Recording Transactions

An agreement between the buyer and the seller based on which goods and services are exchanged is called a Transaction. Transaction record in accounting is defined as a business occurrence that has a monetary effect on the financial records of a firm. 

Example: Purchase of machine, land or building, sale to a customer in credit or cash, etc. Accrual and Cash accounting are two ways in which any business transaction is recorded. In accrual-based accounting, the focus is on the transactions where income is earned and expenses are incurred, whereas Cash accounting income is recorded when credit payments or cash payments are made.

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What are  Transactions in Accounting and the Methods of Transaction Records?

So, what is transaction accounting? When a transaction in accounting occurs, it can be recorded in various ways. Some of them are listed as follows that will help you understand the fundamental question of “What is a transaction in accounting?”

Journal and Ledger Entries

The first thing any accountant will learn is recording a transaction in the form of a journal. This is considered as the most basic way to record any type of transaction. In Journal and ledgers, the accountant manually adds the debit and the credit for each transaction. Therefore, this process is subject to error. In practical scenarios, Journals are not used. Instead, automated approaches such as accounting software like Tally are used to record simple transactions. 

Receipts

If a supplier invoice is received, the accountant can record it in the accounts payable section of any accounting software. This will create a journal entry that will credit the accounts payable and debit the expenses. 

Issuance of Invoice

When issuing an invoice to a supplier, the accountant will first enter data regarding price, quantity and tax amount to make a bill in the accounting software and then the software will automatically credit the sales account. 

Supplier Payments

When a payment is made to the supplier, the accountant will enter the invoice number in the software which will result in a credit or cash account in the transaction records of the firm. 

Paychecks

The Payroll management system is used by the accounts to manage employee payments for salary and other incentives. The amount to be paid and the hours worked by the employee are added in the software along with other relevant information. The software then creates a journal where the cash account gets credited.

Solved Examples

All the above-mentioned techniques of maintaining transaction records create the necessary accounts and ledgers. From here the transaction gets made into proper financial statements and bookkeeping takes place.

The following examples will explain the basic method of recording transactions in the form of a journal. 

1.  Recording of Transaction 1 NCERT Solutions

The business was started by Mr A on 19th August 2020 with cash of Rs 1,00,000. Record the following transaction in the books of Mr A.

2. Recording of Transaction 2 NCERT Solutions

Goods purchased by Ravi from Mahesh for Rs 10,000 on 19th August 2020.

Process of the Recording of Transactions

Seven steps are taken while recording transactions. The seven steps are:

• Analyzing each transaction and determine the effect of the transaction on different accounts

• Recording the transaction in the form of a double-entry bookkeeping journal.

• Transferring the information that is recorded in the journal to different types of ledger accounts.

• Prepare a trial palace which will help determine the error in recording accounts, if any,

• Make adjustment entries wherever needed

• Prepare the adjusted trial balance

• Finally, complete bookkeeping by preparing financial statements of the balance sheet and profit and loss account.

• There are certain documents called transaction source documents that help determine the related business transactions in financial records. Examples of such documents are Bank stunts, cash register, credit card receipts, packing slip, time card, etc.

Tips for Recording Transactions

Learning and practicing a combination of theoretical and practical subjects can be difficult. However, there are a few tips that can be useful for students. 

• Familiarize yourself with them. 

• Try Solving at least two Illustrations of every Type

A good student not only acquires the important topics, instead they choose to know problems of every type. Conceptual understanding is really important and that can only be attained by solving multiple questions and not just of one type, but rather questions of all types. This opens up your mind and prepares it to work with a broader aspect, hence polishing the concepts even more. 

• Test yourself after every Chapter

Do not skip on the next chapter without testing yourself for the one you have just completed. Practice questions related to that chapter so that you’re more clear with the concepts. This will help you gain confidence too. Looking over the notes might not be enough and hence, you need to go through the chapter thoroughly as almost all the topics can be considered important. This also helps you to take a clearer picture of how much you have understood, what are your weaker areas, what are your strengths and every other important thing. 

• Work hard from the Starting

Studying before the deadline is not a quality of a good student. If you wish to work on your concepts and better understanding, then you need to study from day one and not rely on one-day hard work. You may also miss many topics if you study just before the exam. It might help you in the short run but in the long run, you can remember only those concepts that you have understood and not crammed. Hence, students are advised to be consistent and put in all their efforts into achieving the goals that they have set for themselves. 

• Discipline is more Important than just Motivation

Motivating yourself to study is important but not every day. You need to be disciplined otherwise whenever your motivation will come down, you won’t be having the urge to study. Discipline avoids such situations. If you’re disciplined, you’ll prepare yourself to study even if you don’t feel like doing so. Stick to your schedule regardless of all the distractions around you and that's the key to success. Hence, students shall try their level best to be disciplined at all times to be able to move forward and not let any hurdle stop them time and again.

• Do not Hesitate to Participate

Participation is the key to being active. Many students who do not participate in the class find the subject boring and feel tired while attending classes. Participation keeps you active throughout the class and builds up interest. Students who participate in the class tend to have good knowledge about the subject as they are aware of what is happening in the class. Hence, students who want to excel shall always stay active and participate as much as they can. 

• Know your study Pattern

Everyone has their way and pattern of studying. Some find it easy to study the whole day while some study just for a few hours and score better. They know their capacity. Similarly, study patterns and styles are there which can be identified by regular practice. Hence, students shall rely the most on introspection. Observe, select and stick to it. 

• Try to understand ‘why’

When you know why you’re doing something, you automatically get interested in knowing how to do it. So if you know why you’re studying a particular topic, you’ll get interested in learning more about it. This will also help you gain a deeper understanding of the concepts as well. Hence, students shall be able to find the why behind their every action and let this fuel them to take action, even when they are low on motivation. 

• Compete with yourself:

Competing with others isn’t a good option as you don’t know how, when, and what’s their style of studying. And, even if you know, then there’s no point competing yourself with some other person as everyone is unique and has a different aspect of thinking and acquiring things. Compete with yourself, try to hold a record of your previous marks and create a realistic goal for the next exam. This will help you score better than not anyone else, but yourself, thus leading to improvement. 

Fun Facts

1. History is written by Accountants: The first-ever recorded name in human history belonged to an accountant. The record was made 5000 years ago. The name of the accountant was “Kushim”

2. The father of modern accounts is Luca Pacioli. He was an Italian accountant who taught Leonardo da Vinci.