Procedure of recording business transactions, Accounting Basics

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Q. Procedure of recording business transactions?

The raw information of accounting is the business transactions. We documented the transactions in section 1 as increases or decreases in the liabilities, assets and stockholders' equity items of the accounting equation. This procedure demonstrated you how various transactions affected the accounting equation.

When working throughout these sample transactions you probably suspected that listing all transactions as increases or decreases in the transactions summary columns would be too cumbersome in practice. Mainly businesses even small ones enter into many transactions every day. Section 2 teaches you how to really record business transactions in the accounting process.

To explain the double procedure of recording business transactions with debits and credits we introduce you to some new tools the journal, the T-account, and the ledger. By means of these tools you can follow a company through its various business transactions. Like accountants you are able to use a trial balance to check the equality of your recorded debits and credits. This is a double-entry accounting system that the Franciscan monk, Luca Pacioli, explained centuries ago. To Understanding this system facilitate you to better understand the content of financial statements thus you can use the information provided to make informed business decisions.


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