Accountants used a “Set of Books” in earlier times to keep track of the transactions that a particular organization was going through. These set of books, with the corresponding system, form one of the earliest control systems known to business organizations. Below is a description of the set of books and their purpose in the accounting system.
Journal: This is the primary book of accounts that is used on a daily basis when transactions are made. The journal records transactions in the chronological order. However, the total amount of information in a journal can be overwhelming for a large company.
Ledger: Shortcomings of the journal give birth to the ledger. The ledger is the principle book of control in any organization. A ledger is a collection of the organization’s accounts. For example, in the cash a/c, all the transactions will be recorded and the final cash balance available will be calculated and cross checked. At the end of an accounting period, let’s say every day, ledgers are being updated with information from the journal.
Trial Balance: The data from many ledgers is then aggregated in a trial balance. This is done to ensure that the debits equal credits at this stage. If there is a discrepancy then the difference is marked to the suspense account.
Statements: Finally, the balances are posted from the trial balance after making necessary adjustments and financial statements, such as P&L, Balance Sheet and Cash Flow Statement. This whole process is run by softwares in real time.