Accounting Cycle

What is Book Keeping?

The process of recording the financial transactions of a business

What is Accounting?

The process of preparing financial statements at regular intervals using reports and records to come up with an important economical decision

Purpose of accounting?

1. For decision making

2. To measure profit

3. To prepare financial statements

What are prime entry books?

Prime entry books are books where transactions are first recorded

What are the 7 prime entry books?

1. Sales Day book / Sales Journal

2. Purchase Day book / Purchase Journal

3. Cash Book

4. Sales return Journal

5. Purchase return Journal

6. Petty Cash book

7. General Journal

In the AS Accounting syllabus, weirdly it is not required to further know the theory of each prime entry of books or day books

What are the 3 ledgers?

1. Sales/Debtor ledger

2. Purchase/Creditor ledger

3. General/Nominal ledger

The reason for dividing to 3 ledgers

1. Able to introduce error correction procedures

2. Helps reduce frauds as it is maintained by different people

3. The work can be shared among people or staff

The Purpose of General Journal

It is used to record the double entry for non-routine transactions. These include bad debts and correction of errors

Non-routine transactions are activities that occur only periodically. These Transactions are stuff that can not be recorded in other prime entry books and have a very general reason

1. Purchase or Sale of a non-current Asset on credit

2. Bad Debts and Depreciation

3. Correction of Errors

4. Introduction of Opening Capital or Calculating Capital

5. Contra Entries

6. Opening Balances and Year end Transfers

Advantages of prime entry books

1. Avoids multiple entries in the ledgers

2. Work can be shared as different people take over each prime entry books

3. Reduces the detail in the ledger accounts as only totals are recorded

4. Helps reduce frauds

5. Easy for reference of source of transactions // helps in auditing

The only prime entry book that follows the double entry properly is the cash book as it acts as a prime entry book and a ledger account

What is a statement of accounts?

This is not really a financial statement

It is a summary of the customers account in the business books of account sent to the customer for prompt payment

1. It is to inform or remind of the customers outstanding balance

2. To agree with the settling terms

3. To ensure that no errors have been made

This chapter of the syllabus is not commonly tested...