Week 7 - Journals and ledgers

Question 1

What does the process of generating financial statements start with?

Answer 1

Analysing source documents to determine which accounts are impacted by the transactions

Question 2

What is the purpose of source documents?

Answer 2

Provides evidence of a transaction influencing one or more of the 5 accounting elements.
It is the raw data to be entered into accounting systems.

Question 3

What is a Journal?

Answer 3

It is the first place a transaction are entered into the accounting system.

Question 4

What elements are required in a Journal entry?

Answer 4

1. date
2. the accounts affected (these must come from the chart of accounts).
3. amount (which should be equal on both sides).
4. whether the account is effected by a debit or credit.

Question 5

What are the specific requirements when processes a Journal entry in relation to the order the accounts are entered and description?

Answer 5

Debits are recorded first.
Credits are second and indented
A description is listed underneath the accounts effected - it is brief and in italics.

Question 6

What are the debit accounts?

Answer 6

They represent the application of funds
Assets, Expenses and drawings are debit accounts
Increase = debit / decreases = credits

Question 7

What are the credit accounts?

Answer 7

They represent the source of funds.
Liabilities, Income and capital are credit accounts.
Increase = credit / decrease = debit.

Question 8

What is meant by posting?

Answer 8

It is when you copy the amounts from the journal to the accounts in the ledger.
Debits are posted as debits and credits as credits.

Question 9

What is a ledger account?

Answer 9

Every account in the chart of accounts has its own account in the ledger.

Question 10

What are some specific requirement when posting to the ledger?

Answer 10

Debits are recorded on the left hand side.
Credits are recorded on the right hand side.
An accounts normal balance appears on the side where we record an increase (i.e. debit accounts will normally have a debit balance).

Question 11

What is a Trial balance?

Answer 11

It represents a listing of all ledger accounts and their balances at the end of the accounting period.
It is for internal use - if the debits do not equal the credits then a mistake has been made.

Question 12

What are some specific requirements for the Trial balance?

Answer 12

Assets are listed first, then liabilities, then equity.

Question 13

What is the financial accounting process so far?

Answer 13

1. Source documents are analysed to determine which accounts are effected.
2. Record transaction in the Journal - listing accounts affected and whether it is a debit or credit (debits = credits)
3. Debits or credits are posted from the journal to the appropriate ledger.
4. Prepare a trial balance.