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HOW ARE TRANSACTIONS RECORDED IN THE ACCOUNTING SYSTEM?
The first part of the accounting system is a business transaction itself. This can range from a sale of goods, a purchase of fixed assets or a payment to a supplier. And cheques, invoices and receipts can evidence these. The transaction is then recorded in the second part of the accounting system known as the books of original entry. The books of original entry can be divided into three different types, the first and most common type includes the sales journal, purchases journal, sales returns journal and the purchases returns journal. This type is used to record the day-to-day transactions of an entity and particularly credit transactions. The second type is the cashbook. This type is also very common and is also used to record the day-to-day transactions of an entity and more specifically cash transactions. The third and final type is the journal itself. This is not used as much when compared to the other two types and is used to record special transactions at the end of an accounting period. Let’s go back to the accounting system where the third part is posting the transaction to the ledger accounts. A ledger will gather the transactions according to its type as well as on the accounts they affect. The ledger accounts can also be divided into three different types, which includes, the sales ledger, the purchases ledger and the general ledger. One type is the general ledger that acts as a collection of all the income, expense and balance sheet accounts. At the end of an accounting period, the journal entries are gathered and moved to the general ledger accounts which is known as posting. The other types of ledger accounts are: The sales ledger, which collates all the customers' accounts who are also known as debtors or accounts receivables. The purchases ledger, which collates all the suppliers' accounts who are also known as creditors or accounts payable. Then the fourth part of the accounting system is the trial balance. This is where the balances from the ledger accounts are added together at the end of an accounting period. And after that the total of the debit side should equal the total of the credit side. If it does not equal then it is required to identify and correct errors. When the trial balance is correct and balances then the fifth and final part of the accounting system can be performed. The balances from the trial balance are used to prepare the financial statements for an accounting period.

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Our content is to be used as an EDUCATIONAL TOOL that aims to provide a foundation for individuals to learn financial accounting, management accounting and bookkeeping topics as practiced in the United Kingdom. As a result, not all complexities are shown or provided. Examples may include but are not limited to; differences between financial reporting, accounting standards or tax treatments. We are NOT ENGAGED in the providing of accounting, bookkeeping, financial, investment, tax, or other professional services. You should consult with a qualified or professional such as an accountant, business advisor, investment specialist, lawyer, solicitor, etc., with regards to specific facts and situations.

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