The next step in the Accounting Cycle is determining which accounts are affected by the transaction. In order to record these transactions properly, the bookkeeper should be thoroughly familiar with that business’s chart of accounts.

Transactions that are similar can affect different accounts. In Part 1, I mentioned that customer purchases made with cash or on credit are recorded differently. That doesn’t refer to the customer purchases made with credit cards, but rather purchases made on store credit.

A customer purchase made with cash affects cash-on-hand, while a customer purchase made on credit affects accounts receivable (double-entry accounting dictates that each transaction is entered into at least two accounts, but we’re ignoring that for now).

Both cash and accounts receivable are assets and, under accrual basis accounting, revenue is recognized when goods are transferred or services are rendered, but beyond just the recordation of revenue, the transaction must be recorded in the correct account in order to paint a picture of what happened.