Basic Accounting Transactions

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Lesson One: Basic Accounting Transactions (this page)
Lesson Two: Owners Equity Example 
Lesson Three: Liability Example 
Lesson Four: Asset Example 
Lesson Five: Drawings Example 
Lesson Six: Define Profit 
Lesson Seven: Define Income 
Lesson Eight: Accrued Income - part 1 (income that is still owing to you)
Lesson Nine: Accrued Income - part 2 (getting paid by someone who owes you)
Lesson Ten: Define Expenses 
Lesson Eleven: Accrued Expenses - part 1 (expenses you owe to another)
Lesson Twelve: Accrued Expenses - part 2 (paying off debts)

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Do you know that there are only about 10 individual basic accounting transactions?

In this section we're going to cover each of these transaction types.

But before I get into specific examples of each one, let's make sure we understand what we're dealing with.

What is a Transaction?

So, what exactly is a transaction?

A transaction can be defined as an exchange of goods or services between two parties. 

Each transaction represents some sort of change to one's assets, liabilities or owner's equity. 

In other words, a change to the financial position of the business.

An accountant or bookkeeper has to record each transaction. This ensures that good records are kept and financial reports are produced which accurately represent the business.

The Ten Most Common Basic Accounting Transactions

Here is a quick summary of the ten common basic accounting transactions, together with a link to the full lesson on each one. 

1. The Owner Investing Capital

Capital is the investment of assets by an owner into a business.

So this is a transaction where the owner puts money or something else valuable into a business.

Click here for the full lesson on this owner's equity transaction.

2. Creating a Liability (Debt)

In this transaction a business incurs a debt (a debt is created or owed).

For example, the business receives a loan from the bank.

Click here for the full lesson on a liability transaction.

3. Buying an Asset

This transaction involves a business spending money to acquire an asset (something of value).

Click here for the full lesson on buying an asset.

4. The Owner Withdrawing Business Funds

This is the opposite of the first transaction above (capital) - the owner withdraws funds from the business (divests).

Withdrawing funds from a business is known formally as drawings.

Click here for the full lesson on drawings.

5. Income Received Immediately

In this transaction the business makes money from income and the money is received immediately (at the time the services are provided or the sale is made).

Click here for the full lesson on income received in cash.

6. Income on Credit

As opposed to the previous transaction, in this one the cash is not received right away, but instead is owed to the business.

Click here for the full lesson on income made on credit.

7. Getting Paid by a Debtor

A debtor is a person who owes money to our business.

When a debtor pays us for the debt owed, we have to record this payment and cancel out the records of that debt.

Click here for the full lesson on receiving a payment from a debtor.

8. Expenses Paid Immediately

In this type of transaction we have an expense and pay this immediately.

Click here for the full lesson on cash expenses.

9. Expenses Owing

This is the same as just above except that one doesn't pay the expense straight away, but instead owes it. This is recorded differently to an immediate payment.

Click here for the full lesson on expenses owing.

10. Paying Off a Debt

In this final type of transaction we pay off a debt that we owe.

Click here for the full lesson on paying debts.

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That's it!

The list above represents all the basic accounting transactions we have.

Once you understand how they work, you'll be well on your way to becoming a star in accounting.

When you're done with these lessons, move on to the next chapter, where we'll go deeper into these transactions and cover the double entries we have to make for each one.

Return from Basic Accounting Transactions to the Home Page 

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Lesson One: Basic Accounting Transactions (this page)
Lesson Two: Owners Equity Example 
Lesson Three: Liability Example 
Lesson Four: Asset Example 
Lesson Five: Drawings Example 
Lesson Six: Define Profit 
Lesson Seven: Define Income 
Lesson Eight: Accrued Income - part 1 (income that is still owing to you)
Lesson Nine: Accrued Income - part 2 (getting paid by someone who owes you)
Lesson Ten: Define Expenses 
Lesson Eleven: Accrued Expenses - part 1 (expenses you owe to another)
Lesson Twelve: Accrued Expenses - part 2 (paying off debts)

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