Accounting example


This accounting example shows what happens step by step with business transactions in the accounting records as they are entered in journals, ledgers, reports, and cash book.

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You can trace the money through the different forms/spreadsheets. This example has screenshots of manual accounting, using paper books and handwriting and at the end of this article are screenshots of the computerized accounting software.

 

Accounting example:

 2 business transactions

I have used two business transactions to illustrate the process.

1. Revenue transaction

  • On June 1, Jay, owner of The Cleaning Agency, receives a cash payment from his client, Mr. Smith, for $ 100 for the bill of sale 1.



  • Jay goes and deposits the cash in the bank and puts a copy of the deposit slip on file with the accountant in his office.

 

2. Expense transaction

  • On June 2, Jay purchases a bottle of glass cleaner from General Stowhich which issues him a receipt showing the details of the transaction (the date, description, amount, and how it was paid).



  • Jay pays with his business bank card. Payment is processed electronically through the General Store POS (point of sale) machine and money are withdrawn from The Cleaning Agency's business bank account (when Jay touched his bank card at the POS terminal) and transferred to the General Store bank account.



  • Jay puts the receipt in a folder in the office for the accountant.

 

Bookkeeping Example: Journals, Ledgers, and Reports

We, the accountant, look at the cash deposit slip and the purchase receipt in the folder.

We enter the transactions into the books in the following order:

  • Journals
  • Accounting books
  • Report

Journals and ledgers are books used in the double-entry entry method of accounting.

The cash book topic is covered later on this page.

 

1. General journal accounting example

Journals always come first before ledgers.

The journals show which general ledger accounts will be modified by the transaction.

The source of information for the journal is the document; In this example, it is the deposit slip and invoice for income and General Store receipt for expenses.

Transactions are entered in date order by going down the page of a journal.

There is always a gap of a line between transactions.

When the page is full, turn the page and continue.

 

Each transaction has:

  • a debit entry
  • a credit entry, and
  • a descriptive line

All placed one line below the other with no line spaces.

Some transactions may have more than one debit entry of payment made covers different types of expenses. Some transactions may have more than one credit entry payment received covers different types of income.

 

This Bookkeeping Valencia example is for only one type of income and one type of expense.

The revenue journal is divided into two ledgers. The journal of an expense is divided into two ledgers.

 

Income transaction in the journal

The first line is for the debit entry: the account that the money came from to pay the expense. In this example of countable income, it is $ 100 for the Bank.



The second line is for the credit entry: the account to which the expense is assigned. In this accounting example, it is $ 100 for the sales account. This entry in the Details column is indented, which gives us the idea that it goes on the right side of a ledger (when we get there).



The third line is for the description of the revenue transactiThisthis accounting example, is a brief description of who paid and the invoice number, aid, and the method of payment.

Expense transactions in a journal. The first line is for the debit entry: the account to which the expense is assigned. In this example of accounting expenses, it is $ 25.00 allocated to the Purchasing account.



The second line is for the credit entry: the account that the money came from to pay the expense. In this accounting example, it is $ 25.00 from the bank account. Again, this credit entry in the Details column is indented so it's easy to see compared to the debit entry and so we know it goes in the right column of the ledger. The third line is for the description of the expense transaction. In this accounting example is a brief description of the item purchased and from were, along with the method of payment.

 

Therefore, you can see in this journal accounting example that the bank entry is changed from a debit entry in the income transaction to a credit entry in the expense transaction.

How to know when to debit an account or when to credit it?

 

2. Example of ledger accounting

Once a transaction is entered as a journal, it is transferred to the general ledger account book using the journal as the source of information. General ledger account numbers are established by the company and can be any numbering system; there is no hard and fast rule about it.

Companies using accounting software may find that the numbering system is already configured by the software based on the software company's numbering choice. However, in most cases, they allow you to edit the numbering system of your choice.

 

Below is our example of a manual chart of accounts. The general ledger accounts used in the accounting example on this page have been highlighted in yellow.

You can download a free PDF of the Chart of Accounts by clicking on the graphic below.

Income transaction in the bank ledger Looking at our accounting example for the revenue journal, we see that the first line is the debit entry for the bank account, so we need to find the bank's general ledger account page.



The entry must go on the debit side (left column) of the bank's General Ledger page because the journal says it is the debit entry. Once it's entered, we write the general ledger number (1001) next to the debit line in the journal that indicates that it has been transferred to the ledger (also called "posted").

 

We also write the page number of the journal in the ledger next to the entry. In this accounting exam, simple it is J1 

 

Revenue transaction in the sales ledger

  • The next line of the journal shows that the sales account must be credited with $ 100.



  • So we need to find the sales ledger account and enter the sale on the credit side (right side) of the ledger.



  • We then write the sales account number (4001) next to the credit entry line in the journal to show that we have published it.



  • Once again, we must write the page number of the J1 journal in the ledger next to the entry.

3. Example of report accounting

The last thing is to prepare a Profit and Loss Report at the end of the month to show the business owner so that he can see if he made a profit or loss.

 

Of course, this accounting example has only two transactions for the entire month, which is unrealistic but simply serves to show you what is going on. We must look at the ledgers to get the figures from the report. Revenue always goes first on the report, so in this example, the $ 100 sales ledger total goes first on the report. So we know that expenses come next, so the $ 25.00 from the Purchase book is entered into the report.

 

Net profit is calculated by subtracting expenses from income; It's about $ 75.0Paybookbook

Another way to analyze business transactions through the bank is to keep a cash book.

A cash book is like a bank ledger, but it has a different format. It is possible to maintain a man cashbook book for a small business and produce a Profit and Loss Report from the cash book alone without having any journals or ledgers.

 

It's called single-entry accounting and it is the simplest method of accounting.

In this simple example of cash book accounting, you can see that each transaction is entered in date order on the page with a description column, an income column, and an expense column.

You could have a cash book with more than one income or expense column like in this accounting example below.

 

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