Recording transactions and using them as investigative tools is nothing new. In fact, this is a common exercise in accounting practices. Nearly all transactions are recorded as Journal Entries and that is the first step in the accounting cycle.

It all starts at the beginning of an accounting period and continues during the whole cycle. Transaction analysis is a process which helps verify whether a particular business event has an economic effect on the assets, liabilities or equity of the business. It also involves identifying the size (and magnitude) of the transaction i.e. its currency value.

At the end of the analysis, accountants usually categorises and record the events using journal entries according to debit-credit rules. Frequent journal entries are usually recorded in specialized journals, for example, sales journal and purchases journal. The rest are recorded in a general journal.

Example

Here is an example showing how to record journal entries:

The following are the transactions of a company in May 2000:

May 3 Paid $60,000 cash on the purchase of equipment costing $70,000. The remaining amount was recognized as a one year note payable of $10,000.
May 4 Purchased office supplies costing $16,600 on account.
May 13 Provided services to its customers and received $18,500 in cash.
May 13 Paid the accounts payable on the office supplies purchased on May 4.
May 14 Paid wages to its employees for first two weeks of May, aggregating $19,100.
May 18 Provided $43,000 worth of services to its customers. They paid $31,900 and promised to pay the remaining amount.
May 13 Received $15,300 from customers for the services provided on May 18.
May 15 Received $4,000 as an advance payment from customers.
May 18 Paid wages to its employees for the third and fourth week of May: $19,100.
May 31 Received electricity bill of $1,460.

 

And here are the journal entries.

Date Account Debit Credit
May-03 Equipment 70,000
Cash 60,000
Notes Payable 10,000
May-04 Office Supplies 16,600
Accounts Payable 16,600
May-13 Cash 18,500
Service Revenue 18,500
May-13 Accounts Payable 16,600
Cash 16,600
May-14 Wages Expense 19,100
Cash 19,100
May-18 Cash 31,900
Accounts Receivable 11,100
Service Revenue 43,000
May-13 Cash 15,300
Accounts Receivable 15,300
May-15 Cash 4,000
Unearned Revenue 4,000
May-18 Wages Expense 19,100
Cash 19,100
May-31 Electricity Expense 1,460
Utilities Payable 1,460

 

Non-Accounting Journal Entries

While accounting journal entries are useful, some journal entries are also used in non-accounting practices. Examples include Stock and Production Journals.