Ledger Sheet Transfer To Balance Sheet: Fill & Download for Free

If you have paid for it, title has transferred to you and you own it.I would record it as inventory on the balance sheet. In the general ledger, I'd set up an account called "inventory in transit" to record such transactions.

Q: In accounting, if credit is what goes out, then why does income comes under credit?What you have written in the question above is only half of one of the three golden rules.Types of accounts:Accounts can be broadly classified under either one of the following three heads:1. Real2. Personal3. NominalReal accounts are your tangible and intangible assets like machinery, land, furniture, cash, etc.Personal accounts are all assets and liabilities which represent some "person" like debtors, creditors, banks, owners, etc.Nominal accounts are accounts of your incomes and expenses.The three golden rules:Let us have a look at the three rules. Each of these rules applies to one of the aforesaid type of account.For Real: Debit what comes in, credit what goes out.For Personal: Debit the receiver, credit the giver.For Nominal: Debit all expenses and losses, credit all incomes and gains.Coming to your question now:Now, having set some background for discussion, let us come to the question. The essential flaw in the question is that we are trying to apply a rule of one type (Real) to an account which falls under another type (Nominal).Any income account is a nominal account. Thus, the applicable rule is not "debit what comes in, credit what goes out". The applicable rule is "debit all expenses and losses, credit all incomes and gains".Hence, we credit income accounts.Academically (in India), knowing this much is enough. If it interests you, read further.A normal accounting process goes like this:1. A transaction is entered into by the business.2. Transaction, in the form of a journal entry, is recorded in the journal book. This recording depicts the monetary value of the transaction so that its impact can be gauged.3. A book is prepared for every ledger account.4. Entries from each journal book are then posted in the books of the respective ledger accounts.5. The amounts in each ledger account are summed to find the resultant balance (net total) at the end of the period.6. The balances of each of these ledgers is accumulated in a trial balance.7. The various balances from the trial balance are then transferred to either a profit and loss account (or statement, if it pleases you) or to a balance sheet.8. The net total of the profit and loss account is transferred to the balance sheet.9. The end (no clue why I made this a separate point)Thus, any transaction will ultimately show a reflection in the balance sheet.Now, a balance sheet is divided in two parts - liabilities and assets. Liabilities are the sources of your funds and Assets are the application of your funds. Thus, they are also known as (at the risk of being Captain Obvious) Sources of Funds (SOF) and Application of Funds (AOF).Now, the names, SOF and AOF, being self-explanatory, there is little to speak on that. Let us just recollect one thing - all liabilities have credit balances and all assets have debit balances.An income is a source of fund. Hence, it has a credit balance. If you want to increase a ledger with a credit balance, you add on its credit side, i.e. you credit the account. Thus, if you want to record an income, you will credit the income account.Conversely, if you want to decrease an income, you will debit the income account.(If this is confusing, think of a silly example. You have two glasses of water, one sweet and one salty. You have some salt and some sugar.1. If you want to make the sweet water more sweet, then you will add sugar.2. If you want to make the sweet water less sweet, then you will add salt.3. If you want to make the salty water more salty, then you will add salt.4. If you want to make the salty water less salty, then you will add sugar.Same added, increase the total. Opposites added, decrease the total).To understand the SOF and AOF logic better, here is an example:I work as an employee for X Ltd. They pay me for it. They are very whimsical when it comes to paying my salary. For example, the first month saw them paying me cash of INR 1 billion (I am an important employee). The second month, they paid me giving me a large piece of land (location: undisclosed). The third month, they did not pay me anything. They promised to pay it later.Now, in each of the months, I have earned my salary. That is the source of my funds. That is my income. As discussed earlier, SOF/liabilities have credit balance. The salary was represented by various assets at different points in time. Once, it was cash. Once, it was a piece of land. Once, it was a promise. Each of these is an application of my fund. Each of these assets is independent of the income.MORALS OF THE STORY:1. Incomes do not come in or go out like members of the Real Account family. Incomes are earned.2. Since all incomes are sources of funds, they are credited when earned.If you have read this far, congratulations. For any suggestions, doubts, and corrections (most important) please post them here or write to me personally (since I find some anonymous party participating here in this question). I would like a further discussion.

First we pass Journal Entries.Then we post them into ledger.Then we make Trial Balance.Then comes Profit & Loss account and it's profit/loss is transferred to Balance Sheet.Cash Flow comes last.But in today's electronic world we just post journal entry (voucher) and others are developed on the same time.