Establishing a Financial Transaction’s Point of Entry - dummies

Establishing a Financial Transaction’s Point of Entry

By Lita Epstein

In most companies that don’t use computerized bookkeeping programs, a transaction’s original point of entry into the bookkeeping system is through a system of journals.

Each transaction goes in the appropriate journal in chronological order. The entry should include information about the date of the transaction, the accounts to which the transaction was posted, and the source material used for developing the transaction.

If, at some point in the future, you need to track how a credit or debit ended up in a particular account, you can find the necessary detail in the journal where you first posted the transaction. (Before it’s posted to various accounts in the bookkeeping system, each transaction gets a reference number to help you backtrack to the original entry point.)

For example, suppose a customer calls you and wants to know why his account has a $500 charge. To find the answer, you go to the posting in the customer’s account, track the charge back to its original point of entry in the Sales journal, use that information to locate the source for the charge, make a copy of the source (most likely a sales invoice or receipt), and mail the evidence to the customer.

If you’ve filed everything properly, you should have no trouble finding the original source material and settling any issue that arises regarding any transaction.

It’s perfectly acceptable to keep one general journal for all your transactions, but one big journal can be very hard to manage because you’ll likely have thousands of entries in that journal by the end of the year. Instead, most businesses employ a system of journals that includes a Cash Receipts journal for incoming cash and a Cash Disbursements journal for outgoing cash.

Not all transactions involve cash, however, so the two most common noncash journals are the Sales journal and the Purchases journal.