2022/2023 Financial Accounting Principles For Law Practitioners

2022/2023 FINANCIAL ACCOUNTING PRINCIPLES FOR LAW
PRACTITIONERS

LEARNING UNIT



2 DOUBLE-ENTRY SYSTEM AND SOURCE DOCUMENTS

Contents
Learning outcomes ..................................................................................................................................... 2
Key concepts .............................................................................................................................................. 2
Acronyms ................................................................................................................................................... 2
2. Introduction ...................................................................................................................................... 3
2.1 The double-entry system .................................................................................................................. 4
2.2 Summary of types of accounts and impact of transactions............................................................... 6
2.3 Descriptions of individual accounts ................................................................................................. 7
2.4 The basic accounting equation ......................................................................................................... 9
2.4.1 Right-hand side and left-hand-side of BAE ........................................................... 9
2.4.2 How to apply the basic accounting equation ....................................................... 10
2.4.3 4-STEPS to determine the result of a transaction ............................................... 11
2.4.4 Examples illustrating the application of the double-entry system ....................... 14
2.5 Recordkeeping ................................................................................................................................ 22
2.5.1 What is the accounting cycle? ............................................................................. 22
2.5.2 Completion of source documents ........................................................................ 24
(a) Internal source documents.......................................................................... 24
(b) External source documents (also referred to as supporting documents) .... 25
2.5.3 Recording of source documents .......................................................................... 26
2.6 Overview of the recording of transactions ..................................................................................... 40
2.7 Completion of books of first entry ................................................................................................. 40
2.8 Self-assessment exercises ............................................................................................................... 41
2.9 Terminology and definitions – cheat sheet ..................................................................................... 44




The key to success in accounting is practice, practice and more practice.


The following concept cards are available for this learning unit:




1

,CONCEPT o Effect of transactions on specific types of accounts
CARDS
o The accounting cycle (x2)
o Overview of the recording of transactions




2

,Learning outcomes

After working through this learning unit, you should be able to:
 define cash transactions
 define source documents
 explain the difference between internal source documents and external business
documents
 explain the applicable source documents involved in different cash transactions
 complete different business documents



Key concepts

 Double-entry system
 Accounting equation
 Assets
 Liabilities
 Owners’ equity
 Recordkeeping
 Accounting cycle
 Cash transactions
 Source documents
 Internal source documents
 External source documents
 Purchase order
 Sales order
 Delivery note
 Goods received note
 Cash slips
 Cash register rolls
 cash invoices
 receipts
 delivery note
 Petty cash voucher
 credit card slip
 deposit slip
 internet banking: Notice of payment (EFT)


Acronyms
BAE Basic accounting equation
LPA Legal Practice Act 28 of 2014
LPC Rules Legal Practice Council Rules


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, 2. Introduction

The financial records of an entity only deal with transactions that are measured in monetary terms. The
duality of the financial accounting system better known as the double-entry systemis a method whereby
the transactions are recorded systematically to show the giving and receiving of value.

The accounting cycle details the formal accounting process. The steps discussed in this learning unit are
as follows (indicated by yellow shading):

Transactions ― The accounting process starts once a transaction has taken place.


Source documents ― Source documents provide the evidence for a transaction having takenplace




Books of prime entry ― The source document is prepared and the information is enteredinto the
books of prime entry


Ledger accounts ― The entries from the books of prime entry are posted to the
general ledger, creditors’ ledger, and debtors’ ledger.


Trial balance ― The trial balance is drawn up from the accounts in the
general ledger


Financial statements ― The financial statements are drawn up from the trial
balance


Please remember the following points at all times:

RECAP  Total debits in the transaction must equal the total credits in that
transaction!
 For every debit, there must be a credit!
 Debits are on the left, credits are on the right!
 The equation must balance!




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