Double-entry Accounting System

5. Effects of debits and credits on accounts

For your convenience we provide a table of account types with indication of how they are increased or decreased:

Illustration 45: Summary of debit and credit impacts

Account

Debit

Credit

Assets

Increase

Decrease

Contra Assets

Decrease

Increase

Liabilities

Decrease

Increase

Equity

Decrease

Increase

Contributed Capital

Decrease

Increase

Revenue

Decrease

Increase

Expenses

Increase

Decrease

Distributions

Increase

Decrease

6. Recording process steps

T accounts and the double-entry system provide accountants with a sophisticated means of record-keeping. Nevertheless, drawing T accounts is only one step in a sequence of steps accountants take from initiating a transaction to including it into the financial statements. In general, all steps of the recording process are performed in the following order:

Illustration 46: The accounting recording process

Accounting recording process

6.1. Analysis of source (business) documents

First, there should be a document showing that an accounting event took place. Such a document is usually called a source document:

Source document serves as a basis for an accounting entry. Source documents are what accountants use to record accounting transactions. Source documents are also called business documents.

Source documents vary. Some examples of source documents are invoices, material requisition forms, bank statements, and credit memos.

6.2. Recording transactions in general journal

Second, source documents are the basis for recording transactions in a chronological order in a journal. Each company has what is called the general journal or the book of original entry:

General journal (book of original entry) contains records about all transactions of an entity. In particular, the journal includes such data as the event date, accounts involved, explanations and amount(s).

In addition to the general journal, an entity may have other journals that relate to specific areas, like a cash journal (includes information on cash transactions only) or a sales journal (includes information about sales transactions only).

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