Recording Transactions

The first step in the accounting process is recording transactions in the journal. Here, every business transaction is noted in a sequential order.

Details Recorded:

• Date: The specific date of the transaction.
• Accounts and Amounts: For every transaction, at least two accounts are affected. One account will be debited, and the other will be credited.
• Description: A brief note explaining the nature of the transaction.

Posting to Ledger Accounts:

After noting transactions in the journal, the amounts are transferred to the appropriate ledger accounts.

• Ledger: This is where all accounts are recorded systematically. Each account, like Cash or Equipment, has its dedicated page or section in the ledger.

For instance, if there was a transaction involving cash, you’d note it in the Cash ledger. Initially, you’d record the details of the transaction and later update the ledger with the current balance after considering all transactions.

Preparing Trial Balances:

A trial balance is a summary of all ledger accounts showcasing their respective debit or credit balances.

Purpose: It serves as a preliminary check to ensure the total debits match total credits, thereby validating the accuracy of the recording process.

Steps:

1. List all the ledger accounts.
2. Note down their respective debit or credit balances.
3. Sum up the debit and credit columns.
4. Confirm that the total debits equal the total credits.

Example of a Trial Balance:

Trial Balance as of January 31, 2023

Account Title Debit ($) Credit ($)

Cash 12,000 – Common Stock – 10,000 Service Revenue – 7,000 Salaries Expense 3,000 – Equipment – 5,000 Accounts Receivable 2,000 –

Total 17,000 22,000