Recording Transactions - Learn Bookkeeping For Free | dwmbeancounter.com

• An account is a part of the accounting system used to classify and summarize a specific set of a business’s transactions.

• Firms set up accounts for each different business element, such as cash, accounts receivable, and accounts payable.

• Accounts are categorized by type listed in this order:

• Assets

• Liabilities

• Equity, which is broken down into:

• Capital

• Withdrawals

• Revenue

• Expenses

The Role of Accounts

• We use accounts to track things that are important to us (using the monetary principle) and we try not to have more accounts than we need.

• Each account then will have a running total, called a “balance” that we, as bookkeepers, keep up to date and accurate.

Rules of Debits and Credits

• Double-entry bookkeeping is the foundation of accounting.

• In the double-entry system, every transaction affects at least two accounts,and sometimes more.

• Instead of using negative and positive numbers, we record our transactions using debits and credits.

• Debits are on the left side of accounts and credits are on the right side of accounts.

Debits and Credits and the Accounting Equation

Assets = Liabilities + Owner's Equity

• On the left side of the accounting equation:

• Assets are increased by a debit and decreased by a credit

• On the right side of the accounting equation:

• Liabilities are increased by a credit and decreased by a debit

• Equity is increased by a credit and decreased by a debit

Records

Journals are chronological records of transactions. Transactions are first recorded in Journals and the summarized and posted to the General Ledger.

A ledger is another record, similar to journals, but organized by account. A general ledger is the complete collection of all the accounts and transactions of a company.