Recording Transactions

Making the Books Move

🔄 Quick Recall: In the previous lesson, we built a chart of accounts with five types: Assets, Liabilities, Equity, Revenue, and Expenses. Now we’ll put those accounts to work.

You have your chart of accounts. Now it’s time to actually record money moving through your business. This is where bookkeeping becomes real.

By the end of this lesson, you’ll record common business transactions using double-entry bookkeeping.

Debits and Credits Demystified

This is where most people get confused. Forget everything you know about debit cards and credit cards—those terms are misleading.

In bookkeeping:

• Debit = Left side of an entry
• Credit = Right side of an entry

That’s it. No moral judgment. No “good” or “bad.”

What matters is knowing which side increases which account type:

Memory trick: Assets and Expenses increase with debits (left side). Everything else increases with credits (right side). The two that increase on the left both start with vowels—Assets and Expenses.

Journal Entries: The Building Blocks

Every transaction gets recorded as a journal entry. A journal entry has:

1. Date — When did it happen?
2. Accounts affected — Which accounts change?
3. Amounts — How much?
4. Debits and Credits — Which side?
5. Description — Brief note about what happened

Rule: Total debits must always equal total credits.

Common Transactions

Let’s walk through the transactions every small business encounters.

Transaction 1: Receiving Payment for Services

You complete a consulting project and receive $2,000.

Cash goes up (debit to asset). Revenue goes up (credit to revenue). Balanced.

Transaction 2: Paying Rent

You write a $1,200 check for office rent.

Rent expense goes up (debit to expense). Cash goes down (credit to asset). Balanced.

Transaction 3: Buying Supplies on Credit

You order $300 of office supplies on your business credit card.

Expense goes up (debit). Liability goes up (credit—you now owe more). Balanced.

Transaction 4: Client Pays an Invoice

A client pays a $5,000 invoice that was outstanding.

Cash goes up. Receivables go down. Both are assets, but money moved from one form to another. Total assets unchanged. Balanced.

Transaction 5: Paying a Credit Card Bill

You pay $800 toward your business credit card balance.

Liability goes down (debit). Cash goes down (credit). You owe less but have less cash. Balanced.

✅ Quick Check: If you buy a $500 laptop for your business using your debit card, which accounts are affected? What gets debited and what gets credited?

The Transaction Recording Process

For every transaction, follow this checklist:

1. What happened? Describe the event in plain language
2. Which accounts are affected? Always at least two
3. Does each account increase or decrease? Think about what changed
4. Is the increase a debit or credit? Use the table above
5. Do debits equal credits? They must

Compound Journal Entries

Some transactions affect more than two accounts. That’s fine—debits still must equal credits.

Example: You invoice a client $3,000 for consulting. The client pays $1,000 now and will pay $2,000 later.

Total debits: $3,000. Total credits: $3,000. Balanced.

Try It Yourself

Record journal entries for these transactions:

1. You pay $150 for internet service with a check
2. A client sends $3,500 for a completed project
3. You buy a $1,200 desk on your business credit card
4. You transfer $500 from checking to savings

Using AI for Transaction Recording

AI assistants can help categorize transactions from bank feeds. Try this prompt:

“I have these business transactions. For each one, tell me which accounts to debit and credit, and the amounts: [paste your transactions]”

This is where AI shines—it can process hundreds of transactions in seconds. But you need to review the output because AI sometimes miscategorizes unusual transactions.

Key Takeaways

• Every transaction requires at least two accounts: a debit and a credit
• Assets and Expenses increase with debits; Liabilities, Equity, and Revenue increase with credits
• Total debits must always equal total credits in every entry
• Follow the five-step checklist for recording any transaction
• AI can speed up categorization, but you must understand the logic to catch errors

Up Next

In Lesson 4: Bank Reconciliation, you’ll learn how to verify your records against your bank statements—the critical check that catches mistakes and fraud.