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Unformatted text preview: or taxes. A cash register tape may show cash sales. A bank deposit slip may show
collections of customer receivables. Suffice it to say, there are many potential source documents, and
this is just a small sample. Source documents usually serve as the trigger for initiating the recording of
a transaction. The source documents are analyzed to determine the nature of a transaction and what
accounts are impacted. Source documents should be retained (perhaps in electronic form) as an
important part of the records supporting the various debits and credits that are entered into the
accounting records. A properly designed accounting system will have controls to make sure that all
transactions are fully captured. It would not do for transactions to slip through the cracks and go
unrecorded. There are many such safeguards that can be put in place, including use of renumbered
documents and regular reconciliations. For example, you likely maintain a checkbook where you
record your cash disbursements. Hopefully, you keep up with all of the checks (by check number) and
perform a monthly reconciliation to make sure that your checkbook accounting system has correctly
reflected all of your disbursements. A business must engage in similar activities to make sure that all
transactions and events are recorded correctly. Good controls are essential to business success. 6.8 Determining an Account’s Balance
The balance of a specific account can be determined by considering its beginning (of period) balance,
and then netting or offsetting all of the additional debits and credits to that account during the period.
Earlier, an illustration for a Cash account was presented. That illustration was developed before you
were introduced to debits and credits. Now, you know that accounts are more likely maintained by
using the debit/credit system. So, the Cash account is repeated below, except that the
increase/decrease columns have been replaced with the more traditional debit/credit column leadings.
A typical Cash account would look similar to this illustration: Download free eBooks at bookboon.com
31 Basics of Accounting & Information Processing Accounts, Debits, and Credits ACCOUNT: Cash
Date Description Debit Credit Balance $ 50,000 Jan. 1, 20X3
Jan. 2, 20X3 Collected receivable Jan. 3, 20X3 Cash sale Jan. 5, 20X3 Paid rent Jan. 7, 20X3 Paid salary Jan. 8, 20X3 Cash sale Jan. 8, 20X3 Paid bills 2,000 57,000 Jan. 10, 20X3 Paid tax 1,000 56,000 Jan. 12, 20X3 * Balance forward Collected receivable $ 10,000 60,000 5,000 65,000
$ 7,000 58,000 3,000 55,000 4,000 59,000 7,000 63,000 6.9 A Common Misunderstanding About Credits
Many people wrongly assume that credits always reduce an account balance. However, a quick
review of the debit/credit rules reveals that this is not true. Where does this notion come from?
Probably because of the common phrase “we will credit your account.” This wording is often used
when you return goods purchased on credit; but, carefully consider that your account (with the store)
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This document was uploaded on 09/24/2013.
- Summer '13