How to Record the First Transaction in Accounting

Recording any transaction in accounting requires what is being debited and what is being credited.

Every business transaction, whether a sale or a purchase, is recorded in an accounting journal. The record summarizes the transaction according to the accounting principles of debit and credit. In particular, debit refers to an increase in assets or expenses, while credit refers to an increase in liabilities and income. Likewise, a debit refers to a decrease in liabilities and income, while credit refers to a decrease in assets and expenses. Also included in every record is the date, as well as a summary that identifies the elements or players in the transaction.

Instructions

1. Identify the entities involved in the transaction. If you acquire a $150,000 property on a loan on 22 August 2011, for instance, then the two elements involved are assets and liabilities.

2. Determine which element is being debited and which element is being credited. Given the example, assets are being debited $150,000 as per the introduction of the property, while liabilities are being credited $150,000 as per the introduction of the loan.

3. Record the transaction by writing the date, preparing a summary that includes the element names and a description of the transaction and crediting and debiting the appropriate elements. Given the example, write 22 August 2011; a summary such as "Assets / Liabilities: Purchased $150,000 property via Bank of American Loan" and then debit assets by $150,000 and credit liabilities by $150,000.

References

• Austin Community College; Steps to the Accounting Cycle
• University of Colorado: Step-by-Step Guide - Understanding Journal Entry Debit and Credit Conventions
• Future Accountant: Book of Prime Entry, Journalising