Steps in recording business transactions

Look at Exhibit 5 to observe the steps in recording and posting the effects of a business transaction. Note that a source document offers the evidence that a business transaction occurred. These source documents comprise such items as bills received from suppliers for goods or services received bills sent to customers for goods sold or services performed and cash register tapes. The data in the source document serves as the basis for preparing a journal entry. Afterwards a firm posts transfers that information to accounts in the ledger.

You are able to see from Exhibit 5 that subsequent to you prepare the journal entry you post it to the accounts in the ledger. But before you can record the journal entry you must understand the rules of debit and credit. To train you these rules we begin by studying the nature of an account.

Luckily most business transactions are repetitive. This formulates the task of accountants somewhat easier for the reason that they can classify the transactions into groups having common characteristics. For illustration a company may have thousands of receipts or payments of cash during a year. As an effect a part of every cash transaction is able to be recorded and summarized in a single place called an account.