Journal: a book of original entry that records the effects if business transactions
Ledger: a book where individual accounts are categorised into groups
Trial balance: a list of all names of the accounts in the ledger and the balances of these accounts at a particular point of time
Asset: items of value owned by the business
Liability: amounts owed by a business
Owner’s Equity: value of the owners investment in the business, and therefore the amount that the business owes back to the owner
Expense: costs incurred by a business
Revenue: income earned by a business
Capital: name of the account used to record the owner’s contribution to a business
Drawings: name of the account used to record the amount of assets that the owner withdraws from a business for personal use
Cost of goods sold:
Double entry system: states that for every transaction there is a debit (DR) entry and a corresponding credit (CR) entry of equal value
Transaction analysis table: the process used to break down a transaction into its debit and credit parts
Chart of accounts:
Pencil balancing: the working balance of each account in a T-format ledger
Accounts receivable: the account used to record when a credit customer owes the business money/stock/inventories
Accounts payable: the account used to record when the business owes a credit customer/business money/stock/inventories
Retail business: a type of business that sells goods/stock/inventories to customers in order to make a profit. Eg. Woolworths, Big W, Target etc.
Service business: a type of business that provides services to customers in order to make a profit. Eg. Accountant, Physiotherapy, podiatrist etc.
There are many effects of a business transaction on the accounting equation. When a transaction occurs, this is recorded directly onto the source documents. This information is then placed into the general journal, then posted to the ledger. These are then pencil balanced before being placed onto a trial balance where total debits should equal total debits.
The transaction analysis table is the record of all the transactions that have taken place in a certain period of time. It breaks down the transaction into its debit and credit parts. It also shows the nature and therefore the increase or decrease of a particular account. It is only the thinking…