In this lesson, recording transactions using T-accounts is explained. This is followed by an extension on the ‘worksheet-method’ of accounting, which was introduced in the previous lesson on financial statements – Using the accounting equation to record transactions.
The main drawback of the ‘worksheet-method’ is that only the balances of balance sheet items are kept up-to-date, whereas firms will need information on expenses and revenues as well.
The extended method discussed here allows for creating an income statement as well as a balance sheet. It is the main method used to account for small businesses as well as multinationals.
Finally, the full accounting cycle: from transactions to financial statements is illustrated.