What you will learn to do: Discuss the bookkeeping process and the overall effects of transactions

Accurate bookkeeping is essential to the creation of key financial statements.

Where does the information found on financial statements originate? It comes from the bookkeeping process! In the bookkeeping process, every financial transaction, no matter how large or small, is accounted for and entered in a journal. These journals create a permanent record of the financial transactions of the business and are eventually transferred to the key financial statements you learned about in the previous section. Consequently, the importance of accurate and timely bookkeeping cannot be understated.

If a question arises about information on a financial statement it can be answered by examining the bookkeeping entries made in the company’s chart of accounts and journals. In this section we will examine an expanded version of the accounting equation and learn how to construct bookkeeping journal entries in order to analyze the relationship among the key financial statements.