The Accounting System Flashcards
List the 5 stages of the accounting system.
Financial transactions Financial documents Books of prime entry Ledger accounts Trial balance
Name 3 books of prime entry.
Day book
Cash book
Petty cash book
What is the purpose of the day book?
To record credit sales/returns (transactions involving customers) or to record credit purchases/returns (transactions involving suppliers)
What is a ledger?
A place where all financial transactions of the business are recorded into individual ledger accounts.
Name 3 types of ledger.
Sales ledger
Purchases ledger
General ledger/nominal ledger
What is the purpose of the sales ledger and purchase ledger?
The sales ledger is where all trade receivables are listed, as well as any incoming payments from customers.
The purchase ledger lists all trade payable transactions, as well as any outgoing payments to suppliers.
What is a control account?
A control account is a summary or total of the amount in a specific ledger account. For example trade receivables are summarized in the ‘sales ledger control account’.
Where are the control accounts kept?
The general ledger
What is the trial balance?
The total balance of all the ledger accounts placed into a table with two columns of debits and credits.
What is the purpose of a trial balance?
It is an important accuracy check in the accounting system.
What is the statement of profit and loss, and what does it show?
Income - Expenses = Profit
This shows the income the business has received over a given period.
What is the statement of financial position, and what does it show?
Assets - Liabilities = Capital + Profit
It provides a snapshot of the worth of the owners investment at a single moment in time.
