week 3 Flashcards
why do entities need accounting systems (5)
record business transactions
meet requirements of law
present financial statements to owners
present financial reports
facilitate efficient allocation of resources
what is basic documentation (4)
invoices from suppliers
sales invoices
cheque books
receipts credit notes
what are books of prime entry
source documents to enter transactions into accounting system, ensure business keeps track of payments
what are ledger accounts
summarise all the individual entries from the books of prime entry
used to prepare financial statements
what is the nominal ledger
accounting record which contains the main ledger accounts
what is the layout for T accounts
debits on left
credits on right
what is double entry bookkeeping
dual aspect of transactions, each transaction affects the books twice
check for entries
how do you calculate closing balance assets
CB liabilities + OB equity + profit + change in equity capital
how do you calculate assets + expenses
OB equity + liabilities + revenue + equity capital
what are debits
when the business spends money/use of funds
increase in assets and expenses
decrease in revenue, liabilities and equity capital
what are credits
where the business gets money/source of funds
decrease in assets and liabilities
increase in revenue, liabilities and equity capital
how t accounts closed off
revenue and expenses accounts are closed off to 0 and a new account is opened
asset, liability and equity accounts the closing balance is carried down to the next period (c/f) and becomes (b/f) for the next period
what is a trial balance
list of the balances in the ledger at the end of an accounting period
every entry should have an equal debit and credit
should balance on both sides
helps spot errors
