The Double-Entry System of Recording

Transactions
Recording transactions in accounting is based on the double-
entry system. The transaction has a dual effect which means
that every transaction affects at least two accounts. For every
debit there is a corresponding credit. The total amount of the
accounts debited must equal the total amount of the accounts
credited.
The Accounting Cycle
The Life of a business is divided into accounting periods of
equal length. A standard sequence of accounting procedures is
repeated for each period. These uniform procedures done to
accomplish the accounting process are referred to as the
accounting cycle.
1. I dentifying and analyzing the events table recorded
This is the process of identifying and analyzing the
transactions to be recorded through the business documents.
Business documents are forms containing evidence to support a
business transactions.

2. Recording transactions in the journal
This is known as journalizing. It is the process of recording
the transaction in the first book of account known as the
journal.

3. Posting journal entries to the ledger
This is known as posting. It is the process of transferring
the information found in the journal into the book of final entry
known as the ledger. This summarizes the increase or decrease
of individual accounts.
4. Preparing the trial balance
The trial balance is a list of accounts found in the ledger
together with the accounts balance or total.

5. Preparing the worksheet and adjusting entries
The worksheet is a common tool used by accountants to
assemble on a sheet of a paper al the information needed to prepare
the financial statements, adjusting entries, closing entries, and the
post-closing trial balance.

6. Preparing the financial statements
A balance sheet , income statement, statement of changes in
equity, and cash flow statement are prepared to provide useful
information to parties interested in the financial information of the
business.


7. J ournalizing and posting of adjusting journal entries
Adjusting entries are prepared at the end of the accounting
period to update the accounts for internal transactions because they
affect more than one accounting period.

8. J ournalizing and posting of closing journal entries
Closing entries are prepared at the end of the accounting
period to update the owners capital account.

9. Preparing the post closing trial balance
After the closing entries have been posted, the post closing
trial balance is prepared from the general ledger accounts.

10. J ournalizing and posting of reversing journal entries
Reversing entries are prepared to simplify the accounting
process. The adjusting entries are simply reversed on the first day of
the accounting period.
The Analysis of Transaction
Following are the steps involved to analyze transactions:

1. From the business document, determine the kind of transaction
or exchange made.
2. Analyze the transaction to determine the accounts affected. They
can either affect the assets, liabilities, owners equity, revenue or
expenses accounts.
3. Determine the effect of the transaction on the accounts affected.
The transaction can either increase or decrease the accounts.
4. Apply the rules of debit and credit to identify whether the
accounts affected should be debited or credited to show the
corresponding increase or decrease.

The J ournal
The Journal is a chronological record of events or business
transaction showing all the effects of each transaction in terms
of debits and credits. Because transactions are initially
recorded in the journal, it is called the book of original entry. The
simplest journal is the general journal.

A J ournal entry should contain the following:

1. Date. Write a month on the first transaction unless there is a
change in month for the succeeding transactions or a new page is
used.
2. Account Titles and Explanation. Write the debit account at the
extreme left of the first line while the credit account is indented
half-inch on the next line. The explanation describing the
transaction is written on the extreme left of the next line below
the credit. Remember to skip on line before proceeding to the
next transaction.
3. P.R. (Posting Reference) Write the corresponding account
number here once the entry is posted. Meanwhile, it is left blank
until the posting has been done.

4. Debit. Under this column, write the debit amount for each debit
account.
5. Credit. Under this column, write the credit amount for each debit
account.

The Simple and Compound Entry
When only two accounts are affected, we call this a simple
entry where there is only one debit account and one credit
account. The previous example where the owner Niko Ong,
made an initial investment is a simple entry. In some cases, a
transaction would require the use of three or more accounts
in which case the entry is called a compound entry.
J ournalizing the Transactions
Journalizing is the process of recording transaction in the
journal after it has been recognized and measured.
In journalizing transactions the double entry system is used.
In this case, two or more accounts are affected by each transaction. It
follows that for every debit, a corresponding credit is made. The total
debits should equal total credits for every transaction. IN this way,
the equality of the accounting equation is maintained.

Rules for debit and credit
You debit to show: You credit to show:
1. Increase in assets 1. Decrease in assets
2. Decrease in liabilities 2. Increase in liabilities
3. Decrease in owners equity 3. Increase in owners equity
-Owners withdrawal -Initial investment
-Expenses -Additional investment
-Revenue/income



Use of T-Accounts
An account is a form of record that summarizes the increases
or decreases of any specific accounting value. The simplest form of
an account is the T-Account because the accounting equation is
represented by a big T. it is an informal tool used to analyze the effect
of a transaction in the assets, liabilities, owners equity, revenue, and
expenses.

The three elements of an account are:

1. Account Title
2. Debit
3. Credit





The Ledger
The ledger is a group of the accounts used by the company. It is
the book of final entry. An account is an accounting device or
form of record that summarizes the increases or decreases of any
specific accounting value. The accounts in the general ledger are
classified into two general groups.

1. Balance sheet or real account (assets, liabilities, and owners
equity)
2. Income statement or nominal accounts (revenue and expenses)

Chart of Accounts
Chart of accounts is a list of all account titles used by the
company with their corresponding account number. Account titles
are arrange in financial statement order. Balanced sheet accounts
which include assets, liabilities, and owners equity come first.
Account titles in the income statement which include revenue and

expenses follow. The accounts are so numbered for purposes of
indexing and cross-referencing.

The Normal Balance of an Account
The side of an account where increases and recorded is
referred to as the normal balance or an account. This can be the left
side (debit) or the right side (credit). The reason for this is account
increases usually exceed account decreases. The following are the
normal balances or accounts:


Normal Debit Balance Normal Credit Balance

Asset Liability
Owners Drawing Owners Equity
Expense Income
Posting to the Ledger
Posting is the process of transferring information from the
journal to the ledger. Debits in the journal are correspondingly posted
as debits in the ledger, and credits in the journal are likewise posted as
credits in the ledger. The steps in posting are as follows:

1. From the journal, copy the date of the transaction to the ledger.
2. Under the journal reference (J.R) column of the ledger, copy the
page number of the journal.
3. Under the debit credit ledger, transfer the credit amount from the
journal.
4. After posting the amount to the ledger, write the account number
in the posting reference (P.R) column of the journal.

The Ledger Accounts After Posting
The Debit or Credit balance of each account is determined at the
end of the accounting period in order to prepare the trial balance.





The debit column and the credit column of each account are
added to get the balance of each account. If an accounts total debit
exceeds total credit, account has a debit balance. If the total credit
exceeds total debit, the account has a credit balance.


The Trial Balanced
The trial balanced is the schedule of all balances to prove the
equality of the debit and credit it is a listing of all account title with
their respective debit or credit balances taken from the ledger.
However it does not check or vouch the accuracy of the report.

The following are the steps in the preparation of the trial balance:

1. In their proper numerical order, make a listing of all account
titles.
2. Get the account balance of each ledger account and write them
under their corresponding debit or credit column.
3. Foot or add the debit and the credit columns of the trial balance.

4. Check whether the debit totals and credit totals are equal. They
must be equal, otherwise your trial balance has error.