Journalizing begins when an event or transaction took place.
When a source document is received or prepared, the staff prepares a voucher (such as check voucher, cash voucher, petty cash voucher, journal voucher, sales voucher, purchase voucher, and similar documents).
Or, when sales transaction happened, the staff prepares and issues sales invoice and/or official receipts.
How to record the business transaction or events
Step 1
Remember the debit and credit guiding principle.
Discern which debit and credit rules applies to the transactions or events.
Step 2
Analyze the business transaction or economic event
- Identify the value received
In other words, answer the question what is the value received.
- Identify the value parted with
In other words, answer the question what is the value parted with.
- Assign the account title for the value received
Meaning, look at the chart of accounts of the company and identify the assigned account title appropriate for the value received.
Say, a coin, a paper money, a cheque, a bank draft. All of these items belong to the cash and cash equivalent account. So, the account title to be used is cash and cash equivalent.
- Assign the account title for the value parted with
Meaning, look at the chart of accounts of the company and identify the assigned account title appropriate for the value parted with.
- What is the effect of the value received in the accounting equation
Answer the question: What is the effect of the value received in the assets, liabilities or equity
- What is the effect of the value parted with in the accounting equation
Answer the question: What is the effect of the value parted with in the assets, liabilities or equity
- Measure the amount equivalent of the value received
The amount equivalent is normally the value of money given away in exchange of the acquired thing of value. See Measurement concepts and principles.
- Measure the amount equivalent of the value parted with
See above explanation
Step 3
Record the journal entry
- Record the date of the transaction
- Record the debit with the amount of the value received
- Record the credit with the amount of the value parted with
- Write the explanation of the transaction or events.
