Question

By now, your fictitious restaurant has been up and running for a short time. Hopefully your customers are all going home with a full stomach and a plan to return again soon! You have already looked at how QuickBooks might help you begin to record your business transactions. Explain the five basic steps of transaction analysis. After explaining the steps, walk through the steps for the following transaction: You paid your kitchen cooks $500 in cash for their first week of work.

Answer 1

Five basic steps of Transaction Analysis:

1. Accounting transaction? If yes, to which Ledger account it effects? Deciding whether transaction is in monetary terms and after that which ledger it is going to effect?

2, To which account the transactional accounts belong to? Whether it's an expense account or asset account or liability or income account etc,.

3. The transactional accounts decrease or increase their balances? Amount of decline or incline in their specific accounts.

4. The transactional accounts either to be debited or credited? Increase or decrease with respect to appropriate debit or credit.

5. The monetary amount to be entered in each transactional account? Appropriate amount

Coming to the transaction given and analyzing it through the steps provided above,

Step 1 : Yes because it's $500 in monetary terms and it effects the cash account and salary account as salary of $500 is paid to the kitchen cook

Step 2: Cash belong to asset account and salary belong to expense account in all of expenses, income, assets & liabilities.

Step 3: Cash account is going to decrease and salary account is going to increase as the result of the transaction.

Step 4: Cash account is credited as it is leaving the business and so the asset side of the balance sheet is going to decrease and salary account is debited and hence it increase making the profits to decline and therefore the balance sheet gets tallied with assets side decrease and liabilities decrease with appropriate decline in the net profit that should be added to the capital.

Step 5: $500 should be entered in each account i.e cash and salary account

*Salary can be substituted for wage as it's paid weekly.