How Business transactions are recorded in account

Every transaction that has a economical impact on the business is recorded in minimum two accounts, once in the debit side of a account and once in the credit side of another account. Each line in it known as entry.

Journals in manual accounting system is known as book of first entry. In journal, you enter the transaction first and from there, you take it to accounts by passing a double entry transaction. Due to this books stay in balance, the total of all credits equals the total of all debits.

The account can be defined as a record in which business keep all the increase and decrease of an individual items of asset, liability, capital, income and expense. As the format of it resembles the English letter T, it’s known as T account.

This T account has following three parts:

  • Name and the serial number
  • The left side known as debit side, and
  • The right side known as credit side

Each transaction having a financial impact on the company is recorded into the T account. Here is a sample format of a asset a/c for your reference;

transactions recorded in account

If you enter a transaction on the left side of the asset a/c, it means you have debited the a/c for the transaction. Similarly, if you have entered another transaction on the credit side of the asset a/c, that means you have credited the asset a/c.

You can also use Dr. and Cr. as abbreviation for debit and credit respectively.

Depending on the type of expenses, debit and credit is defined. For instance, any increase in assets and expenses are recorded as debits, whereas increase in liability, capital and income are recorded as credits. Similarly, decrease in assets and expenses are recorded as credits, where as decrease in liability, capital and income are recorded as debit.

Please, note a transaction can also debit or credit more than two accounts depending on its financial impact. If a transaction has impact on two accounts, then debit must equal to credit. If it has impact on more than two, then total of debit must equal to the total of credit, or else trial balance will not tally.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.