Transactions Record

In the previous article I have discussed the Financial System and the Transactions through Financial Institutions or banks whereas now it will be discussed that how we can record these transactions.

There are several ways to record these transactions where the different ways to record them are given below,

Ways to record these transactions:

If you work in the finance department, you may be responsible for recording and monitoring

the business’ accounting transactions. There are typically procedures and processes laid out by the senior management team. If you’re working for a startup or trying to make the existing processes more efficient, here are some ways you can do so

Journal Entries: 

This is the most common method of recording transactions, as you simply need to enter the debit or credit for each transaction in a journal. It can be a physical journal or ledger, but many companies use digital versions to streamline the accounting process.

Issuance of an Invoice:

Using accounting software, you can automatically create journal entries whenever you issue an invoice to a customer. Include relevant information, such as the price of the product or service you sold, the unit quantity, and any sales tax. Then, send this invoice to your customers and the information will go to the company’s accounts receivable account.

Receipt of an Invoice:

Similarly, when you receive an invoice from a supplier or another business, record this information in an expense or accounts payable account. Keep a copy of both types of invoices for your own records.

Issuance of Paycheck:

As paying employees is a large, reoccurring expense, it’s important to keep track of the issuance of these paychecks. Enter the employees’ pay rates, hours worked, and deductions in a payroll account.

Furthermore, to record Transactions there are different types of Financial Statements also used to record,

Types of financial statements

To record the different transactions your company makes, you may use one of the following financial statements:

Income statement:

An income statement is a report of an organization’s financial performance for a specific period, such as a quarter or a year. It displays the business’ sales, then deducts expenses to determine how much the company earned or lost in that period. If the income shows a positive number, that is the business’ net profit. If it shows a negative number, that is the loss they incurred from spending more than they were earning.

Income statements are useful for businesses to keep up with their finances and create a budget and sales plan that helps increase profit. Income statements are also useful for investors interested in a business because they can see how well the company is doing.

Balance sheet:

A balance sheet, also known as a statement of net worth or a statement of financial position, reports a business’ financial position as it displays the company’s liabilities, assets, and shareholders’ equity. It displays what a company owns and owes, and the amount shareholders have invested in it. It follows an equation that states the company’s assets are equal to its liabilities and shareholders’ equity.

Statement of cash flows:

Cash flow statements outline how cash is inflowing and outflowing during a reporting period. Businesses typically separate their cash flow statements into three categories, operating activities, investing activities, and financing activities. This allows businesses to see the changes in their cash balance from the beginning to the end of a particular period.

Statement of changes in equity:

Changes in equity statements are less common, but they report the changes in a business’ equity during the reporting period. This can include the purchase of shares, the dividends issued, and any other profits or losses the company has. This statement is more commonly used externally than the other financial statements, as it’s of more interest to shareholders.

There are some benefits of Accounting transactions which are also mentioned,

Benefits of Accounting Transactions:

• Evaluation of Financial Statements
• Maintenance and recording business transactions
• Comparison is available from past facts and data to present factual data
• Helpful in calculating the valuation of the business
• It provides information regarding the stake holders and the parties to the company
• Helpful in decision making and also act as evidence in legal matters
• It is helpful in dealing with taxation
• It is helpful in changing financial position of the company

At the end it is concluded that, a transaction is a financial exchange for a service or product. Accrual accounting records an event immediately after it has been completed, regardless of when the payment is made or received