Accounting - 1

Accounting – Bookkeeping to Trail Balance Part 1

Definitions
 Bookkeeping is the mechanical and repetitive process of recording
financial transactions and keeping financial records.
o We take value and we give value.
 Source Documents are documents that form the source of and serve as
proof for a transaction. To illustrate, they are the first documents that
exist relating to a transaction.
o E.g. invoices, sales order, internet payment confirmation
 Books of prime entry make a record of all accounting transactions as
they arise.
o E.g. Cash book, Purchase and Sales Day Book
 Double Entry System: Every financial transaction involves the
simultaneous receiving and giving of value and is therefore recorded
twice.
o Duality Concept means the total of both the credit and debit
balances must be equal.
 The ledger (T-Accounts) is a collective term for the accounts of a
business and it is the ‘place’ where the double-entry of all transactions
are made.
 Inventory (stock of goods) are unsold goods.
 Purchase means the purchase of those goods which the business buys
with the sole intention of selling.
 Sales means the sale of those goods in which the business normally
deals, and which were bought with the prime intention of resale.

Concepts
Accounting Process
 Design of an information system that meets users’ needs (presentation)
 The goals are analysis, interpretation, and use of information
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Double Entry Accounting System

o Balances are listed as either credit balances or debit balances.
o It recognises both, the debit and credit side
o Debit (+): Left side
o Credit (-): Right side
o They are stated in the ledger or T-Accounts
o Details are important to know which ‘debit’ value is covered by
which ‘credit’ value.
o Each transaction affects two items/accounts
o Equilibrium Sources and Uses of finds must be preserved

Effects of Recording Transactions

 ASSETS = LIABILITIES + CAPITAL
o DEBIT = CREDIT
 ASSETS = LIABILITIES + CAPITAL
o CREDIT = DEBIT
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Movement of Inventory
 ONLY Inventory IF related to Sales!

Seminar
Identify the normal balance for each of the following accounts by indicating
Debit or Credit.
Cash in Bank Debit
Accounts Receivable Debit
Richard Sims, Capital Credit
Computer Equipment Debit
1st National Bank (mortgage) Credit
Car Wash Equipment Debit
Building Debit
Office Supplies Debit
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Started a household Increases asset of bank Debit bank account

machines business Increases capital of Credit capital account
putting 25,000 into a owner
business bank account
Bought equipment on Increases asset of Debit equipment
credit from House equipment account
Supplies 12,000 Increases liability to Credit House Supplies
House Supplies account
Withdrew 150 cash Increases asset of cash Debit cash account
from the bank and Decreases asset of bank Credit bank account
placed it in the cash box
Bought a van paying by Increases asset of van Debit van account
cheque 6,800 Decreases asset of bank Credit bank account
Sold some equipment Increases asset of Debit J.Rose account
that was not needed at money owing from Credit equipment
cost of 1,100 on credit J.Rose account
to J. Rose Decreases asset of
equipment
Returned some of the Decreases liability to Debit House Supplies
equipment costing House Supplier Credit equipment
2,300 to House Supplies Decreases asset of account
equipment
J. Rose pays the amount Increases asset of bank Debit bank account
owing 1,100 by cheque Decreases asset of Credit J.Rose account
money owing by J.Rose
Bought another van Increases asset of vans Debit van account
paying by cheque 4,300 Decreases asset of bank Credit Bank account
Paid 9,700 to House Decreases liability to Debit house Supplies
Supplies by cheque House Supplies Credit Bank Account
Decreases asset of bank