Recording transactions is the first step in the accounting process. Every business transaction is recorded using the double-entry system, where every debit has a corresponding credit of equal amount.
The Accounting Equation: Assets = Liabilities + Capital. Every transaction affects at least two items in this equation.
Types of Accounts: - Personal Accounts — Accounts of persons (natural, artificial, representative). Rule: Debit the receiver, Credit the giver. - Real Accounts — Accounts of assets (tangible and intangible). Rule: Debit what comes in, Credit what goes out. - Nominal Accounts — Accounts of expenses, losses, incomes, and gains. Rule: Debit all expenses and losses, Credit all incomes and gains.
Steps in recording: 1. Identify the transaction from source documents (invoice, receipt, voucher) 2. Analyse which accounts are affected 3. Apply the rules of debit and credit 4. Record in the Journal as a journal entry 5. Post to the Ledger
Journal Entry Format: Date | Particulars (accounts debited and credited) | L.F. | Debit Amount | Credit Amount
Exam tip: Practise identifying the type of account first — this makes applying the correct debit/credit rule straightforward. ICAI often gives 10-15 transactions to journalise.