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ACCOUNTING FOR DECISION MAKERS – LECTURES 11 & 12 THE ACCOUNTING RECORDING SYSTEM – TRANSACTIONS ANALYSIS AND BASIC BOOKKEEPING Overview of week 6 lectures: Components of the accounting recording process Steps to the accounting recording process Preparation of basic financial statements Illustrated via fabulous Folios Pty Ltd example So far The financial position of an entity represented in the balance sheet. o Three components the balance sheet reflects on: Assets, liabilities, equity (capital and retained earnings). Financial performance (profits) reflected in changes/movements in the balance sheet over time (via retained earnings). o Income/revenues and expenses based on movements in the balance sheet elements that alter assets and liabilities (except when transacting with owners). o Change in the assets is due to our profit, such as cash increasing the equity of the owners, which is a form of revenue, or the selling of stock, which decreases stock thus decreasing equity. o We determine the movement in bookkeeping through debt and credits. o Change in net assets is due to profit.
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o The bookkeeping process uses this to keep record of everything, but uses a different process and language. How does the accounting system capture and report on these financial effects? Transactions analysis – We record our transactions on a day to day basis in a journal. As each financial transaction occurs, we record the effect in the journal. We also summarise all the journal entries in the ledger, which is a record of our current total Bookkeeping system based on: o Recording transactions in journals o Summarising effects in ledgers (which is the running total of each element) o Preparation of financial statements Transactions analysis Identify occurrence of transactions – Differ from personal transactions and events. Identify the components of the transaction: o Which accounting elements are affected by the transaction (may have to look at the Framework to determine this)? o Must be at least two components but could be more, such as cash being generated by capital by the owners. Thus we are to identify what is in the transaction. Did the components increase or decrease?
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This note was uploaded on 09/25/2011 for the course ECON 101 taught by Professor Drpearce during the Three '11 term at University of Adelaide.

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