Why It Matters: Recording Business Transactions

Why learn about double-entry accounting?

Accounting is one of the few professional processing systems that is as relevant today as it was 500 years ago when first documented by Luca Pacioli in the 15th century. Some say that the growth in business size and complexity could never have happened without the double-entry bookkeeping system because the system provides external users with the information necessary to encourage investment.

Even though computers have automated the process, in the 500 years since it was first documented, the double-entry bookkeeping system has proven to be the best way to accurately collate, classify, and report on the vast number of financial transactions that take place in a venture.

In short, double-entry bookkeeping allows all stakeholders in a venture to get an accurate picture of the results of operations (profit & loss report) and financial position (balance sheet) of the venture at any time.

With financial statements as the end-game, accountants follow a strict, well-defined process to get there. This process, or “cycle,” is continuous and can be broken down into 10 discrete steps:


A circle with the ten steps in the accounting cycle: 1. Analyze Transactions, 2. Prepare Journal Entries, 3. Post Journal Entries, 4. Prepare Unadjusted Trial Balance, 5. Make Adjusting Journal Entries, 6. Prepare Adjusted Trial Balance, 7. Prepare Financial Statements, 8. Prepare Closing Entries, 9. Prepare Post-Closing Trial Balance, and 10. Create and Post Reversing Entries, if needed.

The Accounting Cycle. Click for a larger image.

In this module, we’ll cover the first four steps in order:

Steps 1 through 4 of the Accounting Cycle. 1. Analyze Transactions 2. Prepare Journal Entries 3. Post Journal Entries 4. Prepare Unadjusted Trial Balance

You’ll learn how to identify and use the basic accounting reporting structure and the books of record (the journal and the ledger) and how those things relate to each other. Once you are familiar with the tools, you will learn how to build the foundation of the financial statements from journal entries to trial balance.