Recording Business Transactions

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.

Learning objectives

After studying this chapter, you should be able to: 
  • Use the account as the basic classifying and storage unit for accounting information. 
  • Express the effects of business transactions in terms of debits and credits to different types of accounts. 
  • List the steps in the accounting cycle. 
  • Record the effects of business transactions in a journal. 
  • Post journal entries to the accounts in the ledger. 
  • Prepare a trial balance to test the equality of debits and credits in the journalizing and posting process. 
  • Analyze and use the financial results - horizontal and vertical analyses.

Source: Textbook Equity,
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