The Accounting System

Common transactions
1. Selling goods and services
  1. Imediate payment
    1. Cash sale
2. Making purchases and paying expenses
  1. Payment at a later date
    1. Credit sale
3. Payments in and out the bank account
The five stage accounting system
1. Financial transaction
  1. The originating transaction
2. Financial documents
  1. Documents generated by the transaction
3. Books of prime entry
  1. The place where the first document is first recorded in the businesses books
4. Ledger accounts
  1. The main accounting records of the business, usually set up as a double entry system
5. Trial balance
  1. A listing of the ledger accounts, used as a checking device and a source of accounting information for the owners and managers.
Books of prime entry
1. Day books
  1. Transactions involving customers/suppliers
2. Cash book
  1. Recording all payments in/out the bank account
3. Petty cash book
  1. Recording all payments in/out of the cash float, used for small purchases
Ledgers
1. The ledger = General ledger + Sales ledger + Purchases ledger
2. A ledger is traditionally a large book into which each business transaction is entered into individual accounts
3. 'The ledger' is used to describe all the ledgers.
4. Sales ledger
  1. This account shows the business the amount owed by that particular customer
5. Purchases ledger
  1. This account shows the amount owed to a supplier
6. General ledger
  1. Records all other transactions of the business
Control accounts
1. Sales ledger control account
  1. Contains the totals of all the trade receivable accounts in the sales register
2. Purchases ledger control account
  1. Contains the totals of the trade payable accounts in the purchase ledger
Financial statements
1. Profit or loss
  1. Income - expenses = profit/loss
2. Financial position
  1. Assets - liabilities = capital
Accounting terminology
1. Stock
  1. Inventory
    1. Goods held by a business
2. Creditor
  1. Trade payable
    1. A supplier you owe money to
3. Debitor
  1. Trade receivable
    1. A customer who owes you money
4. Profit and loss account
  1. Statement of profit/loss
    1. Financial statement calculating profit/loss
5. Balance sheet
  1. Statement of financial position
    1. Financial statement showing the value of the owners investment

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