Accounting fundamentals: Chapter 3 - Recording Financial Transactions

These flashcards cover key concepts and terminology related to recording financial transactions in accounting.

Accounting System

A system that allows a business to record, process, and store financial information.

Elements within accounting systems (SAPC)

• Standing data: Basic core data (e.g customer’s name)

• Account codes: Unique identifiers for accounts

• Processing: Methods and procedures for accurate and compliant financial transactions.

• Controls: Measures to ensure accuracy and security, preventing fraud and errors.

Cloud accounting

Using the internet to access storage, software, or computing power instead of using your own device or server

Source Document

Documents used to record financial transactions such as invoices, receipts, and bank statements.

State 4 types of source documents

• Credit sales system

• Credit purchases system

• Invoices

• Credit notes

Credit sales system

A process businesses use to record and manage sales made to customers who pay at a later date instead of immediately

Credit purchases system

A credit purchases system is when a business buys goods or services from suppliers and agrees to pay for them at a later date instead of immediately

Invoices

A document a seller gives to a buyer that lists the goods or services provided, the price, and the total amount to be paid

Credit notes

A document a seller gives to a customer to reduce the amount the customer owes.

State 3 examples of transactions accounting systems should usually recognise and match

• Receipts from and to regular customers and suppliers

• Payroll

• HMRC payments

State 2 examples of transactions accounting systems would not usually recognise and match

• Purchase of new machinery

• One-off transactions

“Cash at bank” account

Records all money received and paid out through the business’s bank account

Payroll

A source document for all employee expenses such as salaries and wages

Net pay

Take home pay

Gross pay

Pay stated in contract

Gross pay equation

Dedcutions (PAYE/income tax + NI + Pension) + Net pay = Gross pay

Payroll cost equation

Gross pay + Employer NI + Employer pension = Total payroll cost