The easy way to learn book-keeping

Transactions

When people, businesses and organisations trade, they create transactions - exchanges of value - between themselves. For example a supplier gives a customer 10 apples in exchange for £10.

This exchange of value has a number of components:

A supplier and a customer (two entities), between which the exchange of value takes place.

the value - £10
the date the transaction took place

the type of exchange, e.g. cash, cheque, invoice

the reason for the payment - buying/selling apples

Additional components of transactions may include:

Reference numbers on the documentation of a sale
VAT amounts

Transaction dates

Book-keeping systems require a date for every transaction. Wherever possible, the date shown on any documentation should be the date used in the records, although this isn't always possible when an accounting period has been 'closed' and no further transactions can be added. Ideally of course this shouldn't happen, at least not for any significant transactions, but business owners don't always pass the paper work on straight away and knowledge of transactions may not come to light until later.
When a period has been closed, use the first available open date and record in the memo the actual date.

Transaction types

Different transaction types affect the records in different ways, and a key skill for the book-keeper is to be able to identify transactions correctly. Book-keeping software often has dedicated ways of processing different types of transactions

Cash transactions

Cash paid in return for goods or services is the most simple book-keeping transaction, whether from the customer or supplier's perspective.

The first level of the simulations deals with Cash transactions (quarter 1).

Bank transactions

Few businesses can operate entirely with cash. Even an ice cream van trader, who will probably only take cash for sales of ice creams, will still need a bank account to pay for supplies and taxes. Apart from the obvious convenience of using a bank account, the bank also provide an accurate and comprehensive record of transactions in the form of a bank statement which can be used for reconciliation.

These types of transactions are dealt with in simulations quarter 2

Debit and Credit card transactions
For the book-keeper, debit and credit cards are no different in principle to bank transactions, and debit cards as a payment type are the same as a cheque as transactions directly affect the bank.

Invoices (and bills)

A transaction doesn't have to include cash changing hands immediately; it may be a promise to pay at a later date. In this case an invoice is 'raised' by the supplier of the goods or service and given to the customer.

The invoice shows the same basic transaction information as before, but will now also include 'terms' which set out when the invoice is expected to be paid.

Most bookkeeping software has an invoicing utility to create invoices and automatically enter the data into the records.

For the recipient of the invoice, the invoice becomes a bill. It's the same document, but with a different label now it is in the hands of the customer.

Invoices and bills are entered into a bookkeeping system in a way that reflects the expectation of later settlement. When payment is made, it clears the debt from the customer's or supplier's account. Therefore, at least two transactions are required for each invoice - promise and payment - whereas cash transactions only require one.

Processing invoices and maintaining customer and supplier accounts is a central activity to a book-keeper's life.

Invoices are dealt with in simulations levels 3 (Debtors) and 4 (Creditors).

Journal entries
Journal entries are used for entering more complex transactions than the usual types covered above, and for making adjustments to the accounts such as accruals, prepayments and depreciation.

Next steps: Accounts

Different transaction types affect the records in different ways, and a key skill for the book-keeper is to be able to identify transactions correctly. Book-keeping software often has dedicated ways of processing different types of transactions
	Cash transactions Cash paid in return for goods or services is the most simple book-keeping transaction, whether from the customer or supplier's perspective. The first level of the simulations deals with Cash transactions (quarter 1).
	Bank transactions Few businesses can operate entirely with cash. Even an ice cream van trader, who will probably only take cash for sales of ice creams, will still need a bank account to pay for supplies and taxes. Apart from the obvious convenience of using a bank account, the bank also provide an accurate and comprehensive record of transactions in the form of a bank statement which can be used for reconciliation. These types of transactions are dealt with in simulations quarter 2
	Debit and Credit card transactions For the book-keeper, debit and credit cards are no different in principle to bank transactions, and debit cards as a payment type are the same as a cheque as transactions directly affect the bank.
	Invoices (and bills) A transaction doesn't have to include cash changing hands immediately; it may be a promise to pay at a later date. In this case an invoice is 'raised' by the supplier of the goods or service and given to the customer. The invoice shows the same basic transaction information as before, but will now also include 'terms' which set out when the invoice is expected to be paid. Most bookkeeping software has an invoicing utility to create invoices and automatically enter the data into the records. For the recipient of the invoice, the invoice becomes a bill. It's the same document, but with a different label now it is in the hands of the customer. Invoices and bills are entered into a bookkeeping system in a way that reflects the expectation of later settlement. When payment is made, it clears the debt from the customer's or supplier's account. Therefore, at least two transactions are required for each invoice - promise and payment - whereas cash transactions only require one. Processing invoices and maintaining customer and supplier accounts is a central activity to a book-keeper's life. Invoices are dealt with in simulations levels 3 (Debtors) and 4 (Creditors).
	Journal entries Journal entries are used for entering more complex transactions than the usual types covered above, and for making adjustments to the accounts such as accruals, prepayments and depreciation.