BSB110 Lecture Notes - Lecture 4: General Ledger, Accounting Equation, Trial Balance
Accounting – The Recording Process
Steps in the recording process
- Analyse each transaction in terms of its effect on the accounts
- Enter the transaction information in a journal
- Transfer the journal information (post) to the appropriate accounts in the ledger
Transactions and Events
- Occurrences which must be recorded because they have an effect on the assets, liabilities,
or equity items of a business
- Transactions – external exchanges of something of value between two or more entities
- Events – price increases in assets during an accounting period or allocation of cost of long-
lived assets of entities to different accounting periods
- Effect assets, liabilities, and equity
- Only record transactions which have a financial effect
Analysing transactions
- Transaction analysis – the process of identifying the specific effects of transactions and
events on the accounting equation
- Is there an economic effect? E.g. purchasing Equipment – yes, hiring new employee – no
- What accounts are affected? – Assets, Liabilities, Equity
- The amount to be recorded
- Must always be a balance in Accounting Equation (Assets = Liabilities + Equity)
- The cause of each change in equity must be indicated
Journalising transactions
- Journal – chronological record of all transactions
- Discloses complete effect of transaction – prevents errors
- Debit and Credit
oAccounting equation
oAssets and Expenses – Dr
oLiabilities, Equity, and Revenue – Cr
- Double Entry system
oEach transaction affects at least two accounts
oTotal debits must equal total credits
oWhen a debit account increases, a credit account must decrease
oWhen a credit account increases, a debit account must decrease
- Entering transactions
oThink about previous analysis – outline which accounts are affected and by how
much
oDoes the account need to be debited or credited?
- General ledger – contains all assets, liabilities, and equity accounts
- Chart of accounts – list of all accounts used in the general ledger
Posting Information to the ledger
- Ledger – contains all asset, liability, equity, revenue, and expense accounts
- Account
oIndividual accounting record of increases and decreases in a specific asset, liability or
equity item
oConsists of three parts
Name of the account
Left/debit side
Right/credit side
oAlso known as a T account
- Debit – posted to the left side
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Document Summary
Analyse each transaction in terms of its effect on the accounts. Transfer the journal information (post) to the appropriate accounts in the ledger. Occurrences which must be recorded because they have an effect on the assets, liabilities, or equity items of a business. Transactions external exchanges of something of value between two or more entities. Events price increases in assets during an accounting period or allocation of cost of long- lived assets of entities to different accounting periods. Only record transactions which have a financial effect. Transaction analysis the process of identifying the specific effects of transactions and events on the accounting equation. E. g. purchasing equipment yes, hiring new employee no. Must always be a balance in accounting equation (assets = liabilities + equity) The cause of each change in equity must be indicated. Discloses complete effect of transaction prevents errors. Debit and credit: accounting equation, assets and expenses dr, liabilities, equity, and revenue cr.
