorded in the main cash book. It helps manage petty cash transactions and gives the accountability for minor expenses.

It gives the accountability for petty cash expenditures and manages the petty cash balances.

Petty cash book is prepared to keep record of all such small cash expenses. Few examples of petty cash transactions are tea & coffee expenses paid, papers & pens purchased for cash.

Purchase Day Book: It records all the credit purchase of goods made by the business firm. It helps in monitoring purchase transactions and supplier accounts for timely payments.

 It includes information about suppliers, invoice numbers, dates, and purchase amounts. It  assists in monitoring purchase transactions, supplier terms, and accounts payable.

 It ensures that the organization maintains accurate records of its obligations, such as invoices to be paid and accounts payable outstanding balances. It helps in managing supplier relationships, negotiating terms, and avoiding late payments to suppliers.

Sales Day Book: It is used to record all credit sale of goods made by the business. It helps in tracking sales transactions and customer balances, and helps in effective credit management.

It includes details like the customer's name, invoice number, date, and amount of the sale made to customers. 

 It helps in effective sales management by documenting customer sales on credit. It helps in monitoring customer credit period time, the outstanding due balance from customers. By maintaining a detailed record of credit sales, the organization can address any overdue payments promptly

It helps in collection of outstanding due balances from customers. Also it helps in providing discounts to customers on making timely payments within the credit period allowed.

General Ledger: The general ledger contains summarized information from various subsidiary ledgers and this acts as the main record of accounts. It includes both control accounts (summary accounts) & subsidiary ledger accounts.

It acts as a central repository for all the summarized transactions from various subsidiary ledgers and control accounts. It includes control accounts that gives the total balances of accounts receivable, accounts payable.

It forms the basis for generating financial reports and financial statements. Control accounts within the General Ledger summarizes the transactions from subsidiary ledgers.

Subsidiary Ledger: This is one of the types of books of accounts. Subsidiary ledgers provide detailed transaction information relating to accounts receivable and accounts payable. They helps us in efficient tracking of customer and supplier outstanding balances 

This type of ledger contains detailed information of debtors balances and creditors balances. Thus helping the business entity to efficiently manage the accounts receivables and payables

Fixed Asset Register: This register keeps the record of all the fixed assets owned by the business organization. It includes details like the asset's description, acquisition cost of fixed assets, purchase date of such asset, depreciation method used for an asset. The Fixed Asset Register helps in maintaining the fixed assets, calculating depreciation, and it also helps in preparing financial statements.

 It helps in tracking asset-related transactions and it helps in calculating depreciation for fixed assets. Finally it helps in financial reporting

Trial Balance: The Trial Balance is a list of all the ledger account balances. It ensures that the sum total of debit balances equals the sum total of credit balances. Trial balance ensures the arithmetical accuracy of recorded transactions before preparing financial statements. It is main statement that helps in preparation of financial statements

An inventory or stock register: This is one of the types of books of accounts. It is used to keep the record of the details of inventory or stock items. It helps in managing and controlling inventory levels

The purpose of an inventory or stock register is to provide real-time information about the quantities, locations, and status of stock items or closing finished goods within a company. This  helps businesses to make decisions regarding purchases or sales, production of goods and also helps in  inventory management.

What are the different formats/methods of maintaining books of accounts?

The three main formats/methods for records are manual method, loose leaf sheets, and computerised software system.

!. Manual Method

The manual method is the traditional method for record keeping. This may include journal, ledger, cash book and other records. This is the format or method for recording the financial transactions in handwritten mode. This is easy to use format for small and medium sized business entities

2. Loose leaf sheets/pages

Loose-leaf sheets/pages refer to a specific format for maintaining financial records that helps in addition or removal of pages. In this format, instead of using traditional bound books, business entities use individual sheets or pages that can be added or removed as and when required. This format gives flexibility in updating and organizing financial records.

3. Computerised software system

Computerised software system is a format for recording the financial transactions in software such as Zoho, Sage, Quickbooks, Tally prime, Investran etc.,. This is the automated system to record the transactions. This also helps in easy generation of financial reports automatically

Conclusion

In summary, we have discussed the 7 different types of books of accounts with examples such as journal, general ledger, trial balance, subsidiary ledger, cash book, purchase book, sales book, fixed assets register and inventory register. The three main formats/methods for records are manual method, loose leaf sheets, and computerised software system.