ScienceEconomicsIP Chapter 2: Accounting For Transactions
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IP Chapter 2: Accounting For Transactions

Patton Hayes avatar Patton Hayes
3 October 2022
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The steps to follow in the process of recording business transaction are as follows:
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Identify business transactions and events. Record relevant transactions and events in a journal. Post journal information to the ledger accounts. Prepare and analyze the trial balance.
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Analyze each TRANSACTION and events from source documents. Record relevant transactions and events in a JOURNAL. Post JOURNAL information to LEDGER accounts. Prepare and analyze the TRIAL BALANCE.
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The steps to follow in the process of recording business transaction
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An accounting event is
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An economic occurrence that changes a business enterprise's assets, liabilities, or equity.
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An accounting transaction
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A particular kind of event that involves transferring something between two entities. Examples of transactions include acquiring assets from owners, borrowing money from creditors, and purchasing or selling goods and services.
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Source documents
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Source of information for accounting entries that can be in either paper or electronic form; also called business papers.
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Identify and provide detail on accounting transactions and events. Examples are sales receipts, checks, purchase orders, bills from suppliers, employee earnings records, and bank statements.
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Source documents
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Which of the following is not a step in processing accounting transactions? Preparing financial operating budgets; Preparing purchase requisitions; Preparing the trial balance; Identifying source documents; Negotiating sales contracts; Recording transactions in the journal;
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Preparing financial operating budgets Preparing purchase requisitions Negotiating sales contracts
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From the following list, identify those that are likely to serve as source documents. Telephone bill Trial balance Income Statement Sales ticket Invoice from supplier Balance sheet Company revenue account Bank statement Prepaid insurance
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Telephone bill Sales ticket Invoice from supplier Bank statement Prepaid insurance
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Account
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Record within an accounting system in which increases and decreases are entered and stored in a specific asset, liability, equity, revenue, or expense.
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Is a record of increases and decreases to a specific asset, liability, equity, revenue, or expense item used by the business.
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Account
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General ledger
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Record containing all accounts (with amounts) for a business.
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Is a record containing all accounts used by a company.
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General ledger
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Notice that the equity accounts include common stock, dividends, revenues, and expenses. A simple way to think about this is the equity in the business is based on:
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what the owner(s) invest in the business, less asset distributions (dividends) to stockholders (owners), plus the net income (or minus the net loss) earned. Net income is calculated by subtracting expenses from revenue.
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In practice the accounts used by a business will vary depending on the type of business. For example a manufacturer will have inventory accounts whereas a service business will not. A professional sports team will have ticket sales, whereas as a merchandiser will have product sales.
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.
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List of asset accounts
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Assets Cash Accounts receivable A note receivable Prepaid accounts Supplies Equipment Buildings
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Assets
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Are resources owned or controlled by a company and that have an expected future benefit. In this folder you will see some of the more common asset accounts commonly found in various business entities.
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Cash account
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Reflects a company's cash balance. All increases and decreases in cash are recorded in this account. It includes money and any medium of exchange that a bank accepts for deposit (coins, checks, money orders, and checking account balances).
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Accounts receivable
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Are held by a seller and refer to promises of payment from customers to sellers. These transactions are often called credit sales or sales on account (or on credit). This account is increased by credit sales and are decreased by customer payments. A company needs a separate record for each customer, but for now, we use the simpler practice of recording all increases and decreases in receivables in a single account called Accounts Receivable.