Topic 5: Accounting Cycle and Double Entry Flashcards
What is Accounting?
Accounting is an information system which records and measures business activities, processes data into information, and communicates them to decision makers.
What is a Transaction?
A transaction is any event that has a financial impact on the business and can be measured reliably. A transaction results in a change in a business’ resources and claims to those resources.
What is the Accounting Cycle?
The accounting cycle is the sequence of accounting procedures repeated within each accounting period to RECORD, CLASSIFY and SUMMARISE data for a business and to produce needed financial information.
What is Income Statement?
Income Statement shows the results of the business operations for the period
What is Statement of Changes in Equity?
Statement of Changes in Equity shows the movement in share capital and reserves
What is Balance Sheet?
Balance sheet shows the financial position of the business at the end of the period
What is Cash Flow Statement?
Cash flow statement reports on the inflows and outflows of cash in a business
What are Source Documents?
Source Documents identify and describe transactions and events entering the accounting process
Why are Source Documents needed?
i) They provide evidence to both internal and external auditors as to the validity of the transactions. This complies with the objectivity concept which requires that accounting measurement be free from bias and are verifiable
ii) They provide details of a transaction and are used as a basis for entries in the accounting records and serves as the initial record of the transaction
What is the Objectivity Concept?
This concept states that accounting information should be independent and supported with unbiased evidence, to relevance reliability of financial statements.
What are the different types of source documents?
-Sales invoice (issued)
-Credit note
-Goods received note/Supplier’s delivery order/Supplier’s invoices (Sales invoice received)
-Debit note/(Supplier’s credit note received)
-Receipt
-Cash sale slips/cash register roll
-Payment voucher
-Bank statement (Prepared by bank)
What is a Journal?
A General Journal is a Book of Original Entry which records all types of business transactions using double entry rules. It provides a chronological record of transactions
What are Ledger accounts?
Ledger accounts are record of transactions affecting a particular person or subject. eg.
property, bank, receivables and shows the details of transactions or movement
(increase/decrease) in the particular account.
