ANALYZING BUSINESS TRANSACTIONS OF BUSINESS SERVICES

• Business transactions are events that must be measurable in terms of money and impact the business's financial position
• Examples of measurable business transactions include:

  • Sales in cash and credit to customers
  • Receipt of cash from a customer by sending an invoice
  • Purchase of fixed assets like land or building
  • Borrowing funds from a bank or financial institution
  • Paying borrowed funds from a creditor
  • Payment of cash to a supplier from a sent invoice
• Only events measurable in monetary terms are included in the business's accounting records
• Events that cannot be reliably assigned a monetary value, like a CEO delivering a motivational lecture, are not considered business transactions
• Types of Business Transactions:

  • Cash, Non-cash, and Credit Transactions
  • Cash transactions involve immediate payment or receipt of cash, including debit cards, checks, or bank transfers
  • Non-cash transactions do not involve cash or credit exchange but impact income or expenses
  • Credit transactions involve payment or receipt of cash at a future date
• Internal and External Transactions:

  • Internal transactions occur within an organization, impacting finances but not sales
  • External transactions involve the exchange of goods and services for money with a third party
• Business documents serve as evidence of financial transactions and are crucial for bookkeeping and accounting processes
• Common business documents include:

  • Checks
  • Invoices
  • Receipts
  • Credit memos
  • Employee time cards
  • Deposit slips
  • Purchase orders
• The Accounting Cycle involves steps to complete the recording and processing of a company's financial transactions. A bookkeeper typically takes care of completing accounting cycles.

  • Steps include identifying financial transactions, preparing journal entries, posting in the general ledger, preparing financial statements, and more
• The objective of the accounting cycle is to ensure the accuracy of financial statements and facilitate tax reporting and decision-making
• Double-Entry Accounting System:

  • An account consists of a title, space for recording increases, and space for recording decreases
  • Double-entry accounting ensures every transaction affects at least two accounts, with one debited and the other credited
• Assets have a debit balance, including accounts like Cash, Accounts Receivable, Inventory, and Equipment
• Assets are increased by debits and decreased by credits
• Expenses, such as Account Expenses, Advertising Expenses, and Utilities Expenses, have a debit balance
• Liabilities have a credit balance, including accounts like Accounts Payable, Notes Payable, Wages Payable, and Interest Payable
• Liabilities are increased by credits and decreased by debits
• Owner's Equity accounts, like capital, common stock, and retained earnings, normally have a credit balance
• Revenue accounts have a credit balance and represent the amount received for services rendered or goods sold to customers
• A general journal is where transactions that cannot be recorded in special journals are recorded
• Special Journals. Only periodic totals, such as monthly totals, are transferred to their respective accounts in a special journal. It include Sales journals, Cash receipts journals, Purchases journals, and Cash disbursements journals
• Five steps for journalizing:

  • Step 1: Write the date of the transaction
  • Step 2: Write the debit account title and amount
  • Step 3: Write the credit account title and amount
  • Step 4: Write a short description of the transaction
  • Step 5: Complete the Posting reference column once entries are recorded in the general ledger
• The purpose of a general ledger is to categorize debits and credits into specific accounts and determine changes in the accounting equation
• Posting is the process of transferring entries from the journal to the accounts in the ledger
• Preparing a Trial Balance involves listing accounts from the ledger, entering their debit or credit balance, totaling the Debit and Credit columns, and ensuring they are equal
• Double lining under a figure in accounting indicates a grand total
• Accruals are earnings or expenses the company has accumulated but not paid back. Examples are a bill from a supplier that remains unpaid or an invoice awaiting customer payment.
• The debit and credit records are listed in the journal called the book of original entries
• A general ledger (GL) is a collection of numbered accounts, also known as the chart of accounts, that a business uses to prepare financial reports and keep track of its financial transactions.
• Two (2) types of General Ledger: The simple and traditional ledger (T-account) and The expanded and modern ledger
• Accounts payable - money owed by the business to suppliers
• A trial balance is a bookkeeping worksheet in which equal debit and credit account column totals are calculated from the balances of all ledgers.