Definition of Accounting Terms relating to Business Transaction Flow

Source Document- A paper prepared as evidence to support a business transaction. Examples of source documents are: invoices (purchases and sales), receipts, memorandums, deposit slips, check stubs, cash register tapes, payroll time cards.

The Journal is the book of original entry.

Two column journal is an all purpose journal which can be used by a business having simple operations and limited transactions.

Journalizing is the process of recording a business transaction in the journal.

Posting is the process of transferring the data from journal to the ledger.

The Ledger is the book of final entry.

The Trial Balance is the listing of all the accounts in the general ledger and the sum of the debit and credit amounts of their balances.

Chart of Accounts is a listing of all accounts and their account (code) number used for journalizing business transactions.

Common Topics in Basic Accounting that You should Know about

Among the topics covered in basic accounting are the following:

·         Definition of Accounting

·         Role of Accounting in Businesses

·         Types of Businesses

·         Types of Ownership Structure

·         Basic Elements of Accounting

·         Accounting Processes

·         Accounting Equation

·         Business Transactions

·         Financial Statements

·         Double Entry Accounting

·         T - Account

·         Rules of Debit and Credit

·         Rules of Liability and Owner’s Equity

·         Trial Balance

·         General Journal

·         General Ledger

·         Chart of Accounts

·         Cash Basis Vs. Accrual Basis of Accounting

·         Adjustments and Adjusting Entries

·         Accruals and Deferrals

·         Adjusting Process

·         Accounting Cycle

·         Worksheet

·         Financial Statements (Balance Sheet and Income Statement)

·         Accounting Cycle for Merchandising Business

*The italicized items are considered by some as difficult topics

If you are adept on the above topics already, you can surely be considered as an accountant regardless of the course you are taking.

My Services: Accounting Tutorials and other Services

Having trouble with accounting? Just email me and I will provide you with my services.

I am offering tutorial services on the following subjects on accounting on a per hour fee basis:

Basic Accounting

Partnership and Corporation

Tax 1: Income Taxation

Tax 2: Business and Transfer Taxes

Management Advisory Services

Top 4 Reasons Why Many Students Hate Basic Accounting as a Subject

Here are the top 4 reasons why students hate basic accounting (based on comments of my students):

1. Boring – A lot of students say that there are a lot of mathematics and numbers.  The topics are repetitive.  Pictures in the accounting books are minimal.

2. Not related to the course – This one is for those non-business students.  They have to take accounting because its indicated on their syllabus but still they find it really irrelevant (let’s say for example the hrm students).

3. Too hard to understand – Sometimes it’s hard to analyze situations and transactions.

4. Too much hand work – Well, exercises are tremendously numerous. We always say what you learn to do, you learn by doing.  We have the process such as journalizing, posting, preparation of worksheet among others. These are all handwritten.

These reasons are normal.  We cannot master everything. We just have to enjoy each moment of our learning even if it puts us on a difficult situation.  Having a basic knowledge in accounting is still very important. To those who have not taken accounting as a subject, do not be discouraged by this blog instead be challenged.

MPE, Masters in Proforma Entries

If you are a master in proforma entries, you do not have to worry in preparing journal entries for your quiz or exam on your accounting subject.

Here is an example:

August 1, Owner invested cash in the business.

                                                            DR                   CR

Cash                                                    xxx
            Capital                                                             xxx

This entry is recorded whenever the owner of the business invests cash in the business.  Going back to our discussion on the normal balances of the account, we should remember the techniques.

How to Make a Simple Financial Transaction Worksheet

Making a financial transaction worksheet is easy.  You just have to know how to analyze transactions. The accounting equation, Asset = Liabilities + Equity, is very useful in analyzing transactions. You have to keep in mind that this equation should always be balanced.

I have prepared a sample problem involving the preparation of a financial transaction worksheet.  I hope with this problem you could have an idea how recording transactions work.

