Topic 4 - The Recording Process Flashcards
What is an account?
An individual accounting record of increases and decreases in a specific asset, liability or equity item.
How does an account help in the recording process?
y
Why do expenses have a debit nature?
They decrease equity.
Why do revenues have a credit balance?
They increase equity.
What are the basic steps in the recording process?
Analyse each transaction, enter transaction in a journal and transfer journal information to ledger accounts
What is a journal?
A chronological record of all transactions.
How does a journal help in the recording process?
It discloses the complete effect of a transactions and helps prevent errors as debit and credit amounts are easily compared.
What is posting?
The procedure of transferring journal entries to ledger accounts.
How does posting help in the recording process?
y
What is the purpose of a trial balance?
It proves the mathematical equality of debits and credits after posting.
What do accountants record?
Those transactions which have a financial effect.
What three things do you need to analyse when you analyse transactions?
Is there an economic effect?
Its effect on assets, liabilities and equity.
The amount to be recorded.
Explain the double entry system.
- Each transaction affects at least two accounts
- Total debits must equal total credits
What does the general ledger contain?
All asset, liability and equity, revenue and expense accounts.
Which side is the Debit and Credit on?
Debit = Left side of the account Credit = Right side of the account
What are the steps of posting?
- Enter date in account to be debited.
- Enter name of ledger account to be credited.
- Enter amount to be debited.
- Enter the posting reference (tick account #) in general journal to show entry has been posted.
What are the steps of balancing the ledger accounts?
- Add up the debit side.
- Add up the credit side.
- Take the smaller from the bigger to find the difference.
- Put the difference on the smaller side to get the debit and credit sides to balance (closing balance).
- Transfer the difference to the larger side to start the new period (opening balance).
What is a trial balance?
A list of all the accounts and their balances at a given time listed in order as they appear in the general ledger.
