Chapter 6: Business Transactions and their Analysis
deposit, the bank account name and number, and the amount
The Accounting Cycle
- Identifying and analyzing
- Journalizing
- Posting
- Unadjusted Trial Balance
- Adjusting Entries
- Adjusted Trial Balance (and/or Worksheet)
- Financial Statements
- Closing Entries
- Post-closing Trial Balance
- Reversing Entries
Identifying and Analyzing transactions and events
- transactions are normally identified from source documents,
which are written evidence containing information about
transactions (such as sales invoices, official receipts,
purchase orders, delivery receipts, bank deposit slips, bank
statements, checks, and statements of account, and the like)
Sales Invoice vs Official Receipt
- sales invoices (SI) are used for the sale of goods
- official receipts (OR) are used for the rendering of services
Purchase Order
- document issued by a buyer to a seller indicating the types,
quantities and agreed price for products or services that the
buyer intends to purchase
- prepared as internal control over purchases
Delivery Receipt
- document signed by the receiver of a shipment
acknowledging the receipt of the goods
Bank Deposit Slip
- evidences a deposit to a bank account and shows the date of
deposited
Bank Statement
- report issued by a bank (on a monthly basis) that shows the
deposits and withdrawals during the period and the
cumulative balance of a depositor’s bank account.
Check
- instrument that orders a bank (drawee) to pay the person
named on the check or the bearer thereof (payee) a definite
amount of money from the drawer’s bank account
Statement of Account
- report a business sends to its customer listing the
transactions with the customer during a period, the payments
made by the customer and any remaining balance due from
the customer
- also serves as the notice of billing
Types of Events
(1) External Events – transactions that involve the business and
other external party (such as sale, purchase, borrowing of
money, payment of liabilities)
(2) Internal Events – events that do not involve an external
party (such as production and casualty losses)
Journalizing
- record the events or transactions in the journal by means of a
journal entry
Simple and Compound Journal Entries
(1) Simple – contains a single debit and single credit element
(2) Compound – two or more debits and credits