This transaction will affect the company’s Cash account because it received the cash. First, we understand that this is a borrowing money (loan) transaction. Let’s say you have a loan agreement that states that Company A obtains $8,500 of cash by receiving a loan on July 15 th, 20XX from Bank Y. If you are still learning which account to credit and which to debit, refer to an illustration below. The final step is to check whether the debits and the credits of the recorded event meet the conditions of the double-entry accounting and everything is still in balance. Meet the conditions of double-entry accounting After recording transactions in the journal, you need to transfer them to the general ledger. This means that with every transaction an accountant records, there will be at least two accounts that will be involved in the process or creating journal entries for the transaction. For example, in a purchase transaction, at least one Asset account will be affected, whether we debit Inventory or Fixed Asset or credit Cash, if it is a cash transaction.Īlways keep in mind that in a typical business transaction, we get something and we give up something, which is the basis of the double-entry accounting concept. The second step is to identify the affected accounts and how they will be affected – debit or credit, depending on whether it is an Asset, Liability, or Equity account. BooksTime makes sure your numbers are 100% accurate so you can focus on growing your business. Keeping proper financial records is time-intensive and small mistakes can be costly.
This understanding of the business transaction is achieved by examining source documents.
The responsible person would need to collect the required information to understand the nature of the transactions (whether it is a purchase or a payment, and so on) and know the monetary value of the transaction and parties of the transaction. Meet the conditions of the double-entry accounting concept.Accountants follow a three steps methodology in recording transactions:
By recording transactions, we translate business transactions into accounting records. Recording business transactions is the process of entering business events into the accounting system, which is more common and very automated now, or accounting books. Based on all of these recorded transactions, financial and management reports are prepared for different stakeholders, from owners, bankers to government entities, like tax authorities. That is why one of the key duties of accountants is to keep track of all company financial transactions by recording them into the company’s accounting system or writing them down in the journal and then transferring the entries into the general ledger.Ī transaction is any condition or event that must be recorded in the books of business because of its effect on the financial condition of the business.
Having business records up-to-date and accurate is vital for every company regardless of its size or its business sector.