• Unit 2: Recording Business Transactions

    There is a specific way that financial data is recorded, so a foundational understanding of this process is necessary. Understanding the meaning and use of concepts like journals, journal entries, ledger, trial balance, debits and credits, and vertical/horizontal analysis is an important part of studying financial accounting.

    Completing this unit should take you approximately 8 hours.

    • Upon successful completion of this unit, you will be able to:

      • illustrate the rules of debits and credits, and which accounts they increase or decrease;
      • explain the steps in the accounting cycle;
      • perform double entry accounting for basic business transactions; and
      • prepare a trial balance.

    • 2.1: Debits and Credits

      • Recording Business Transactions Book

        This chapter explains the rules regarding debits and credits. Debits and credit increase and decrease certain accounts. Spend some time learning the rules of debits and credits, since they are the foundation of accounting principles. Posting a debit where a credit should be, or vice versa, will cause you to be out of balance. You will then have to re-trace all of your postings to uncover your error, which would be very frustrating and time-consuming. Since accounting is the "language of business", it is very important that you understand the building blocks of the language.  Even if you hire a CPA to do your books, you need an understanding of what drives your results so that you can manage accordingly, and avoid becoming a victim of fraud.

      • Rules of Debits and Credits Book

        Read the rules of debits and credits, and copy and keep handy as a quick reference. Then, read the section on the ledger and the chart of accounts again. Learning about financial accounting for the first time is all about building upon and refining your knowledge of accounting processes and methods step-by-step. Be sure to note which accounts are permanent and which accounts are temporary.

      • More on the Rules of Debits and Credits Page

        This video will help you understand the basic rules of debits and credits in accounting. Some easy acronyms are shown to help you remember the rules!

      • Why are the Rules of Debits and Credits Backwards? Page

        Since many of you may be confused about why the terms for debits and credits are "backwards", this video explains why! It will help you understand why we refer to a return to a store as a credit, and how common financial terms are based on the accounting equation.

    • 2.2: The Accounting Process

      • The Accounting Cycle Book

        Read each section on this page. You have been exposed to the concepts of recording and journalizing transactions previously, but this explains the rest of the accounting process. The accounting cycle is the repetitive set of steps that must occur in every business every period in order to meet reporting requirements.

      • Principles of Accounting Transactions Page

        This article will give you an introduction to the principles of accounting transactions. Accounting transactions record the amount of money spent and received by a given entity. Take notes while you read.

      • Accounting Cycle Step 2: Journalize Transactions Page

        This video takes you through journal entries and posting to T accounts, and is a continuation of the accounting cycle. Sometimes, it's easier to "see" accounting in action rather than just read about it.

      • Accounting Cycle Step 3: Post Transactions Page

        This video takes you deeper into the accounting cycle and walks through how to post transactions to the journal at T accounts.

      • Accounting Cycle Step 4: Unadjusted Trial Balance (Corporations) Page

        This video discusses adjusting entries, which you will need to do to get your worksheet ready for the preparation of the financial statements.

      • Financing Your Organization Book

        This chapter explains the importance of using an accounting system, which will be especially important if you are interested in becoming an auditor.

      • Accounting Cycle Steps 5–9 Page

        Watch these short videos on the accounting cycle. If you need to, rewatch the videos for Steps 1 through 4 before you begin. These videos go through the entire accounting cycle: journals, postings, worksheets, adjusting entries, post-closing entries, and financial statements. You will see the process as one continuous activity. The method is slightly different between sole proprietorship companies and corporations. Learn both, since over the course of your career you may find yourself in both types of organization.

    • Unit 2 Assessment

      • Practice Problems Book

        Complete these exercises and practice problems. Check your answers after you finish.

      • Unit 2 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.