“Which accounts are affected?” ( Question 1)Īssets: that’s resources the company owns and uses. This is his private money that he invested to start the business. Let’s start with Claudio leaving his home in the morning. Remember Claudio? We followed his Italian beach business in an earlier post ( click here), and now it’s time to record the transactions that happened during this day. And the total debits for each transaction we create must equal total credits. One will be debited, and one will be credited. We also know that to record any transaction you always need at least two accounts. There are only six main account groups we need to worry about, Assets, Dividends, Expenses, Liabilities, Equity, and Revenue ( ADEx LER). To record any transaction, it must be analyzed to answer two questions: Step 2: Record and post the relevant data from each source document. It includes things like receipts and invoices. Source documents are the evidence that the financial transaction occurred. Step 1: Collect and sort all source documents for each financial transaction. It’s often mixed up with accounting, but it’s not the same.īookkeeping is only a part of the overall accounting process, and it covers these two steps. We’re going to take some activities of a business and turn them into data. Today we’re going to prepare journal entries for some example transactions. If you haven’t read that post yet, I recommend that you do because otherwise what we’re about to cover here is not going to make much sense. In a previous post ( click here) we covered the theory of debits and credits.
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