transaction

• Lessons


  • Lesson 1 – Analyzing transactions: Effects in Elements of Accounting
  • Lesson 2 – Analyzing transactions: Debit and Credit
  • Lesson 3 – Recording transactions in General Journal and Special Journals
• Accounting cycle, principles, and the rules of debit and credit


  • Applicable in service and merchandising business
  • First step is transaction analysis
• Understanding and learning accounting is like watching K-drama, you don't skip every episode to understand the whole story
• Analyzing transactions


  • First step in the accounting cycle
  • Determining accounting elements affected and their effects on the accounting equation
  • Choosing appropriate account titles to debit and credit
  • Computing correct amounts to record
• Major transactions in merchandising business


  • Purchasing
  • Selling
• Purchases account


  • Expense account
  • Decreases owner's equity
• Purchasing transaction


  Analyzed based on cash basis, on account (credit), or with downpayment and balance on account
• Purchases of merchandise paid in cash


  • Decrease in cash (asset)
  • Decrease in owner's equity
• Purchases of merchandise on account


  • Increase in Accounts Payable (liability)
• Purchases of merchandise with downpayment and balance on account


  • Decrease in cash (asset)
  • Increase in Accounts Payable (liability)
• Purchase return & allowances


  • Contra-purchase or contra-expense account
  • Increases owner's equity
• Purchase return and allowances for purchases originally transacted on cash basis


  • Increase in cash (asset)
  • Increase in owner's equity
• Purchase return and allowances for purchases originally transacted on account


  • Decrease in Accounts Payable (liability)
  • Increase in owner's equity
• Purchase return and allowances for purchases originally transacted with downpayment and balance on account


  • Decrease in Accounts Payable (liability)
  • Increase in owner's equity
• Purchase discount


  • Contra-purchase account
  • Increases owner's equity
• Payment within the discount period


  • Decrease in cash (asset)
  • Decrease in Accounts Payable (liability)
  • Increase in owner's equity
• Payment beyond the discount period


  • Decrease in cash (asset)
  • Decrease in Accounts Payable (liability)
• Freight-in (Transportation cost)


  • Added to purchases
  • Expense account
  • Decreases owner's equity
• Transportation cost paid by buyer


  • Decrease in cash (asset)
  • Decrease in owner's equity
• Sales account


  • Revenue account
  • Increases owner's equity
• Sales of merchandise paid in cash


  • Increase in cash (asset)
  • Increase in owner's equity
• Sales of merchandise on account


  • Increase in Accounts Receivable (asset)
  • Increase in owner's equity
• Sales of merchandise with downpayment and balance on account


  • Increase in cash (asset)
  • Increase in Accounts Receivable (asset)
  • Increase in owner's equity
• Sales return and allowances


  • Contra-revenue account
  • Decreases owner's equity
• Sales of merchandise originally transacted as sold in cash


  • Decrease in cash (asset)
  • Decrease in owner's equity
• Sales of merchandise originally transacted as sold on account


  • Decrease in Accounts Receivable (asset)
  • Decrease in owner's equity
• Sales discount


  • Contra-revenue account
  • Decreases owner's equity
• Collection of account within the discount period


  • Increase in cash (asset)
  • Decrease in Accounts Receivable (asset)
  • Decrease in owner's equity
• Sales Discount


  A contra-revenue account that has a decrease effect on the owner's equity
• Collection of account within the discount period


  Seller will grant cash discount to the buyer, cash collected is reduced, and there is a corresponding decrease in the owner's equity
• Collection of account beyond the discount period

  No sale discount to record, only assets are affected - cash increases and accounts receivable decreases
• Freight-out


  An expense on the part of the seller, owner's equity decreases
• Analyzing transactions: Debit and Credit


  1. Determine when to debit or credit the account to show its increases and decreases

  2. Choose an appropriate account title to be debited and credited

  3. Accounting is based on a double-entry system - a debit side entry must have a corresponding side entry

  4. The total debits for the transaction must always equal the total credits

  5. For every transaction, there must be one or more accounts debited and one or more accounts credited
• Purchases of merchandise


  • Paid in cash
  • On account
  • With downpayment and balance on account
• Purchase return and allowances


  • For purchases originally transacted on cash basis
  • For purchases originally transacted on account
  • For purchases originally transacted with downpayment and balance on account
• Payment of the account


  • Within the discount period
  • Beyond the discount period
• Sales of merchandise


  • Paid in cash
  • On account
  • With downpayment and balance on account
  • Originally transacted as sold in cash
  • Originally transacted as sold on account
• Collection of sales


  • Within the discount period
  • Beyond the discount period
• Freight-in


  • Paid by the seller
• Freight-out


  • Paid by the seller