3 Recording Business

Transactions
Date created Jul 8, 2020 810 PM

Exported to Anki

Lectures/Modules Chapter 3 Exercises Recitation

Status

Subject ACFAR1130

Year level / Semester 1st year 1st sem

Chart of Accounts
Practical Application

Statement of Financial Position

Due date one year from reporting date means for example:
December 31, 2020 - year end (reporting date)
December 31, 2021 - one yr from reporting date 12 months after)
Illustration A
July 2020, then due date is Dec 2021 = asset or liability is still considered
CURRENT kahit na lumagpas ng 12 mos. since ang due date is dec 31, 2021

What does "Capitalize" mean?

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 recorded as asset FIRST, then expense

New IFRS
BEFORE Prepaid expenses - NOW Prepayments
NOW Work in process inventory

*Also study recorded lecture

Self-test —concept questions

What are the steps of a transaction analysis?

It contains information about the nature and the amounts of the transactions,
it identifies and describes transactions and events entering the accounting
process, what are these?
Source Documents

What are the examples?

Sales invoice

Cash register tapes

Official receipts

Bank deposit slips

bank statements

checks

purchase orders

time cards

statement of account

It shows all the effects of a transaction in terms of debits and credits; it is a

chronological record of the entity's transactions; aka the book of original entry

General Journal

It is the process of recording a transaction

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 Journalizing

Double-entry system (what are the rules?

 For every debit Dr.) entry, there must be a corresponding credit Cr.)
entry. The accounting equation must always be maintained

 Each transaction affects at least two accounts (one debited, one

credited)

 Total debits for a transaction must equal total credits

 An account is debited when an amount is entered on the left side of

the account and credited when the amount is entered on the right side

 The account type determines how increases or decreases in it are

recorded. Increases are recorded on the side of an account based on
its position in the accounting equation
ALCRE where A&E are on the debit side and LCR are on the credit side

An entry where only two accounts are affected

Simple journal entry

An entry where three or more than one accounts is involved

compound journal entry

It is an entry which has no debit or credit which shows only the date and a
brief explanation or reminder

memorandum entry

It refers to a series of sequential steps or procedures performed to accomplish

the accounting process.

Accounting Cycle, what are the steps?

Steps done during the period

1 - Identification of events to be recorded

to gather info about transactions generally directly from the source

documents

2 - Transactions are recorded in the JE

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 to record the economic impact of transactions on the firm in a
journal

3 - JE are posted to the ledger

to transfer the info from the je to the ledger for classification

Steps done at the end of the period

4 - Preparation of trial balance

to provide a listing to verify the equality of debits and credits in the

ledger

5 - Preparation of the worksheet including AJE

to aid in the preparation of financial statements

6 - Preparation of the FS

to provide useful info to decision maker

7 - Adjusting JE are journalized & posted

to record the accruals, expiration of deferrals, estimations and

other events from the worksheet

8 - Closing JE are journalized & posted

to close temporary accounts and transfer profit to owner's equity

9 - Preparation of a Post-Closing Trial Balance

to check the equality of debits and credits after the closing entries

Step done at the beginning of next period

10 - Reversing JE are journalized and posted

to simplify the recording of certain regular transactions in the next

accounting period

A group of accounts aka final entry; it is the reference book of the accounting
system

General ledger

What accounts are included in the balance sheet?

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 permanent accounts or real(assets, liab, OE

What accounts are included in the income statement?

temporary accounts or nominal (income, expenses)

A listing of all the accounts and their respective account numbers

Chart of accounts, in order → ALCRE

It is the transferring of the amounts from journal to the appropriate accounts in

the ledger

Posting

This helps accountants track the origin of a transaction when the books are
out of balance

Post reference aka folio

What do you call the summary of accounts with open balances; commonly
taken every month-end to check the equality of debits and credits?

Trial balance

Purpose
It is prepared to verify the equality of debits and credits in the ledger
at the end of each accounting period or at any time the postings are
updated

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 👍Locating errors
What are the possible errors committed along the process?

Error in posting a transaction to the ledger, what happens

here?

erroneous amt was posted to the account

debit entry was posted as credit or vice versa

a posting was omitted

Error in determining the account balances

balance was incorrectly inputted

balance was entered in the wrong balance column

Error in preparing the trial balance

one of the columns of the trial balance was incorrectly

added

amt of an account balance was incorrectly recorded on the

trial balance

debit balance was recorded on the trial balance as a credit

or vice versa OR a balance was omitted entirely

Note: Even when a trial balance is in balance, it does not guarantee

that your work is correct, why?

 Failure to record or post a transaction

 Recording the same transaction more than once

 Recording an entry but with the same erroneous debit and

credit amounts

 Posting a part of a transaction correctly as a debit or credit but

to the wrong account

What are the ways in locating errors? (should be done in order)

Working-Back Method

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  Prove the addition of the trial balance by adding in the
opposite direction

 Check if the discrepancy is divisible by 9, possible errors are:

what do you call reversing the POSITION of the numbers

transposition or transplacement error

eg. 1256 → 1562

what do you call the incorrect placement of the decimal

point

slide error

eg. 1000 → 100

Solutions

 Scan the columns for an amount equal to exactly ONE

HALF of the discrepancy

 Scan the columns for the EXACT amount of

discrepancy

 Compare the accounts and amounts in the trial balance with

that in the ledger. Check for omissions.

 Recompute the balance of each ledger account

 Trace all postings from journal to ledger accounts

 Recheck the entries made in the journal and ensure that total
debit amounts are equal to total credit amounts

In what order are the accounts arranged?

ALCRE

What do you call the adding all the debits and the credits; this is done
after all the entries are posted from the journal to the ledger

Footing

Procedures for preparing a trial balance

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3 Recording Business Transactions 8