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 used to record, process, and store financial information.

Elements within accounting systems (SAPC)

• Standing data: Core business data (e.g. customer name)

• Account codes: Identifiers for accounts

• Processing: Recording transactions

• Controls: Prevent errors and fraud

Cloud accounting

Accounting software that runs online, letting you access financial data over the internet instead of on one device.

Source Document

Documents used to record financial transactions

State 4 types of source documents

• Sales invoices

• Purchase invoices

• Credit notes

• Bank statements

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 source document issued for a credit sale or credit purchase showing goods/services supplied and amount owed.

Credit notes

A source document issued to reduce the amount owed by a customer, usually due to returns, overcharging, or errors.

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

• Receipts from customers

• Payments to suppliers

• Payroll 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 records

Payroll records are source documents showing employee pay, deductions, and employer costs.

Net pay

Take home pay, after deductions

Gross pay

Total pay before any deductions such as PAYE, NI, and pension.

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

Bank transaction report

A report from the bank showing receipts and payments through the business bank account (e.g. customer receipts, supplier payments, payroll, HMRC).