FINAL DECK - AAT: BA1: Chapter 1: Introduction to the accounting system Flashcards Preview

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1

All businesses carry out?

A wide range of FT's on a daily basis

2

Common transactions include

Selling Goods and Services

Making Purchases and paying expenses

Payments in and out of the bank account

3

Goods and services can be sold either for:

1. Immediate payment (ie. Cash Sales)

2. Later payment (ie. Credit Sales)

4

Examples of purchases and expenses include

A wide range of large and small transactions, some more important than others.

5

Eg. of Settling purchase and expenses,

1. Paying by cheque or by bank transfer for goods / services supplied during the previous month

6

Eg. of buying an item used in the business?

A new delivery van using company credit card

7

Payments in and out of the bank account?

The money received by the business and the money paid out by the business will pass through the bank account.

8

Payments in and out of the bank account *eg.)

Cash & cheques rec'd from selling Goods & Services, paid over the counter into the bank account.

Settling the company credit card by direct debit payment from the bank account.

Paying the weekly wages through the bank account.

Drawing cash out of the bank for use in the office.

9

The Importance of Keeping Track

As you will see from the above examples, recording FTs will be a complex process.

A business will need to keep track of:

-Expenses & Purchases
- Wages Paid
- What each customer owes, & when the money is due
- Amounts paid into & out of the bank account.

10

If these transactions are not recorded accurately...

The owner of the business and other interested organisations such as the bank and the tax authorities will not know how much money the business is making (or losing!)

11

The Five Stage Accounting System?
(INTRO PARAGRAPH)

The Accounting system, which will be set in motion by all the transactions listed on the previous page, can be broken down into five stages

12

The Five Stage Accounting System?
(HEADINGS)

1. FINANCIAL TRANSACTIONS (FTS)

2. FINANCIAL DOCUMENTS (FDS)

3. BOOKS OF PRIME ENTRY.

4. LEDGER ACCOUNTS

5. TRIAL BALANCE

13

1. FINANCIAL TRANSACTIONS

The originating transaction
(eg. a sale, purchase, payment)

14

2. FINANCIAL DOCUMENTS

Documents GENERATED BY THE TRANSACTION
(eg. invoice, cheque)

15

3. BOOKS OF PRIME ENTRY

Place where document is first recorded in the books of the business.
(eg. Sales Day book, Cash Book, Petty Cash Book)

16

4. LEDGER ACCOUNTS

The main accounting records of the business ususally setup as a DE (Double Entry) system

17

5. TRIAL BALANCE

A listing of the ledger accounts (LAs), used as a checking device and a source of accounting information for the owners and managers.

18

Books Of Prime Entry (BoPE) include:

Day Books
Cash Books

19

BoPE Day Books for?

Credit Sales & Sales Returns & Credit Purchases & Purchase Returns

20

BoPE Cash book is for?

Recording payments into & out of the bank account.

21

Ledger Accounts (LAs) are?

Formal book-keeping records kept by the business and are kept in written form / on computer.

22

Most businesses use an accounting system based on?

The Double-Entry (DE) Book-Keeping System (BKS) whereby each FT is recorded into the accounts twice.

23

Book-Keeping Records are usually kept in one of two forms. These are?

Handwritten (manual) / Computerised System (SAGE)

24

Handwriting the accounts is the traditional method of keeping the books...

...particularly by smaller businesses.

25

Why do small businesses handwrite the accounts?

It is relatively straightforward & cheap to operate.

26

What is the main record?

The Ledger is the main record.

27

What is the Ledger?

A large book into which each business transaction is entered by hand into indiviual accounts.

28

Division of the ledger - why?

Because of the potentially large number of accounts involved, the ledger is split up into different individual ledgers. Both in Manual systems & also computer systems.

29

Division of the ledger - 3?

Sales Ledger

Purchases Ledger

General Ledger

30

Sales Ledger?

Each cust. given a personal account (PA) containing records of sales made on credit, any returned goods, & payments received.