The Basic for Recording Transactions || Processing and Recording Business Transactions || Bcis Notes

The Basic for Recording Transactions

The most basic method used to record a transaction is the journal entry, where the accountant manually enters the account numbers and debits, and credits for each individual transaction. … When a supplier invoice is received, the accountant logs it into the accounts payable module in the accounting software.

Sources of accounting information

Accounting is regarded as the language of a business. It is used as a means of communication between a business organization and its shareholders. The accounting process is a source of information, it uses business data and processes it to generate relevant information. Let us have a look. Accounting is the management information system of any organization and is concerned with providing necessary information to the management, i.e it is a source of information. In the account, every step involves either generation or processing accounting information. It serves as a means as well as an end of providing information to all stakeholders who need the information to make a proper decision.

Accounting serves the following purposes relating to generating and processing information:-

• The accounting records business transaction which is the source of generating information.
• A proper accounting system makes information more reliable.
• Accounting ensures it is a reliable source of information.
• Accounting works as a management information system for the organization. It helps the management to manage the organization in a proper way.
• Accounting systems generator various information in the form of different accounts. These documents have to be true and fair.
• Accounting shows the performance of any business organization. Oil anyone who wants to know about the progress of an organization can only not through the use of accounting.
• Accounting provides information on activities that affect society.

External and internal events

An accounting event is a transaction that is recognized in the financial statements of an accounting entity. A company must record in its accounting records any economic event that impacts the company’s finances. Examples of accounting events include such things as recording the depreciation of an asset, the payment of dividends to investors, the purchase of materials from a supplier, and the sale of goods to a customer.

Types of Accounting Events

External Events
An external accounting event is when a company engages in a transaction with an outside party or there is a change in the company’s finances due to an external cause. For example, if a company purchases from a supplier the raw materials needed for the manufacturing of its goods, this would be categorized as an external event. When a company receives payment from a customer, this would also be an external event that it would need to record in its financial statements.

Internal Events
An internal event involves other changes that need to be reflected in the accounting entity’s records. These may include the “purchase” of goods such as supplies from one department by another department within the company. The recording of depreciation expenses is another type of internal accounting event.

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