1 RECORDING EXTERNAL TRANSACTIONS The accounting process Double-entry accounting Example : Analysis of transactions using double-entry accounting The general journal The general ledger The trial balance

2 OUTCOMES Explain the accounting process Explain the accounting process Describe the double-entry accounting system Describe the double-entry accounting system Explain the purpose and structure of the Explain the purpose and structure of the General journal General journal General ledger General ledger Demonstrate the process of balancing the accounts and preparing a trial balance Demonstrate the process of balancing the accounts and preparing a trial balance

3 THE ACCOUNTING PROCESS Record external transactions in journal Transfer to ledger Prepare TB Adjust the accounts Prepare post-adjustment TB Close the accounts Analyse transaction Prepare AFS Process data Produce information Select data

4 DOUBLE ENTRY ACCOUNTING Assets=Liabilities+OE LeftRightLeftRightLeftRight DrCrDrCrDrCr Income LeftRight -+ DrCr Expense LeftRight +- DrCr

5 THE GENERAL JOURNAL Use Use Book of original entry Book of original entry Complete record of each transaction Complete record of each transaction Double entry principles followed Double entry principles followed two or more a/c’s affected two or more a/c’s affected total Dr = total Cr total Dr = total Cr equality of accounting equation maintained equality of accounting equation maintained

6 The general journal... Format Format DateDescriptionFolDrCr DateDescriptionFolDrCr 1/5/X4a/c debitedGL121,4 1/5/X4a/c debitedGL121,4 a/c creditedGL221,4 Each J/E Each J/E represents one line on the accounting equation worksheet represents one line on the accounting equation worksheet is a bookkeeping representation of the effects of a transaction on the elements is a bookkeeping representation of the effects of a transaction on the elements

7 THE GENERAL LEDGER Use Use Book of final entry Book of final entry Accumulates the effect of transactions recorded in the journal Accumulates the effect of transactions recorded in the journal Each a/c in the ledger is a formal representation of a column in the accounting equation worksheet Each a/c in the ledger is a formal representation of a column in the accounting equation worksheet

8 The general ledger... Dr Account name Cr DateDetailsFolRDateDetailsFolR 10/2/X5A/CcreditedGJ121,5 15/2/X5 15/2/X5A/CdebitedGJ110,0 Format of the general ledger Posting involves transferring the transactions recorded in the journal to the ledger

9 THE TRIAL BALANCE Balancing the accounts Balancing the accounts The account balance is the difference between The account balance is the difference between the increases and decreases the increases and decreasesor the left side and right side the left side and right sideor the debit side and credit side the debit side and credit side The balance on the account is the same as the net total on the accounting equation column The balance on the account is the same as the net total on the accounting equation column

10 The trial balance... Balancing the accounts... Balancing the accounts... Element +- Bal ADrCrDr LCrDrCr OE Capital contribution CrDrCr Distribution DrCrDr Income CrDrCr Expenses DrCrDr

11 The trial balance... Preparing the TB Preparing the TB balance each a/c in the GL balance each a/c in the GL list all accounts with their balances list all accounts with their balances total Dr and Cr columns total Dr and Cr columns