1.

3 The accounting process

Accounting process:
The process used to generate financial information from financial data leading to the
provision of advice to assist decision making

Stage 1: Source documents

Transaction:
An exchange of goods
Each transaction must be verified by a source document such as:

 Receipts and bank statements

 Cheques
 Invoices
 Memos

Invoice:
A list of goods sent or services provided

Memo:
When you have an internal transaction (within the company) as opposed to external
transaction without cash
"The owner came and took a sneaker for his son"
Plain written writing of what happened

Stage 2: Records

Recording:
Sorting, classifying and summarising the data in the source document so that it is more
useable

Accounting Records
 Journals, daily transactions
 Ledgers, the effect of transactions on each of the items
 Inventory cards, all the movements of inventory in and out of the business
Stage 3: Reports
Reporting:
The preparation of financial statements that communicate the financial information to the
owner

Types of reports:
 Cash follow statement, reports of cash inflows and outflows, change in its cash
balance over a period
 Income statement. Reports on firm’s revenue, expenses, and profit from its trading
activities over a period
 Balance sheet, reports firm’s assets and liabilities at point in time

Stage 4: Advice

Presenting the other with a range of options and some suggestions about an appropriate
response

Review Questions 1.3

1. Source documents, Records, Reporting, Advice

2. Assists in verifying a transaction
3. .
4. Recording is gathering and sorting the raw data and reporting is preparing the
information into a statement for the owner
5. Reports
a. Cash Follow: Change in the cash balance
b. Income: Profit from trading activities
c. Balance: Firm’s assets and liabilities