Lesson 1: Introduction to recording business transactions Flashcards
Name six types of financial transactions.
Sales, Purchases, Payments, Receipts, Petty cash, Payroll
Define “sales”.
Exchanging goods or services for money.
Define “Purchases”
Buying goods or services using money
Define “Receipts”
Money that the business receives. Receipts can come from sales, a loan from the bank or amounts received from owners (capital)
Define “Payments”
Money transferred to a third party. This could be money to purchase goods or services, such as rent, electricity or buying raw materials
Define “Petty Cash”
Cash paid, or possibly received, for low-value business transactions
Payroll
Wages or salaries paid to employees that work for the business
Financial documents
The starting point of the bookkeeping process. These provide evidence that a transaction took place. For each of the transactions in the previous activity, a document will exist. For example, an invoice is evidence of a sale; a remittance advise is evidence of payment by a customer.
Accounting System
Where the details from the financial documents are entered and totalled. Entries for each transaction are recorded in the appropriate account
Trial Balances
The total balances from each account are listed out in a trial balance, which is used to try to ensure that there are no mistakes made in recording the transactions.
Financial statements
Information is taken from the trial balance and used to prepare financial statements, which are a high-level summary of the activities and current position of the business.
Cash Purchase
buying a good with cash
Cash Sale
Selling a good and receiving cash for it
Credit Transaction
Selling a good with a promise of future payment
Invoice
A document that records who the customer is, the items that are sold, the date of the sale and the value of the transaction (how much the customer owes the supplier)
