You need to know about revenue recognition (when a company can record sales revenue), the matching principle (matching expenses to revenues), and the accrual principle. The general ledger serves as the eyes and ears of bookkeepers and accountants and shows all financial transactions within a business. Essentially, it is a huge compilation of all transactions recorded on a specific document or in accounting software. Posting dates and amounts with debit to cash, credit to common stock. All expense accounts will have the word expense, such as wages expense, salary expense, rent expense, etc.

Analysis

As such, most assets start with “1”, liabilities with “2”, capital and withdrawals/dividends as “3”, revenues as “4” and sometimes “5”, and expenses are normally “6” through “9”. Since each business uses different numbers, you don’t need to worry about memorizing the numbers given here. But, do note the first number of each group of account. Accounting is the recording, analysis and reporting of events that are materially significant to a company.

The recording process of accounting takes care of Steps 2 and 3 of the accounting cycle which are journalizing and posting. Analyzing your transactions, determining the accounts affected, whether they should be debited or credited, what the amounts should be, are the difficult parts in accounting. Once the analysis is done in Step 1, everything from now on is simple logic.

An Account

1. You need to know about revenue recognition (when a company can record sales revenue), the matching principle (matching expenses to revenues), and the accrual principle.
2. To learn more, check out CFI’s free Accounting Fundamentals Course.
3. Posting complete with reference column in the journal all filled in and each account in the ledger has a balance.

For each of the above event, note the accounts that need to be debited and credited. In summary, Assets, Withdrawals/dividends, and Expenses – increase with debit, decrease with credit. And, Liabilities, Revenues, and Capital – increase with credit, decrease with debit. Service Revenue10,610 Equipment49,360Owner’s Drawings700 Gasoline… The T-accounts below summarize the ledger of Daggett Landscaping Company at the end of the first month of operations.

What you’ll learn to do: Account for business transactions using double-entry bookkeeping

Now, liabilities and OE are on the other side of the accounting equation. So, while assets behave one way, logic will dictate that liabilities and owner’s equity will behave the opposite as they are on the opposite side of the equation. Therefore, for liabilities and owner’s equity accounts, debit means decrease and credit means increase. After the transactions have been entered in the journal, the next step in the accounting cycle is posting. Posting means transferring the information from the journal to the ledger.

Instructions Prepare the complete general journal (including explanations) from which postings… The following transactions took place during the first month. Transactions on May 1 1Jay Bradford invested $40,000 cash in the company, as… Selected transactions for Dianne Burke Company during its first month in business are presented below. 5Purchased equipment for $12,000 paying $4,000 in cash… Holz Disc Golf Course was opened on March 1 by Ian Holz.

The analysis includes an examination of the paper or electronic record of the transaction, such as an invoice, a sales receipt or an electronic transfer. Common transactions include sales of products, delivery of services, buying supplies, paying salaries, buying advertising and recording interest payments. In accrual accounting, companies must record transactions in the same period they occur, whether or not cash changes hands. Revenue and expense transactions affect the corresponding income statement accounts, as well as balance sheet accounts. Some transactions the usual sequence of steps in the recording process is to may affect only the balance sheet accounts.