Download Accounting Process: Recording Business Transactions in Principles of Accounting I and more Lecture notes Principles of Accounting in PDF only on Docsity! PATEROS TECHNOLOGICALCOLLEGE BSOA 1J Bachelor of Science in Office Administration Principles of Accounting I Reference: Basic Accounting" by Winlu Ballada Domdane Publishing Accounting Process Recording of Business Transactions STEP 1 – Transaction Analysis The analysis of transactions should follow these four basic steps: 1. Identify the transaction from source documents. 2. Indicate the accounts – either assets, liabilities, equity, income or expenses – affected by the transactions. 3. Ascertain whether each account is increased or decreased by the transactions. 4. Using the rules of debit and credit, determine whether to debit or credit the account to record its increase or decrease. The General Journal - The book of original entry. Example: Accounts Debit Credit Office Equipment P 100,000 Cash P 30,000 Accounts Payable P 70,000 - Shows all the effects of a transaction in terms of debits and credits. The Ledger - A grouping of accounts. - Used to classify and summarize transactions and to prepare data for basic financial statements. Posting – transferring the amounts from the general journal to appropriate accounts in the ledger. Trial Balance - Listing of all ledger accounts, in order with their respective debit or credit balances, - Shows assets, liabilities, owner’s equity, revenues and expenses. Cash P 30,000 Office Equipment P 100,000 Accounts Payable P 70,000 PATEROS TECHNOLOGICALCOLLEGE BSOA 1J Bachelor of Science in Office Administration Principles of Accounting I Reference: Basic Accounting" by Winlu Ballada Domdane Publishing Accounting Process Source Documents Transactions and events are the starting points on the accounting cycle. By relying on source documents, transactions and events can be analyzed as to how they will affect performance and financial position. Source documents identify and describe transactions and events entering the accounting process. These original written evidences contain information about the nature and the amounts of the transactions. The Journal The Journal is a chronological record of the entity’s transactions. A journal entry shows all the effects of a business transactions in terms of debits and credits. Each transaction is initially recorded in a journal rather than directly in ledger. A journal is called the book of original entry. The nature and volume of transactions of the business determine the number and type of journals needed. The General Journal is the simplest journal. Format The standard contents of the general journal are as follows: 1. Date – The year and month are not rewritten for every entry unless the year or month changes or a new page is needed. 2. Account Titles and Explanation – the account to be debited is entered at the extreme left of the first line while the account to be credited is entered slightly indented on the next line. A brief description of the transaction is usually made on the line below the credit. 3. Posting Reference – this will be used when the entries are posted, that is, until the amounts are transferred to the related ledger accounts. 4. Debit – the debit amount for each amount is entered in this column. 5. Credit – the credit amount for each amount is entered in this column. Simple and Compound Entry In simple entry, only two accounts are affected – one account is debited and the other account is credited. Compound entry – when three or more accounts are required in a journal entry.
