Financial transactions and reporting entail tracking and analyzing money flow through your business. This could be internal transactions, such as payroll and expense reports, external transactions, like rentals or sales of assets, as well as credit-related transactions. Analysis of financial transactions is vital to ensuring that your accounting records are accurate and reliable. This requires clear definitions and procedures as well as a consistent regularly updated.
Internal transactions are those that occur within a business, such as the purchase, sale and leasing of office space. These transactions are also referred to as non-cash since they do not involve exchange of goods or services in return for cash. They may include donations and social responsibility spending, as well as other expenses, such as travel and PCard fees.
Cash and non-cash transactions are recorded in the financial system of record, which can be anything from a simple accounting software to a sophisticated Enterprise Resource Planning (ERP) system. A solid financial statement is dependent on the policies and procedures that ensure that only transactions that can be verified objectively are recorded in the system. These include source documentation such as sales orders receipts, purchase invoices, bank statements, cancelled checks and appraisal reports.
To confirm the accuracy of a transaction, you have to first determine the accounts in the transaction and determine where the transaction will either be debited or credit. For instance, suppose your company earns $5,000 revenues from consulting services. To record the sale you must identify the income account and the accounts receivables account, confirm that both are increasing and apply the rules for debiting and credits. To complete the process, then record the transaction in your journal entry.