The answer will be:

If you got this correctly, you have proven your skills on accounting.  Congratulations!

  

Do the Alphabet ABCD... LMNOPQRST-Account

Of course, when we talk about accounting, we will never forget this topic, maybe because it’s kind a unique thing that letter T is used among the other letters of the alphabet.

A common question usually asked in a T-account – on what side will I put this amount? Debit or Credit? Left or Right?

First, we need to know the importance of T-Account.  It is a very important tool in summarizing the transactions affecting a particular account.  In most of the accounting subjects, like practical accounting 1&2 and auditing problems, this tool is very useful.  For those who will be taking the CPA Board Examinations or CAT Examinations, you have to master the T-Account.  Aside from saving time in using it, it requires only a little effort to think about how to solve problems involving computations.

Next, you have to understand the nature of the accounts.  You also have to remember that debit is on the left side of the T-Account while credit is on the right side.  Below is a T-Account which summarizes all the normal balances of the accounts (the side on which the account increases). 

Assets Liabilities Withdrawals Equity Expenses Revenue

The Journey to the Journal

“Can you lend me a piece of journal?”  Your classmate would always tell you whenever you have an activity on journalizing.  The following day the same scenario would happen and you’d give another journal.  Until the end of the semester your seatmate would ask for a piece of journal.  Can there be an end to this?  

In the real world of accounting, if you are assigned in the accounting department, you really have to do a lot of journal entries per day, most especially in merchandizing and service type of business which have a lot of transactions during the day.  If ever you get bored on doing journal entries, you should think twice and look on the brighter side of it.

So let’s review the parts of the journal.  We have the date, the account titles and explanation, the posting reference,  the debit column and the credit column.  Once we have plotted the parts on the journal we are now ready in journalizing.

It will take time for you to master journalizing. You need to use sort of techniques to be expert on this:

Ways to Appreciate Accounting

Let us do accounting!

Well, some of us perhaps get too quickly upset or bored whenever accounting subjects come to get our way.  It’s a normal thing but we never realize that in our everyday life we do some accounting of our expenses, how much is owed from us or how much we owe to our classmates or our co-workers or even to our parents and friends.  Accounting may give you some headache but it does give you some benefits.  Those people who have knowledge in accounting have more advantage over those people who know nothing about it.

I am giving you some of the ways to appreciate accounting.

1.  If you are a business administration student and later on you will be applying for a job after your graduation, most businesses would require you to do accounting work.  As the saying goes, “sacrifice is temporary but success is forever”.  You should always remember that the sacrifices that you experience right now will pay off soon and studying accounting is sometimes an arduous task but you soon later on understand its importance.  Be resourceful, read your accounting books, watch a youtube video or browse the accounting topics on the internet those which you are not familiar of.

2.  Do not think so much of the difficulty of accounting, think on how you can solve that difficulty.  We know that if we are focusing so much on the problem, we cannot really see a clearer view on how we can solve it.  In accounting, whenever you are given a problem to solve, what you need to do is to go back to the basic accounting principles.  The basic principles of accounting will be your guiding light.  Review the revenue and expense recognition principle, historical cost principle, matching principle etc. (even the fundamental concepts such as periodicity, stable monetary unit concept and the entity concept.)  If you are unfamiliar of these principles you may search the internet or get a book and remember their meaning.

3.  Lastly, (this I consider as the best among the three), apply accounting to your real life.  What if that accounting situation really happened to you?  What would you do?  Well, I personally, as a professor in accounting usually takes it as a technique in teaching my students the principles of accounting.  I do not have a hard time in explaining to them once they can relate.  And they can relate only when the same situation could happen to them on real life.  That makes accounting interesting to them.  Some say that if you really know something, you can be able to share it.  You can begin sharing what you know to yourself first and you can do it by applying it into your own life.

Well, these are just suggestions which you can do in order for you to appreciate accounting.

You cannot appreciate something which is not familiar to you or you know nothing about.