Basic Accounting Transactions

Lesson One: Basic Accounting Transactions (this page)
Lesson Two: Owners Equity Example
Lesson Three: Accounting Equation: Liability Examples
Lesson Four: Asset Purchase Example
Lesson Five: Drawings Example
Lesson Six: What is Profit and Loss?
Lesson Seven: Income: Definition and Examples
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: Expenses: Definition and Examples
Lessons Eleven & Twelve: Accounts Payable: Definition and Examples

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.

example of accounting business transaction

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.

Please note that the lessons in the links below are basic introductory lessons which show how each transaction affects the accounting equation, and that these do not yet cover double entries (debits and credits).

See the chapter on double-entry accounting for a deeper look at each of these transactions (including the debit and credit entry for 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. Purchasing 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 (Accounts Payable)

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 accounts payable.

10. Paying a Liability

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

Click here for the full lesson on paying a creditor.

And click here for the example of repaying a loan.

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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Questions Relating to This Lesson

Click below to see questions and exercises on this same topic from other visitors to this page... (if there is no published solution to the question/exercise, then try and solve it yourself)

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