for tax accounting purposes (with some exceptions which are beyondthis introductory accounting lecture).The other approach is based on the time a transaction takes place regardless of when cashrelated to the transaction is exchanged. This approach is called
. Returning to the example of a sales transaction, the revenue will berecognized by the company when the goods are delivered to the customer and not whenthe customer pays for the goods. The accrual-basis accounting is required by the USGAAP in preparing financial statements.
T-Accounts, Debits, Credits and Journals
All transactions are recorded in accounts. Accounts have three parts – header, left sideand right side. Because the accounts resemble the letter T, they are called T-accounts.The left side of a T-account is called
and the right side is called
.T-accounts are sometimes drawn to understand the relationship between differentaccounts. Most of the time, however, accounting information is posted directly toaccounting journals that accumulate information about specific types of transactions. For example, a journal where all sales are recorded is called a
.See more on
Bookkeeping, Accounting, and Financial Statements
The accounting process starts when transactions are posted to the accounting recordscalled journals. The recording process may be manual or automated.The
means that a bookkeeper records transactions into paper journals asthey occur or at the end of a day, week, or month, depending on frequency. The manual process is not used widely any more.The
involves use of the accounting software, where a bookkeeper can enter all transactions, again daily, weekly, and monthly or as needed. Due to theefficiency increase with the automated process, it is the most used nowadays.
The process of entering the transactions into journals (whether on paper or in accountingsoftware) represents
.The next step in the process is summarization and presentation of the financialinformation. Again, this may be completed manually or automatically with help of accounting applications. This process is known as