Analyzing Transactions

Overview

Description

Transactions are economic events that occur between two parties, and analyzing transactions involve processing or recording transactions in books as a part of bookkeeping. The processing or recording of transactions involves a general structure and some specific terms. For example, similar transactions are accounted for in similar ways, and similar items are grouped together under the same account. The recording of transactions is referred to as posting—accountants post the transactions that affect specific accounts to their accounting books, referred to as the general ledger. A chart of accounts is a list of all accounts, and a trial balance builds off that chart of accounts to offer a summary of economic events posted to the accounts at a given point in time.

At A Glance

  • A simple type of bookkeeping, the single-entry accounting system, was an early accounting system, used to keep track of grain and rations. It is still used for tasks such as keeping track of hours worked.
  • Best suited for complex decisions or situations with many decision makers, the double-entry accounting system may have been adopted by Venetians doing business with Arabic traders.
  • All account transactions are stored in the general ledger. The general journal shows economic events in the order in which they were recorded.
  • A list of all the different accounts, called the chart of accounts, is set up for keeping track of them in the general ledger.
  • Ledger accounts can be classified and numbered in different ways for easy identification—by assets, operating assets, credits, debits, longevity, and other codes.
  • After identifying an appropriate account, a journal entry is posted in the general journal using double-entry accounting.
  • There are many types of subsidiary journals that support the general ledger. Entries from a subsidiary journal can be transferred to the general ledger at the end of a period.
  • A list of all accounts and all balances in those accounts at a given point in time makes up the trial balance.