Process of recording business transactions

FRA, Mechanics 0

One transaction – 2 accounts

Double-entry accounting (18) 

  • A transaction has to be recorded in at least two accounts
  • Exp: increase in asset account must be balanced by decreased in another asset account or by increase in liability 
  • Typical examples 
    • Purchase equipment for $10k: 
      • Property increase $10k, cash decrease $10k
    • Borrow equipment 10$
      • PP&E increase $10k, notes payable increase $10k
    • Buy office supply
      • Supply expense increase, retained earning reduced → equity reduced
    •  Buy inventory at $8k , sell for $10k
      • Cash decrease by $8k then increase $10k, inventory increase $8k then decrease by $8k → asset increase $2k
      • Sales increase $10k, cost of goods sold increase $8k → retained earnings = $2k