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JC Accounting Intro

Introduction to basic rules and terms in Accounting

QuestionAnswer
The steps in accounting are: 1. Record the transactions from source documents (credit note, cheque, receipt etc.) in the books of first entry 2. Post to the ledgers 3. Balance ledger accounts and extract a trial balance 4. Prepare final accounts and balance sheet.
Personal accounts record details of those (people or businesses) who owe the business money (debtors) and those the business owes money to (creditors).
Real accounts record transactions dealing with objects / the material assets of a business e.g. computers and buildings.
Nominal accounts record all revenue, expenses, gains and losses involved in running a business e.g. wages, insurance and rent received. They are regarded as temporary accounts; their value returns to zero at the end of each year.
The debtors ledger is used to record information on people that owe the business money for credit sales.
The creditors ledger is used to record information on people the business owes money to for credit purchases.
Income any money that the business earns, For example, from sales
Gains any other sources of income for the business. For example, any discount, commission or interest received
Liabilities a business's debts. For example. a bank overdraft or money owed to creditors.
Debit (DR) the left-hand side of an account. In an analysed cash book, this is where any money coming into the account is recorded. In the general ledger and trial balance, the debt side is used record expenses and assets.
Credit the right-hand side of the account. In an analysed cash book, this is where money going cut of the account is recorded In the general ledger and trial balance, the credit side is record income, gains and liabilities.
folio (F) columns For referencing information. They show where the entry came from or where it was posted to in the next stage of the accounts.
Cash sales sales for which payment is received immediately.
Credit sales sales for which payment is received in the future,
Cash purchases purchases for which payment is made immediately.
Credit purchases purchases for which payment is made at a later date.
Double Entry Every transaction posted form the day books is entered twice in the ledger accounts because there is both a giving aspect and a receiving aspect to each transaction. For every debit entry there must be a corresponding creidt entry.
Why is keeping accounts important? Many transactions take place within a business. Goods are bought, sold and returned, employees are paid wages, debts are paid and received, day-to-day expenses are met. It is important to record these transactions into accounts.
Reasons for preparing accounts To know how much money the business has, owes and is owed at a given time. To know value of business. To know if business has made a profit or lost. To assist in decisions. Limited companies are required by law. Keep up-to-date tax returns to Revenue.
Accountant/Financial Controller The person in a business who has the job of recording financial information
T-account a visual aid used to depict an account in a general ledger. Above the top portion of the T would be the account title. On the left-side of the base of the T would be any debit amounts; on the right-side would be the credit amounts.
Trial Balance is a test conducted to ensure that the value of all debit balances equals the value of all credit balances.
The general ledger (or nominal ledger) is used to keep together all the nominal accounts.
Ledger Accounts General Ledger, Debtors Ledger, Credit Ledger.
Books of first entry: Sales book, sales returns book, purchases book, purchases returns book, cash book, general journal.
An account is used to bring together: 1. All the transactions involving a particular person or company or 2. All the transactions involving a particular income or expense or 3. All the transactions involving a particular object.
Accounts can be classified as being: Personal accounts, Real accounts or Nominal accounts.
Debit and Credit Rule: For personal accounts Debit the receiver of goods or money. Credit the giver of goods or money.
Debit and Credit Rule: For real accounts Debit objects (things) received. Credit objects given.
Debit and Credit Rule: For nominal Accounts Debit expenses and losses. Credit revenue and gains.
Created by: MrFromholz
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