THE ACCOUNTING SYSTEM Flashcards
3 common transactions
- Selling goods and services
- Making purchases/Paying expenses
- Payments in and out of the bank
What does the accounting system record?
Only financial transactions of the business (nothing personal I.e mortgage)
What is the 5 stage accounting system
- Financial transaction
- Financial document
- Book of prime entry
- Ledger accounts
- Trial balance
What is a daybook?
A ‘list’ of transactions that have taken place within a given time frame
What are the 3 main books of prime entry?
- Day book
- Cash book
- Petty cash book
What is a daybook?
Records credit sales and sales returns + credit purchases and credit returns
What is a cash book?
Records all payments into and out of the bank
What is a petty cash book?
Records all payments into and out of the cash float - used for small purchases
What is a double entry system?
Transactions are recorded as credit and debits - there are 2 equal credits and debits for the same account
What is a ledger?
A large book within each business is entered into individual accounts. There are a number of individual ledgers
What is a recieveables/sales ledger?
A personal account for each customer which contains any sales made on credit, any returned goods and payments received
What is a payables/purchases ledger?
The same as recieveables but for a supplier.
An account is opened for each supplier containing any credit, returned goods or payments made
What is a general ledger?
Contains a collection of all accounts which record all other transactions I,e assets, liabilities, owner equity
What are the 3 types of ledger?
- Recieveables/Sales
- Payables/Purchases
- General
What is the purpose of a trial balance?
To bring together all ledger account balances into a credit and debit column. These must equal the same amount, this is calculated for just one date to compare the performance of the business (this also double checks the accounts are correct)
