How Do Accountants Record Transactions?

How Do Accountants Record Transactions?

Have you ever wondered how the accountants in an accounting firm in Johor Bahru record all kinds of business transactions? When a transaction occurs, there are various methods the accountants can use to record it in the books of a company.

The most basic way of recording transaction is by using the journal entries. The accountants will enter the debits and credits as well as the account numbers manually for every transaction. However, this method is time-consuming, and it is more susceptible to fraud and errors. Thus, the accountants will typically use this method when they are making adjustments or creating special entries. Nowadays, thanks to the development of the accounting software, the accountants may record a common business transaction by using more automated approaches.

By using the accounting software, in the payroll module, the accountant will enter the pay rates as well as the working hours of every employee when the company needs to pay the salaries. The payroll module will then create a journal entry automatically, and the journal entry will debit the payroll tax and compensation accounts, which are the expenses of the company, as well as credit the cash account (Also see How to Forecast Cash Flow?).

When a company creates an invoice to its client, in the accounting software, the accountant should key in the relevant information for the transaction into the billing module. That information includes the price, quantity or units of the goods, as well as sales tax if there are any applicable ones. Then, the module will create a journal entry automatically, which will debit the accounts receivable account or the cash account, and credit the sales account (Also see Can You Differentiate Net Income and Net Sales?). In some cases, there might be a credit to the sales tax account, which is a form of liability for the company.

By using the accounting software, when a company receives a supplier invoice, the accountant will enter it into the accounts payable module (Also see Ways to Conduct an Accounts Payable Audit). Then, the module in the accounting software will create a journal entry automatically, which will debit the asset or expense account which is related to that purchase, and credit the accounts payable account, which is a form of liability.

When the company pays its supplier, in the accounting software, the accountant will mark the invoice numbers the company pays as have been dealt with in the accounts payable module. After that, the software will debit the accounts payable account and credit the cash account before issuing electronic payments or printing the cheques.

When the accountants record the transactions by using the methods mentioned above, entries will be created in the company’s general ledger. Then, the accountants will aggregate the information in it to generate financial statements (Also see Why Do We Need to Generate Financial Statements).

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