Week 3 - double entry book keeping and the trial balance Flashcards
Flow of data through the accounting system
Basic documentation Books of prime entry Ledger accounts Trial balance Adjustments Financial statements
Basic (source) documentation
Includes things like invoices from suppliers for credit purchases, sales invoices the business issues, documents for non current assets, receipts and credit notes for returned goods
Books of prime/original entry
Used to summarise transactions when there are many but not part of the double entry system
Books of prime entry include: sales day book, purchases day book, cash book, petty cash book, payroll, the journal
Ledger accounts (T accounts)
Summarises all individual entries from the books of prime entry
The nominal ledger contains the main ledger accounts which separate assets, liabilities, capital, income and expenses
Debit entries
Increased assets Increased expenses Decreased liabilities Decreased revenue Decreased equity
Credit entries
Increased liabilities Increased revenue Increased equity Decreased assets Decreased expenses
The extended accounting equation (in terms of debit and credit entries)
Assets(closing)+Expenses=Liabilities(closing)+Equity(opening)+Revenue [with no changes in equity]
Assets and expenses are costs
Liabilities, Equity and Revenues are sources of funds
Balances on revenue and expenses
Closed off to zero and no opening balance in the next period
Balancing figure goes to the SOPL
Balances on assets, liabilities and equity
Closing balance is carried forward to the next period and becomes the opening balance in the next period
Balancing figure goes to the SOFP
Trial balance
Not part of the double entry system
Internal control used to check accuracy of the ledger accounts
List all debit and credit balances and the debit side should equal the credit side
