What are source documents?
source documents serve as proof that a transaction occurred
- invoices
- receipts
- deposit slips
- purchase orders
What are Journals?
A record of chronological entry
- special journals
- general journal
What are special journals?
Specific classes of transactions that occur in high frequency
- sales journal
- purchases journal
What is a ledger?
A book of financial accounts
- general ledger
- subsidiary ledger
What is a general ledger?
Shows period activity (debits and credits) for each account listed on the chart of accounts
What is a subsidiary ledger?
Shows account activity details (debits and credit) for each account type (AR, AP, Inventory, etc.)
How does an economic event flow through the manual accounting records?
When a customer places an order a sales order is created. That Sales Order results in the following simultaneous events:
1. Journal Entry posted to the Sales Journal. Which is then posted to the General Ledger.
2. Sales order posted to the AR Subsidiary Ledger. Which is periodically reconciled to the General ledger.
How does Tracing work?
Source Document -> Journal -> General Ledger -> Financial Statements
How does vouching work?
Financial Statements -> General Ledger -> Journal -> Source Document
What are Master Files?
Contain account data, typically only one record for each account that shows the current balance, prior period balances are kept in history files
What are Transaction Files?
contain transactions stored in chronological order, just like the sales journal, these files contain new transactions that have not yet been used to update master files
What are Archive Files?
Contain all transactions that have been processed and used to update master files. The transactions in the transaction file are moved to this file after the master files have been updated. These files can contain all processed transactions or sometimes only current year processed transactions
What are reference files?
files that contain relatively stable information used in transaction processing where a single record might be used by multiple transaction records (tax tables, customer addresses)
What are the major steps and how are the computerized files used when vouching?
- take the AR balance in the financial statement and vouch it to the AR balance in the GL Master File
- Take the AR balance in the general ledger master file and compare it to the sum of all the individual customer AR balances in the AR subsidiary ledger master file
- vouch the entire balance of the master file instead of specific changes to the balance
- find source documents
