[FDNACCT] Unit 4 (Part 1): Analyzing Business Transactions to Preparing Trial Balance

Business Documents

Source documents that serve as basis for recording business transactions

Business transactions

A financial event that changes the resources and claims on the resources of a business entity

Purchase requisition

issued by the sales department to the purchasing department for the list of goods to be ordered

Purchase requisition

issued by the requesting department to the purchasing department for the list of items needed

Purchase order

issued by the buyer to the seller for order of goods

Receiving report

issued by the receiving department to the purchasing department after inspection, to show the quantity and condition of the goods received

Invoice

Delivery of goods

Sales Invoice

issued by the seller to the buyer for the delivery of goods

Purchase Invoice

issued by the buyer to the seller for the delivery of goods

Credit note

issued by the seller to the buyer for return of goods or for allowances

Debit note

issued by the buyer to the seller for return of goods or for allowances

return

actual return of goods

allowance

no actual return of goods

Statement of account

issued by the seller to the buyer as a reminder [request] to pay

Statement of account

issued by the service provider to the customer as a reminder [request] to pay

Remittance advice

issued by the buyer to the seller to Inform that payment is made (normally through bank transfer)

Receipt

issued by the seller to the buyer to receive payment (cash; cheque; bank transfer)

Promissory note

A written promise to pay a specified amount on a certain date

Voucher

Payments made either by cash or by cheque

Petty cash voucher

Payments from petty cash fund

Inventory take sheet/Stock take sheet

Inventory count, basis for recording closing inventory

Account

a written record of the assets, liabilities, and owner's equity of a business

Chart of accounts

a list of accounts used by a business to record its financial transactions

Normal balance

the side of an account in the accounting equation

Double entry system

an accounting system that involves recording effects of each transaction as debits and credits

Account balance

difference between the two sides of an account

Footing

adding the amounts

Rule/Ruling

represents a mathematical operation

Double rule/Double ruling

represents account balance and final answers

Permanent account/Real account

account that is brought forward to the next accounting period

Temporary account/Nominal account

account that is closed at the end of the accounting period

Assets
Liabilities
Owner’s Capital

3 Permanent accounts/Real accounts

Revenues
Expenses
Owner’s Drawing

3 Temporary accounts/Nominal accounts

Journalizing

Recording business transactions in a journal

Journal

A chronological record of business transactions

Journal

Book of original entry / Book of primary entry

General journal

general-purpose journal for recording all types of entries

Special journals

journals used for similar and repetitive transactions

Sales
Sales returns
Purchases
Purchases returns
Cash receipts
Cash payments
Petty cash

7 Special journals

Audit trail

A chain of references that makes it possible to trace information, locate errors, and prevent fraud

Compound entry

A journal entry that contains more than one debit or credit

Correcting entry

A journal entry made to correct an erroneous entry

Transposition error

occurs when the digits are switched [E.g. 357 as 375 or 537]

Transplacement error/Sliding error

occurs when a decimal point is misplaced [E.g. 375 as 37.50 or 3,750]

Posting

Transferring information from a journal to a ledger

Ledger

Permanent and classified record of all accounts of a business

Ledger

Book of final entry

Standard
Balance

2 Forms of Ledgers

General
Subsidiary

2 Types of Ledgers

Subsidiary ledgers

groups of similar ledgers with combined balances equal to the balance of a specific general ledger account

Control account

Summary account that is used check the mathematical accuracy of the ledgers it controls

Trial Balance

A statement to test the accuracy of total debits and credits after transactions have been recorded and posted

Trial Balance

checks the mathematical accuracy of debit and credit balances

Purchase order

prepared by the purchasing department to order the necessary goods at an appropriate price from the selected supplier

Purchase requisition

used by a sales department to notify the purchasing department of the items wanted

Double-entry System

all business transactions affect at least two accounts and leave the accounting equation in balance

General Journal

where business transactions are first recorded

Assets
Owner’s Drawing
Expenses

(3) Accounts with normal debit balances

Liabilities
Owner’s Capital
Revenue

(3) Accounts with normal credit balances

Chart of Accounts

the ledger can be arranged in the order in which accounts are presented in the __________

Trial Balance

to prove the equality of debits and credits after posting

Posting Reference

serves as a check and balance to ensure each transaction has been posted to the appropriate account and that the source page is cross referenced