The Recording Process Illustrated

recording in accounting

Accounting records are often reviewed for audits, compliance checks, or other business related necessities. Charlene Rhinehart is an expert in accounting, banking, investing, real estate, and personal finance. She is a CPA, CFE, Chair of the Illinois CPA Society Individual Tax Committee, and was recognized as one of Practice Ignition’s Top 50 women in accounting. She is the founder of Wealth Women Daily and an author.

For our purposes, we will focus only on general journals and a couple of special journals. On August 12, Alex orders more supplies for his shop from Music Central. The total amount of musical equipment that he buys from Music Central is $4,500. On August 1, he purchases drum heads from Drummers R Us to sell in his store. Show bioRebekiah has taught college accounting and has a master’s in both management and business. The chart of accounts is a listing of the titles and numbers of all the accounts in the ledger.

suppliers invoices

Once those numbers are verified and double-checked, the accountant can then post the number to the ledger. At different points in the economic or business cycle, parties demanding accounting records will alter their request for information based on the position in a cycle. For instance, at the start of an upswing in a business cycle, requests for financial statements might be strong, as equity investors are bullish. In contrast, during a dip in a business cycle, creditors might require more details surrounding balance sheet items, as they become more hesitant to extend credit. However, in the double-entry bookkeeping method, whenever a transaction occurs, there are at least two accounts affected. While making the journal entries, we must ensure that the debits and credits are in balance.

What are 3 types of accounts?

3 Different types of accounts in accounting are Real, Personal and Nominal Account.

In accounting, create a journal entry for decreasing the stock of finished products and increase the Cost of Sales. Add operations cost (e.g. employee salaries) to the finished product stock cost in accounting. Decrease the salary cost in the income statement and increase the finished product stock by the relevant amount. In accounting, create a journal entry for decreasing the stock for materials and increase the stock for finished products by the same amount.

Ch02 – The Recording Process solution

An example of a compound entry is the purchase of equipment, part of which is paid for with cash and the remainder is on account. Cash is an asset, and asset account totals decrease with credits. Apr. 25You stop by your uncle’s gas station to refill both gas cans for your company, Watson’s Landscaping. Your uncle adds the total of $28 to your account.Apr. 26You record another week’s revenue for the lawns mowed over the past week. You received cash equal to 75% of your revenue.Apr. 27You pay your local newspaper $35 to run an advertisement in this week’s paper.Apr.

recording in accounting

This is how you would need to record the entry in accounts receivable. Remember, if you’re using accounting software, this process is completed automatically when the invoice is created. A transaction is an event that occurs in a business that changes the balance of at least two accounts. The reason that transactions must affect at least two accounts is because accounting professionals use a system of accounting called double-entry accounting. Double-entry accounting states that for every one transaction that occurs in a business, at least two accounts will be affected.

Payroll entries

Accounts Receivable is an asset, and assets increase on the debit side. We now return to our company example of Printing Plus, Lynn Sanders’ printing service company. We will analyze and record each of the transactions for her business and discuss how this impacts the financial statements. Some of the listed transactions have been ones we have seen throughout this chapter. More detail for each of these transactions is provided, along with a few new transactions. In the U.S., the IRS prescribes the duration for which the accounting records need to be maintained and provides records retention guidelines in Code Section 6001 and Publication 583.

  • Many times accounting and record keeping are used interchangeably, but this is incorrect.
  • This liability increases Accounts Payable; thus, Accounts Payable increases on the credit side.
  • To record goods purchased with the purpose of resale and the goods sold by the business, accounts need to be made to record them in separate accounts due to differences in cost and selling price.
  • A journal entry shows all the effects of a business transaction as expressed in debit and credit and may include an explanation of the transaction.
  • Persons to whom the business owes money are called Creditors, and therefore 4WD Vehicles Pty Ltd is a Creditor.
  • This entry records your payment by debiting your utility expense account and crediting cash.

Business forms include purchase orders, receipts, and invoices. The actual specifics of business forms used by companies vary greatly. Some companies require an unnecessary amount of paperwork to document a simple purchase order. Others are too lenient, allowing managers to order and pay for or sell items with too little accountability and little or no inventory adjustments. It is important for all businesses to have an efficient and accountable system that documents all purchases, sales, and inventory. Doing so requires the use of source documents that record any specific item’s financial transaction for processing and bookkeeping. Whether an account is increased or decreased as a result of a debit or credit depends on what kind of account that is.


The above trial balance sheet is oversimplified to suit our small company example. However, it does show how the overall trial balance would be balanced if everything was done properly. If the debits and credits recording transactions of a trial balance are not equal, something is amiss in the general ledger. As we have seen from the general journal, we have every financial transaction the company has made recorded chronologically.

The module automatically creates a journal entry that debits either cash or the accounts receivable account, and credits the sales account. There may also be a credit to the sales tax liability account. Q1 Describe the events recorded in accounting systems and the importance of source documents in those systems? Q2 Describe how debits and credits are used to analyse transactions.

The Recording Process

Ideally, the entry should note the impacted accounts, the debits and credits entered, a journal entry number, and a narrative comment. Credit balance in accounts payable represents the total amount a company owes to its suppliers. Once the invoice is received, the amount owed is recorded, which consequently raises the credit balance.

recording in accounting

The accounting software’s vendor files also allow a company to prepare purchase orders, receiving tickets and to pay the vendors’ invoices. Under this system of accounting, entries are made not only for actual receipt or payment of cash but also for amounts having become due for payment or receipt.

Introduction to the Recording Process

In the journal entry, Cash has a debit of $2,800. This is posted to the Cash T-account on the debit side.

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