Analyzing and Recording
a. Common asset accounts: Cash, Accounts Receivable, Notes Receivable,
Prepaid Expenses (Rent, Insurance, etc.), Office Supplies, Store Supplies,
Equipment, Building, and Land.
b. Common liability accounts: Accounts Payable, Notes Payable, Unearned
Revenue, Wages Payable, and Taxes Payable.
c. Common equity accounts: Owner, Capital; and Owner, Withdrawals.
A note payable is formal promise, usually denoted by signing a promissory
note to pay a future amount. A note payable can be short-term or long-term,
depending on when it is due. An account payable also references an amount
owed to an entity. An account payable can be oral or implied, and often arises
from the purchase of inventory, supplies, or services.
An account payable is
There are several steps in processing transactions: (1) Identify and analyze
the transaction or event, including the source document(s), (2) apply double-
entry accounting, (3) record the transaction or event in a journal, and (4) post
the journal entry to the ledger.
These steps would be followed by preparation
of a trial balance and then with the reporting of financial statements.
A general journal can be used to record any business transaction or event.
Debited accounts are commonly recorded first. The credited accounts are
Expense accounts have debit balances because they are decreases to equity
(and equity has a credit balance).
A transaction is first recorded in a journal to create a complete record of the
transaction in one place.
(The journal is often referred to as the book of
This process reduces the likelihood of errors in ledger
The recordkeeper prepares a trial balance to summarize the contents of the
ledger and to verify the equality of total debits and total credits.
balance also serves as a helpful internal document for preparing financial
statements and other reports.