There are 3 main types of transactions when it comes to accounting.

 

You either:

Buy a product, Sell a product, or Return a product.

 

To remember these 3 transactions  just use the first letter of the three words (BSR).

 

Buying the product (Bought by the business from another business):

When buying a product you either buy it on credit or with cash.

 

  • Buying with cash
    • When buying with cash or any transaction that involves giving the company money by actually paying it to the company or the company's bank account it will always fall under the CPJ (Cash payments journal).
    • This also includes payments for things such as telephone bills, rent expense, cash drawings and paying salaries. 

 

  • Buying on credit
    • When buying on credit or any transaction that involves getting a product or service with the intention of paying the company back later, it will always fall under the CJ (Creditors journal).

 

Selling a product (Sold by the business to a customer): 

This is the hardest transaction of them all. If you understand this one it is very easy to understand the rest. When selling a product you either sell it on credit or on cash.

 

  • Selling and receiving cash
    • When selling a product and receiving cash or any transaction that involves receiving money or a payment to the company's bank account it will always fall under the CRJ (Cash receipts journal).
    • This will also involve things such as rent income, income on current account, capital transfers/contributions from the owner and also payments from a debtor settling his account.

 

  • Selling on credit
    • When selling on credit or any transaction that involves giving a product or service with the intention of receiving the money later, it will always fall under the DJ (Debtors journal).
    • It is important for the business to actually keep track of all it's debtors because obviously they are only going to pay back the money at a later stage.

 

Returning a product:

This includes both returns from someone and returns to someone when you/they are not happy with the product received.

 

  • Returns from someone
    • One reason why people are returning something to you is to get a full cash return on their product.  This happens when the product is damaged, broken or just not according to sample. 
    • Another reason can be when they want an allowance (percentage off the price sold to them). This allowance can be any amount. It all depends on what is wrong with the product. This also happens when the product is damaged, broken or just not according to sample. 
    • Both of these will fall under the DAJ (Debtors Allowance Journal).

 

  • Returns to another business
    • One reason why you are returning something to them is to get a full cash return on their product.  This happens when the product is damaged, broken or just not according to sample. 
    • Another reason can be when you want an allowance (percentage off the price sold to you). This allowance can be any amount. It all depends on what is wrong with the product. This also happens when the product is damaged, broken or just not according to sample.
    • Both of these will fall under the CAJ (Creditors Allowance Journal). 

 

 

 

Basic tips and things to remember:

 

  • When speaking of an invoice it always refers to a transaction on credit.
  • When speaking of a receipt it always refers to transaction paid with cash.
  • There are 7 types of journals.
    • CRJ (Cash Receipts Journal)
    • DJ (Debtors Journal)
    • DAJ (Debtors Allowance Journal)
    • CPJ (Cash Payments Journal)
    • CJ (Creditors Journal)
    • CAJ (Creditors Allowance Journal)
    • PCJ (Petty Cash Journal)

 

Article done by

Rein Hulme