The accounting process starts by analyzing every single transaction in a business. The equation used is: Assets= Liabilities + Owner’s Equity. This means that each transaction made must be analyzed to determine how it affects the owner’s equity as well as the assets and liabilities. It is after the analysis that the accountant should record the transaction. Source documents are business forms that document the transactions. They include invoices, receipts and purchase orders. They enable the recording of any item’s financial transaction to help in processing and bookkeeping. A record of all transactions on a single item is what is referred to as an account. Assets include land, cash, and equipment while liabilities include wages payable and notes payable. Every asset has a different and separate account. Owner equity also called sole proprietorship, owner drawings, revenues such as sales revenue, expenses such as rent and wages and liabilities such as wages payable also have separate accounts. All accounts are put together in what is called the general ledger. Entries made in the general ledger should have the transaction date which will make it easier to identify the source of the transaction. In organizations, every account in the general ledger has a number and a chart of accounts containing the accounts and their account numbers is made. Accounts numbers mostly depend on a company’s complexity and size. Accounting transactions are recorded trough journal entries. A journal entry is basically an entry into the journal which keeps the transactions in a chronological order or as they occur. Accountants usually use a system called double-entry bookkeeping system to record transactions. Double entry means that transactions are recorded using two sides which are debit and credit. Debit is the left side of the journal while credit is the right side. The total sum of the debit side amounts should be equal to the sum of that of the credit side. When the sum of the two sides is equal the journal entry is called “balanced”. All debit and credit entries when added up should always balance to zero no matter the category they are in (Van Minh, N 2017). A ‘T’ account is a form of analyzing accounts that shows the credit and debit sides of the account. Accounts have normal balance on the side where increase in the accounts has been recorded. The liability, equity and revenue accounts usually have normal balance on the credit side while the expense and asset accounts have normal balance on the debit side as illustrated below:
The credit and debit entries can be uneven in cases where the total values are equal for example if a customer pays for a product in half cash and half credit. This would mean that there are two debit entries and one credit entry. If the transactions are huge for example purchase of a land, an accountant should create new account names in the journal. If the credits and debits total values are not equal then the accountant should go back to the journal entries and find the error It is also advisable to check for an error even when the sum of the two sides is equal since a transaction can fail to be entered or can even be entered twice or get posted to a wrong account. Each transaction made into a journal should include a brief description which will help later on when clarifying the cause, amount and recording process. It is important to have backups on the journal entries in case any issues emerge later. This is why journal entries are given numbers as well as a transaction date as a packet.
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