List The Steps In Processing Transactions In The Correct Order.

In Accounting, identifying of Business Transactions are important because these are the exchanges, which take place among parties for monetary records and Bookkeeping which is a part of accounting starts from here, which are used to find out the financial performance, financial position and financial health of the business. The whole accounting process starts by identifying transactions through Source Documents. This is the first step in processing a business transaction in accounting cycle. For Example I, if Mr. A, a sole proprietor, started business with cash $1000 through receipt as a source document.

The second step is to Analyze these business transactions with the help of Accounting Equation. Analyze of transaction means finding out the accounts involved in the transaction and increase and decrease in accounts involved, i.e., as in Example I, cash is increased by $1000 on the left side or assets side of the accounting equation and equity is increased due to increase in capital account by $1000 on the right side or liabilities & equity side of the accounting equation. So, the accounting equation is in balance.

Now, we are ready to record the transactions in Journal, called Journalizing, which includes all the transactions of each account at one place. We find out which account is debited and which account is credited alongwith the dollar amounts and details of the transactions. Like in our Example I, cash is increasing as the business received it from sole owner, Mr. A, so we debit it while capital is also increasing as the rights of the sole owner against asset (cash) of the business is increasing, so we credit it.

Now after recording entry in Journal, accounts are transferred to concerned ledger accounts separately, called Posting. Here, we find the balance of each account separately as in our Example I, we have cash balance of $1000 due to capital account and capital balance of $1000 due to cash account balance.

So, the correct sequence of processing transactions is D, B, C and A in this multiple choice question’s options.