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• 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 that can be measured 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
• A business document typically includes:

  • Date of the transaction
  • Total amount of the transaction
  • Description of the transaction
  • One or more authorizing signatures
• 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

  • Steps include identifying financial transactions, preparing journal entries, posting in the general ledger, preparing financial statements, and more
• Double-Entry Accounting System:

  • An account has three parts: title, space for recording increases, and space for recording decreases
  • Double-entry accounting ensures every transaction affects at least two accounts, one debited and the other credited
• Assets have a debit balance, including accounts like Cash, Accounts Receivable, Inventory, and Equipment
• Expenses like Account Expenses, Advertising Expenses, and Utilities Expenses usually have a debit balance
• Liabilities have a credit balance, including accounts like Accounts Payable, Notes Payable, Wages Payable, and Interest Payable
• Owner's Equity accounts like capital, common stock, and retained earnings normally have a credit balance
• Revenue accounts have a credit balance, representing 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 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
• Posting transfers entries from the journal to the accounts in the ledger

  • Debits in the journal are posted on the debit side in the ledger
  • Credits in the journal are posted on the account's credit side in the ledger
• A trial balance is a bookkeeping worksheet with equal debit and credit account column totals from all ledgers

  • Verify that total debits equal total credits
  • Use a double line on the grand total