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Lecture Notes 3.pdf - Transactions Chapter 3 Recording...

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1 Chapter 3 Recording transactions Lecture 3 Learning objectives After studying this presentation, you should be able to: 3.1 identify the nature of, purpose of and evidence for transactions 3.2 describe the accounting cycle used to record, classify and summarise transactions, including the of ledger accounts and the general ledger 3.3 outline the rules of debit and credit used in double-entry accounting and how to apply these rules in analysing transactions 3.4 explain the purpose and format of the general journal, record transactions in the general journal and transfer the information to the general ledger 3.5 discuss the purpose of the trial balance and how to prepare one. Learning objectives Transactions Types of transactions: External transactions: involve an outside party exchange of economic resources and/or obligations: sale of inventory purchase of supplies. Types of transactions: Internal transactions: transformation of economic resources: use of office supplies. Non-transactional events: not usually recorded, but may be in the future: receiving an order from a customer. Transactions Transactions of a business entity: An entity which are expected to provide future economic benefits to the entity. The initial source of assets for any business is an investment by the owner. Cash is useful as a medium of exchange or as a measure of value, but it is essentially a non-productive asset. Transactions
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2 Source documents: Prepared for every external transaction. Support entries in accounting records. Important element in control system. Transactions Source documents: Common source documents include: tax invoice (specific requirements as per ATO) purchase order cash register tape credit card slip cheque butts. Transactions Accounting periods: Periodic progress of the entity is divided into time periods of equal length. Interim statements: Statements prepared for external users before the end of the annual period. The accounting cycle: The steps and procedures, culminating in the preparation of financial statements. The accounting cycle The accounting cycle The basic accounting cycle: The accounting cycle The ledger account: Where the effect of transactions is recorded. Three basic parts : title place for recording increases place for recording decreases. The accounting cycle Example: T-account for Cynthia’s Beauty Services:
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3 Account formats: T-accounts: convenient way to show individual accounts illustrate effects of transactions on an account still used in practice for quick calculations. The accounting cycle Account formats: Running balance accounts: provides all the information in a T-account also provides a balance after each transaction used in formal accounting systems.
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