4.The accounting process
4.1. the accounting cycle
financial
statements
Post-closing trial
balance
Closing process
Post-adjustment
trial balance
Adjustments
Pre-adjustment
trial balance
Ledgers and (12th trial
monthly trial balance)
Journals balance
Occurance of
transactions
4.2. Transactions
Source documents (daily Trial financial
Transactions (daily basi ) Journals (daily basi ) Ledgers (daily/monthly)
basi ) ba nce(monthly/an ual) statements(an ual)
, Cash receipts
o Capital contribution in cash made by the owner
o Cash received for services rendered
o Payments received from debtors to settle accounts
o Money received for cash sales
o Rent from tenants
Have to account for all cash receipts to avoid misappropriation of money
Cash payments
o Payment of water & electricity by cheque
o Electronic funds transferred for purchases of goods from supplier
o Monthly electronic payments to a creditor
o Debit order arranged for monthly insurance premium of entity
o Stop orders against account of entity
Petty cash payments
Small stuff like refreshments/ stationary
Credit transactions
Credit transactions can occur in both directions, the entity can sell on credit to third parties
and the entity can also purchase on credit from third parties without immediate payment
required.
In the basic accounting equation, assets increase on the debit side and liabilities increase on
the credit side resulting in the two parties above being identified as debtors (asset) and
creditors (liabilities)
o Credit sales: can make up an integral part of a business’s trading activities and is
accounted for in the financial records according to the accrual concept (income
earned is recorded even though the cash has not yet been received by the entity).
The entity will keep record of the debtors who buy on credit (address and contact
details etc.) allowing credit for customers who can’t pay immediately is common and
therefor needs to be governed by a proper credit policy. The credit policy will also
stipulate policies regarding returns of unsatisfactory goods by debtors (debtors
allowances). Debtors allowances will be accounted for separately from the sales to
keep track of all returns – the account will also provide information about the
returned products (wrong size, colour product type etc.) the entity may have to
reconsider their supplier if products are frequently returned – such products will be
taken into inventory for possible returns to the supplier
o Credit purchases: enable the purchases of goods and services on credit to improve
the effective trading and other operating activities without putting pressure on the
cash resources of the business. An entity can also return unsatisfactory goods
4.1. the accounting cycle
financial
statements
Post-closing trial
balance
Closing process
Post-adjustment
trial balance
Adjustments
Pre-adjustment
trial balance
Ledgers and (12th trial
monthly trial balance)
Journals balance
Occurance of
transactions
4.2. Transactions
Source documents (daily Trial financial
Transactions (daily basi ) Journals (daily basi ) Ledgers (daily/monthly)
basi ) ba nce(monthly/an ual) statements(an ual)
, Cash receipts
o Capital contribution in cash made by the owner
o Cash received for services rendered
o Payments received from debtors to settle accounts
o Money received for cash sales
o Rent from tenants
Have to account for all cash receipts to avoid misappropriation of money
Cash payments
o Payment of water & electricity by cheque
o Electronic funds transferred for purchases of goods from supplier
o Monthly electronic payments to a creditor
o Debit order arranged for monthly insurance premium of entity
o Stop orders against account of entity
Petty cash payments
Small stuff like refreshments/ stationary
Credit transactions
Credit transactions can occur in both directions, the entity can sell on credit to third parties
and the entity can also purchase on credit from third parties without immediate payment
required.
In the basic accounting equation, assets increase on the debit side and liabilities increase on
the credit side resulting in the two parties above being identified as debtors (asset) and
creditors (liabilities)
o Credit sales: can make up an integral part of a business’s trading activities and is
accounted for in the financial records according to the accrual concept (income
earned is recorded even though the cash has not yet been received by the entity).
The entity will keep record of the debtors who buy on credit (address and contact
details etc.) allowing credit for customers who can’t pay immediately is common and
therefor needs to be governed by a proper credit policy. The credit policy will also
stipulate policies regarding returns of unsatisfactory goods by debtors (debtors
allowances). Debtors allowances will be accounted for separately from the sales to
keep track of all returns – the account will also provide information about the
returned products (wrong size, colour product type etc.) the entity may have to
reconsider their supplier if products are frequently returned – such products will be
taken into inventory for possible returns to the supplier
o Credit purchases: enable the purchases of goods and services on credit to improve
the effective trading and other operating activities without putting pressure on the
cash resources of the business. An entity can also return unsatisfactory goods
