Course Progress
Part of 2 Chapters
Chapter 2
The Magic of Bookkeeping: Journalizing & Double-Entry
#Accounting Transaction#Journalizing#Journal#Posting#General Ledger#Double-Entry
Chapter 2: The Magic of Bookkeeping - Journalizing and Double-Entry
The core practice of accounting is recording transactions in the books. To do this, we use a specialized format called ==Journalizing==.
1. Identifying Accounting Transactions
Not every event is recorded in the accounting books. Only events that cause a change in Assets, Liabilities, Equity, Revenue, or Expenses are considered ‘Accounting Transactions’.
| Is an Accounting Transaction | Is NOT an Accounting Transaction |
|---|---|
| Purchasing equipment with cash | Ordering products (Contract only) |
| Transferring wages to accounts | Hiring a new employee |
| Loss of inventory due to fire | Signing a building lease contract |
2. The 8 Elements of Accounting and Combinations
Journalizing is the process of dividing a transaction into ==Debit (Left)== and ==Credit (Right)== sides.
The Rule of Double-Entry (8 Elements)
- Debit (Left): Increase in Assets, Decrease in Liabilities, Decrease in Equity, Incurrence of Expenses
- Credit (Right): Decrease in Assets, Increase in Liabilities, Increase in Equity, Incurrence of Revenue
Example: Buying equipment for $100 in cash
(Debit) Equipment 100 / (Credit) Cash 100- Recorded in Debit because Assets increased (Equipment).
- Recorded in Credit because Assets decreased (Cash).
3. Posting to the General Ledger
Records in the Journal must be organized by individual accounts (Cash, Equipment, Wages, etc.). This process is called ==Posting==, and the resulting book is called the General Ledger.
Key Checklist
- What is the process of analyzing a transaction into debits and credits before recording it? (Answer: Journalizing)
- On which side should the ‘Incurrence of Expenses’ be recorded? (Answer: Debit)
- What is the term for transferring amounts from the Journal to the General Ledger? (Answer: Posting)