Transactions and Entries
A transaction in accounting is any event that has a financial impact on the business and can be measured reliably. Examples include sales, purchases, receipts, and payments.
To record a transaction, you enter it into the accounting system using a journal entry that debits one account and credits another, maintaining the balance of the accounting equation.
A compound journal entry involves more than two accounts. It is used when a single transaction affects multiple accounts, such as recording payroll expenses and withholdings.
A reversing entry is made at the beginning of an accounting period to reverse an adjusting entry made in the previous period, simplifying the recording of future transactions.
A bank reconciliation is the process of comparing the company’s ledger entries with the bank statement to ensure that all transactions are recorded accurately and to identify any discrepancies.
A petty cash fund is a small amount of cash kept on hand for minor expenses, such as office supplies or meals, which is replenished periodically.
To account for petty cash transactions, record each disbursement with a petty cash voucher and periodically reconcile the fund by replenishing it with a check equal to the total disbursements.
A cash book is a financial journal that records all cash receipts and payments, including bank deposits and withdrawals, and is used to manage cash transactions.
An invoice is a document sent by a seller to a buyer requesting payment for goods or services provided, detailing the quantities, prices, and terms of payment.
A receipt is a document that acknowledges the receipt of payment from a customer, providing proof of the transaction and the amount paid.
A payment voucher is a document that authorizes a payment and provides details of the transaction, including the payee, amount, and purpose of the payment.
A debit note is a document issued by a buyer to a seller, indicating a return of goods or a request for a credit for an overcharge, effectively increasing the buyer’s accounts payable.
A credit note is a document issued by a seller to a buyer, indicating a reduction in the amount owed due to a return of goods or an overcharge, effectively decreasing the buyer’s accounts payable.
A contra entry is a transaction that involves both the cash and bank accounts, such as depositing cash into the bank or withdrawing cash from the bank, recorded on both sides of the cash book.
A transfer entry is a journal entry that transfers an amount from one account to another, often used to allocate costs or reclassify transactions.
A sales journal is a specialized accounting journal used to record all credit sales transactions, providing a detailed record of each sale made on credit.
A purchase journal is a specialized accounting journal used to record all credit purchase transactions, providing a detailed record of each purchase made on credit.
A cash receipts journal is a specialized accounting journal used to record all cash receipts, including cash sales, collections from customers, and other cash inflows.
A cash payments journal is a specialized accounting journal used to record all cash payments, including payments to suppliers, expenses, and other cash outflows.
A general journal is an accounting journal used to record all types of financial transactions that are not recorded in specialized journals, providing a detailed record of each transaction.
An accounts receivable ledger is a subsidiary ledger that contains detailed information about all credit sales and payments received from customers, supporting the accounts receivable balance in the general ledger.
An accounts payable ledger is a subsidiary ledger that contains detailed information about all credit purchases and payments made to suppliers, supporting the accounts payable balance in the general ledger.
A fixed asset register is a detailed record of all fixed assets owned by a company, including information about acquisition cost, depreciation, and disposal.
An inventory ledger is a subsidiary ledger that contains detailed information about all inventory transactions, including purchases, sales, and adjustments, supporting the inventory balance in the general ledger.
A bank ledger is a subsidiary ledger that contains detailed information about all bank transactions, including deposits, withdrawals, and bank charges, supporting the bank account balance in the general ledger.
A loan ledger is a subsidiary ledger that contains detailed information about all loan transactions, including loan disbursements, repayments, and interest, supporting the loan balance in the general ledger.
An expense ledger is a subsidiary ledger that contains detailed information about all expense transactions, supporting the expense accounts in the general ledger.
A revenue ledger is a subsidiary ledger that contains detailed information about all revenue transactions, supporting the revenue accounts in the general ledger.
A salary ledger is a subsidiary ledger that contains detailed information about all salary transactions, including salary payments, deductions, and benefits, supporting the salary expense account in the general ledger.
A profit and loss account, also known as an income statement, is a financial statement that shows a company's revenues, expenses, and profits or losses over a specific period, providing information about its financial performance.
Specific Transactions
To record a cash sale, debit the cash account and credit the sales revenue account in the general ledger.
To record a credit sale, debit the accounts receivable account and credit the sales revenue account in the general ledger.
To record a cash purchase, debit the relevant expense or asset account and credit the cash account in the general ledger.
To record a credit purchase, debit the relevant expense or asset account and credit the accounts payable account in the general ledger.
To record a cash receipt from a customer, debit the cash account and credit the accounts receivable account in the general ledger.
To record a payment to a supplier, debit the accounts payable account and credit the cash account in the general ledger.
To record a bank deposit, debit the bank account and credit the cash account in the general ledger.
To record a bank withdrawal, debit the cash account and credit the bank account in the general ledger.
To record a loan from a bank, debit the cash account and credit the loan payable account in the general ledger.
To record loan repayment, debit the loan payable account and credit the cash account in the general ledger. Additionally, debit the interest expense account if interest is included in the repayment.
To record depreciation expense, debit the depreciation expense account and credit the accumulated depreciation account in the general ledger.
To record the purchase of fixed assets, debit the relevant fixed asset account and credit the cash or accounts payable account in the general ledger.
To record the sale of fixed assets, debit the cash or accounts receivable account, debit the accumulated depreciation account, and credit the relevant fixed asset account. Any gain or loss on sale is recorded by crediting or debiting a gain or loss account.
To record an owner's investment in the business, debit the cash or relevant asset account and credit the owner's equity or capital account in the general ledger.
To record an owner's withdrawal from the business, debit the owner's equity or drawing account and credit the cash or relevant asset account in the general ledger.
To record interest expense, debit the interest expense account and credit the cash or interest payable account in the general ledger.
To record interest income, debit the cash or interest receivable account and credit the interest income account in the general ledger.
To record bad debts, debit the bad debt expense account and credit the accounts receivable account in the general ledger.
To record provision for bad debts, debit the bad debt expense account and credit the allowance for doubtful accounts in the general ledger.
To record a prepaid expense, debit the prepaid expense account and credit the cash or accounts payable account in the general ledger. As the expense is recognized, debit the relevant expense account and credit the prepaid expense account.
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