Wednesday, June 6, 2012

Accounting Transaction: double-entry Bookkeeping system


double entry Bookkeeping system

For the Accounting Transaction Posting





Preparing a new equation A = L + C after each trans­action - would be cumbersome and costly especially 

when there are a great many accounting transactions in an ac­counting period. and Also, information for a specific item - such as cash would be lost as successive transactions were recorded.


This information could be obtained by going back and summarizing the trans­actions, but that would be very time-consuming. Thus we begin with the account - Account which records the accounting transactions so you must know what the accounting transactions and how to post accounting transaction.


Financial Accounting Transaction : 
What is the Accounting Transaction ?
The processing of accounting data begins with an economic transaction, where two or more parties engage in an exchange  of goods or services for some form of consideration.
Evidence of this happening is the receipt  of some form of a source document. Common examples of such a source document include:

•  A sales receipt - this can be in a variety of forms.
•  A purchase invoice.
•  A debit/credit memorandum.
•  A copy of a contract entered into.
•  A billing statement.
•  A remittance statement.

There are a multitude of source documents, in type, shapes, and format used to record
the significant data. It is these documents, which become the basis for data input to the
accounting processing. But, prior to the actual data entry, the documents must be
subjected to a series of analysis and classification.


Now let's know the Basis for Post the accounting Transaction : basis of accounting treatment for the transaction


1- Debits and Credits

The terms debit and credit mean left and right, respectively, the abbreviation of
these two words as follows:

               * Debit   Dr.              * Credit  Cr. 

* These abbreviations come from the Latin words debere (Dr.) and credere (Cr.).             

When an amount is entered on the left side of an account ( In Base No. 2 will explain what is the account ), it is a debit, and
the account is said to be debited. When an amount is entered on the right 
side, it is a credit, and the account is said to be credited. The abbrevia­

tions for debit and credit are Dr. and Cr., respectively. 


Whether an increase in a given item is credited or debited depends on the category of the item. By convention, asset and expense increases are recorded as debits, whereas liability, capital, and income increases are recorded as credits. Asset and expenses decreases are recorded as cred­its, whereas liability, capital, and income decreases are recorded as deb­its. The following tables summarize the rule.

2- The Account 
An account may be defined as a record of the increases, decreases, and balances in an individual item of asset, liability, capital, income (rev­enue), or expense.


The simplest form of the account is known as the “T” account be­cause it resembles the letter “T.”A ┬ Account has a left side and a right side, thus, an account is debited when an amount is entered on the left side and credited when an amount is entered on the right side.


The account has three parts:
1. the name of the account and the account number
2. the debit side (left side)
3. the credit side (right side).


Whether a debit or credit is an increase or decrease to the account balance depends on the account
classification as illustrated below:



The increases are entered on one side, the decreases on the other. The balance (the excess of the total of one side over the total of the other) is inserted near the last figure on the side with the larger amount.

every recorded transaction affects at least two accounts ( for Ex. account on the right and other on the left side or 2 on this side)


An account has a debit balance when the sum of its debits exceeds the sum of its credits; it has a credit balance when the sum of the credits is the greater.

What are made in Base No. 1 and No. 2, called double-entry transaction recording


In double-entry accounting, which is in almost universal use, there are equal debit and credit entries for every transaction. Where only two accounts are affected, the debit and credit amounts are equal. If more than two accounts are affected, the total of the debit entries must equal the total of the credit entries.

Therefore, it is important to know : For every transaction entry, debits must equal credits


Note, however, that the term “double entry” does not mean that a transaction must  affect each side of the transaction, it may effects one.


Example: Accounting Transaction
purchase of equipment for cheque – Tom purchased a computer for 2000$  paid by cheque.

This transaction results in an 
equal increase and decrease in  total assets, though the composition of assets is changed:
Bank is decreased by 2000$ and the assets Equipment is increased by 2000$


we discussed the na­ture of business transactions and the manner in which they are analyzed and classified. The pri­mary emphasis was the “why” rather than the “how” of accounting operations - we aimed at an understanding of the reason for making the entry in a particular way. We showed the effects of transactions by making entries in T accounts. However, these entries do not provide the necessary data for a particular transaction, nor do they provide a chronological record of transactions.

The missing information is furnished by the use of an accounting form known as the journal


----------------------------------------------------------------------------------
Quiz -Tested yourself

1. To classify and summarize a single item of an account group, we
use a form called an _______.

2. The left side of the account is known as the _______, while the
right side of the account is known as the _________.

3.  What do the term debit and credit mean?

4.  What does double entry mean?

5. The left side of the account is known as the ________, where as the right side
is the ___________.



Answers: 1. account;  2. debit, credit; 3. do it by yourself;   4.  do it by yourself ;  6.  do it by yourself ,





4 comments:

Unknown said...
This comment has been removed by the author.
Unknown said...

This is a really super post. Must admit that you are amid the best writer I have read. I appreciate your making the effort to discuss this class of article.
Accounting Services in Thousand Oaks, California
Tax preparers in Indianapolis
Accounting services in Cleveland
Restaurant accounting in Chicago
Accounts payable services in Chicago
CPA firm in Chicago

Easier Accounting said...

Hiring an accountant during your business start-up phase may be advantageous as he or she can help answer your questions about bookkeeping.

Independent Contractor Bank Account

Steve Jhon said...

accounting and bookkeeping services will help you maximise your return. By freeing up your valuable time you can concentrate on growing your business and marketing strategies. Nice Blog!

Bookkeeping services Mississauga

Post a Comment

 

Copyright © 2011 Bookkeeping Course | Design by Kenga Ads-template