Accounting Systems

Accounting System

Effect on ledger accounts:
A/C Increase Decrease
Asset (A) Debit Credit
Liability (L) Credit Debit
Owner’s Equity (OE) Credit Debit
Revenue (R) Credit Debit
Expenses (E) Debit Credit
(See below for notes on: Journals, Ledgers, Trial Balance, Balance Day Adjustments, Accounting Reports, Evaluation of reports, Budgeting for future).

Source Documents:

[Used as verification for a transaction. It ensures reliability.]

Cash Receipt: Used to record inflow of cash.

Cheque Butt: Provides details of cash outflows.

Invoice: Document used to communicate creation of debt when a credit transaction has taken place. Specifically, sales invoice provides details of a credit sale, and a purchase invoice provides details of a credit purchase.

Memo/Memorandum: Used to record internal transactions and unusual events.

Ledger a/c: A financial record where details of a particular item within the business are kept. (Eg: Advertising, Debtors Control, Bank etc&hellipWink

Trial Balance: A list of all general ledger accounts with their balances, used to check whether the total debit is equal to the total credit of all the accounts. This checks if the double entry accounting process is correct. It also facilitates the preparation of reports and detects some errors.

Errors not detected include:

-Recording the wrong amounts in the right ledgers.

-Recording the right amounts in the wrong ledgers.

-Reversing the debit and credit entries.

-Omitting a transaction altogether.

Chart of Accounts: An index list of all general ledger accounts which groups accounts of similar nature with a similar code/number.

Benefits include:

-Easier to find individual accounts.

-Assists in report preparation.

-Suited to computerised accounting system.

A computerised accounting system is more accurate and quicker in comparison to a manual accounting system.

It can record transactions instantly at scanning for example, although the downside is the cost and the potential retraining of staff.

Posting References: Refers to the number of a ledger account as per the chart of accounts, written usually in the

journals. Or the journal reference of a particular transaction or group of transactions, written in the ledger account. Benefits include:

-Allows easier location/retracing of transactions to their original source documentation.

-Serves as a cross-reference tool.

-Supports audit trail.

Double-Entry Accounting: For every transaction there is an equal and opposite effect so that the accounting

equation (A=L+OE) remains in balance.

Ashish Sharma completed his VCE in 2005 and achieved a perfect score of 50 in Accounting. These are his notes, which he has generously donated to the VCE help community.

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