Chapter 1- The Accounting System Flashcards
What are financial transactions?
a money agreement between a buyer and seller to exchange an asset for payment.
Selling goods and services info
- immediate payment= cash sales
- cash can be payment made by credit/debit card as well as notes and coins
- a payment at a later date is a credit sale
What is a credit sale?
A credit sale is a payment made at a later date.
Examples of purchases and expenses:
- large and small transactions
- settling purchase invoices
- buying an item used in the business
- buying fuel for delivery van
- buying stamps for office using cash
Examples of payments in and out of the bank:
- cash
- cheques
- electronic payments
- settling company credit card by direct debit
- paying weekly wages
- drawing cash out for office
What does a business need to keep track off?
- expenses and purchases
- wages paid
- what a customer owes and when
- what is owed to suppliers and when
- amount paid in and out of the bank
What are the 5 stages of the accounting system?
- Financial transactions
- Financial statements
- Books of prime entry
- Ledger accounts
- Trial balance
Examples of a financial transaction:
- a sale
- a purchase
- a payment
Examples of financial documents:
- an invoice
- a credit note
- petty cash voucher
What are the books of prime entry?
- sales day book and sales returns day book
- purchase day book and purchase returns day book
- cash book
- petty cash book
Sales Transactions
Sales Day Book and Sales Returns Day Book:
- customer sales —>(debit & credit)
- customer returns —> (debit & credit)
Purchase Transactions
Purchase Day Book and Purchase Returns Day Book:
- purchases from suppliers —> (debit & credit)
- returns to suppliers —> (debit & credit)
Cash and Bank Transactions
Cash Book:
-payments received and payments made —> (debit and credit)
Small Cash transactions
Petty Cash Book:
- small cash payments made and cash received —> (debit and credit)
Day Books
- credit sales and sales returns which involve customers
- credit purchases and purchases returns which involve suppliers
Cash Books
-records payments into and out of the bank