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Week 3 Lecture Accounting

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Week 3 Lecture Accounting

Uploaded by

james.isaac219219
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Week 3 Lecture Accounting

Accounting Cycle
• Accounting cycle: Steps and procedures, ending in the preparation of financial statements
o Steps and procedures ensure that all transactions are properly recorded.
o A checklist accounts need to complete to move onto the next period
• Basic accounting period for which financial statements are presented is 1 year (e.g. 1 July
2021 – 30 June 2022)
• Recognise and record transactions:
o Does the transaction impact accounting
equations (A=OE + OE)
• Journalise transactions:
o Record the transactions in a general
journal
• Post to ledger accounts:
o General ledger has individual ledger
accounts for each part of the business
(rents, electricity, etc)
• Prepare trial balance:
o See whether we recorded transaction in general journals and posted it correctly in
ledger accounts.
o See if everything balances in the business
• Make adjusting entries:
• Adjusted trial balance:
• Prepare financial statements:
• Closing entries:

Double Entry Accounting


• Transactions (e.g. buying new equipment, wages, rent) are recorded using the double entry
accounting system
• Debit and credit rules
• Two or more accounts are affected by each transaction
• Each transaction must be analysed to determine:
o What type of accounts are affected
▪ Assets, liabilities, equity, income and expenses
▪ By how much each item must be increased or decreased.
▪ E.g. purchasing a motor vehicle would affect the motor vehicle asset, and
cash asset (if paying in cash)
• Two equal sides, DEBIT = CREDIT
o Every transaction will have equal or opposite affect to both sides
• The sum of debits equal the sum of credits
• The accounting equation must always remain in balance
Debit and Credit Rule

• Debit and credit are an instructions we use in double-entry accounting system


o Debit (Dr) = ‘on the left-hand side’
o Credit (Cr) = ‘on the right-hand side’
• Whether a debit or a credit is an increase or a decrease to the amount balance depends on
whether the account is an asset, a liability or an equity account.

Accounts: Balance Sheet

Cash example Bank Loan example


• If you receive cash = debit • If you borrow loan = Credit
• If you spend cash = Credit • If you pay off loan = Debit

Accounts: Income statement


• Increase in DAX are recorded in the Debit side

General Journal
• Transaction is recorded first in the general journal
• Journal entry
o Entering or journalising transaction in the general journal
o Step 2 in the accounting cycle
• Complete record of all transactions
• Presented in chronological order (recorded by date)
• Book of original entry

Journal Entry

• Date
• Particulars (Accounts)
• Contains two columns (Debit and Credit) for entering account and dollar amounts
• Post reference
• Narration (explanation)
• Example of a journal entry:

Transactions
External transactions

• Involve an outside party


• Exchange of economic resources and/or obligations
• Examples include:
o Purchase of equipment and supplies
o Borrowing money from a bank
o Performance of services for others (e.g. medical, legal, cleaning, marketing, public
relations)
Internal Transactions

• Generally triggered by and are concerned with internal functions of a business


• Examples include:
o Use of office supplies
o Use of equipment to perform a service

Non-Transactional Event

• Not usually recorded, but may be in the future


• Examples include:
o Receiving an order from a customer
o Hiring an employee
o Changing interest rates

Source Documents

• Prepared for every external transaction


• Provide written evidence of a transaction
• Used by accountants to support entries in the accounting records
• Examples:
o Tax invoice (entity performs service for a customer)
o Purchase order – when goods or services are ordered from a supplier
o Cash register tape – to record through a cash register cash received for cash sales
• Credit card slips – to record sales made on credit
• Cheque

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