Week 3 - Business Transactions in Journals and Ledgers Flashcards
Define the General Journal
o The diary of changes. It records each transaction/event which will impact on at least two accounts. Essentially a diary entry for the business.
Define the General Ledger
o The permeant record or “account” of things in the business, as categorised by their element (A, L, OE, R or E). Essentially a summary of events containing to accounts.
Define an Account
o An account is an individual accounting record of increases and decreases in a specific asset, liability or owner’s equity item. E.g cash, accounts payable, etc.
What are debits
Debits are transactions that are posted on the left side of the journal
When do debits occur?
o An increase in an asset account o A decrease in a liability account o An increase in expenses o A decrease in revenue An increase in drawings A decrease in capital
What are credits?
Credits are transactions that are posted on the right side of the journal
When do credits occur?
o A decrease in an asset account o An increase in a liability account o A decrease in expenses o An increase in revenue A decrease in drawings An increase in capital
Explain the acronym DEAD= CLIC
o DEAD = CLIC (Debit, Expenses, Assets, Drawings = Credit, Liabilities, Income (revenue), Capital).
What is essential about debits and credits?
DEBITS AND CREDITS SHOULD EQUAL!
What is the format of the general journal?
o Date of transaction
o Account Involved
o Values
What are steps in journalising transactions?
o Which elements (accounts) are affected? E.g assets, liabilties
o Which specific accounts are affected? E.g cash, wages, expenses
o Are the items increasing or decreasing (should I debit or credit)?
o For each account do we debit or credit?
What is the general ledger
o Ledger accounts are a way of presenting and grouping transaction relating to a particular account.
Steps in Posting to the general ledger
o Refer to the general journal to determine which accounts are debited and credited
o Enter date in account to be debited
o Enter the name of the corresponding account that was credited
o Enter the amount to be debited
o Repeat the steps 1-4 for the credit sale
o At the end of the financial period, calculate the closing balance.
Explain the closing balance
o The closing balance at the end of each month becomes the opening balance for the next month.
o The closing account balance is the difference between the sum of debits on the left and the sum of credits on the right.
