Transaction analysis and recording part 1 was published on May 1, 2022. Today we want to continue on same.
As a form of recap, in part 1 we explained the following:
- A transaction: This is any activity that has an economic or financial impact on the business.
- Double entry principle: This accounting principle says that ‘for every debit entry, there must be a corresponding credit entry’.
- Accounting equation: Asset is equal to liabilities plus owners’ equity.
- Impact of changes on accounting equation.
- We analyzed the accounting equation using four sample transactions:
- April 1, 2022 Adeola started a business (Adeola and Co) with N50,000.00 capital
- On April 5, 2022 Adeola and co collected some goods worth N80,000.00 with the promise to pay in 30days .
- The business sold some of the supplies – N65,000.00 on April 9, 2022
- Adeola and Co on April 15 made part payment of N40,000 to the creditor, office rent was paid N2,000.00 and electricity N350.00
TRANSACTION ANALYSIS AND RECORDING
Apart from the analysis we did to see the impact of these transactions on the accounting equation. we will follow a structure of transaction analysis to record these transactions.
First, for every transaction you have, ask yourself; what two accounts are affected in this ? Then, ask your self which of these identified accounts are you to debit and which are you to credit?
Upon answering the two questions above, we can start the transaction recording as follows:
- Journal entries
- Open and post to T account or ledger account
- Prepare a trial balance
- Prepare your financial statements such as Profit or loss, Statement of affairs and co.
Now let us do same to the four transactions listed earlier.
RECORDING JOURNAL ENTRIES
Journal entry is the first step towards recording of transactions. It often ease the process of knowing what account to debit and which to credit. A journal voucher is a four column sheet, where we record a transaction indicating date, account, amount and a brief description.
ADEOLA AND CO
| DATE | ACCOUNT/NARRATION | DEBIT | CREDIT |
| 01/04/22 | Cash Account | 50,000.00 | |
| Capital Account | 50,000.00 | ||
| Being capital | |||
| 05/04/22 | Supplies Account | 80,000.00 | |
| Accounts payable | 80,000.00 | ||
| Being supplies on account | |||
| 09/04/22 | Cash Account | 65,000.00 | |
| Sales Account | 65,000.00 | ||
| Being sales | |||
| 15/04/22 | Accounts payable | 40,000.00 | |
| Office rent account | 2,000.00 | ||
| Electricity Account | 350.00 | ||
| Cash Account | 42,350.00 | ||
| Being cash payment |
TRANSACTIONS POSTING TO LEDGER ACCOUNT
With the journal entries, we can now easily post to individual ledger account or T account.
CASH ACCOUNT
| Debit | Credit | ||
| 01/04/22 Capital | N50,000.00 | 15/04/22 Accounts payable | N40,000.00 |
| 09/04/22 Sales | N65,000.00 | 15/04/22 Office rent | N2,000.00 |
| 15/04/22 Electricity | N350.00 | ||
| Balance b/d | N115,000.00 N72,650.00 | N72,650.00 N115,000.00 |
| Debit CAPITAL ACCOUNT | Credit | ||
| Balance c/d N50,000.00 | N50,000.00 | 01/04/22 Cash | N50,000.00 |
| Debit SUPPLIES ACCOUNT Credit | |||
| 05/04/22 Supplies on account N80,000.00 Balance c/d N80,000.00 N80,000.00 N80,000.00 Balance b/d N80,000.00 | |||
| Debit ACCOUNTS PAYABLE Credit | |||
| 15/04/22 Cash payment N40,000.00 05/04/22 Supplies on account N80,000.00 Balance c/d N40,000.00 N80,000.00 N80,000.00 Balance b/d N40,000.00 | |||
| Debit SALES ACCOUNT Credit | |||
| Balance c/d N65,000.00 09/04/22 Cash sales N65,000.00 N65,000.00 N65,000.00 Balance b/d N65,000.00 | |||
| Debit OFFICE RENT ACCOUNT Credit 15/04/22 Cash payment N2,000.00 Debit ELECTRICITY ACCOUNT Credit 15/04/22 Cash payment N350.00 |
Now with the transaction postings in ledger accounts completed, we move to the next stage in the next blog.
BEYOND COVID-19 (Pt.4)
Our Senior Accountant 🙌
Make I just follow your lead.