The Source Document In An Accounting Transaction Accounting Essay

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Accounting is very common nowadays, every business need accounting to record down all the business transaction. Accounting also named as language of business and is kind of art of recording, summarizing and classifying. Account focus on reporting to related people inside the business management accounting. These groups of people provide the financial information to company employees, manager, auditor and owner of the company. Accounting is to determine the financial stability of the organization. The responsibilities also include determining a business or an organization's overall wealth, liquidity and profitability.

With accounting tracking and record all these information is the foundation upon the daily and long-term decision could be made. For an example as if accounting record determine that the current company having some amount extra budget, business owner would be made a decision on the investment on the budget. The budgets for the marketing activities, investment on the research development, profit reinvestment is company growth all depend on the result or outcome the record accounting. Accounting is one of the most needed, respected and oldest profession in the world and accounting is needed in every industry or business.

Accounting principles is a set of standard for accounting and book keeping, it standardizes and it stands for every type of business. The standardization and the unity in all business accounting procedures is to ensure the standardization is clear and understanding no matter what types of business is being record and monitor. One of the examples is the cycle of accounting. There are system called Generally Accepted Accounting Principles (GAAP) are the general rules and procedure that all type of business follow when tracking and recording all the business transaction and financial information. There are no law to take action but is the advantages when the company is reporting to the loan agencies and the government when reporting earning or getting an audit. Accounting cycle is one of the important elements in or steps to follow when recording or closing the account.

Accounting cycle is including layers of accounting; there is different type of accounting in a single business. Every business has it own unique transaction and type of accounting. But there are accounting of day to day transactions and all are important to the business itself. The areas include payroll, assets, receivables, taxes payables public and credit. Day to day transaction have to be recorded and called as basic book keeping. All the transaction recorded in the basic book keeping have to balance in debit side and credit or else there error or mistakes had been done on the details on the recording; the account has to be balance due to the rules accounting or the accounting equation. There are all kind of report needed to determine the company to success such as statement of profit and loss, assets and liabilities report, retained equity and balance sheets. All these report give an overall picture of the company transaction and the company direction to the owner. All these report will be help to decide the company financial condition and the will be affect on the adjustment to be made in the company strategies for operation. These reports will help to attract investor if the company financial condition shows stable and all these report are included and one of the step of accounting cycles.

2.0 Accounting Cycles

The accounting cycle it begin with creating the chart of account for the business and finish with closing the book for the business at end of the accounting period. The accounting cycle is the series of steps have to be taken due to the expired of the accounting time period of it financial transactions. There are numbers of step to be complete during the accounting period to store, record and report the accounting information contained in the recorded transaction. There are major 8 steps in accounting cycle:

1. Develop the Chart of Accounts

2. The Source Document in an Accounting Transaction

3. Accounting Journal Entries

4. Construct the General Ledger

5. How to Prepare a Trial Balance

6. How to Make Adjusting Entries in your Accounting Journals

7. Prepare the Financial Statements

8. Closing Entries as Part of the Accounting Cycle

2.1 Develop the chart of account.

Chart of account is a list of account recorded in the ledger, setting up the company accounting and book keeping system, the first step should be develop a chart of account. The chart of account includes the index of all account relevant to the company file and company financial information. The number of account is the supply for the company. The number account will not be fixing and all depend on the company operation and the nature of the company operation. The number of account have to be maintained and extent the details which needed for future used, such as taxing authorities audit, credit purposes, management decision and etc. For an example, there difference type of salaries such as executive salaries, sales salaries and office salaries but all these different types of salaries will be only record in a single salary expenses account. The arrangement of the account in the chart of accounts should be the same in the balance sheet and the income statement. There are too many account to be manage, the account could be represent by code. The code number is given for the account itself and explanation of the account is given.

2.2 The Source Document in an Accounting Transaction

The physical document is very important, the source document in a account transaction is a type of prove or evidence that transaction really happened. Once the physical document has received the transaction have to be recorded as a journal entry as soon as possible, these will prevent the double entry be made. There are many types of physical document such as checks, purchase orders, invoice, memo and etc. These physical documents have to be keeping and proper arrange after recorded in to the journal for future reference.

2.3 Accounting Journal Entries

The journal entry in company accounting is to record down the daily transaction. Most of the journal will be recorded in the general journal. The basic journal consists of date column, list of affected account by each transaction, debit column, credit column to record as debit or credit to each account. There advantages use of the general journal. The journal able to help to preventing error due to the account debit and credit amount of the transaction initial record down on the journal page as a reference. With the journal, this is easier to verify or buyoff the equality of the debit and credit. All the transaction are recorded in one place, it also provide an overall picture of the transaction itself. This will come handy when during auditing process. If there are any error detected in later any of the account cycle and reference can be made to check back all the record in general journal. The transaction in the general journal will be recorded in chronological order, it also provide the business financial transaction on day to day basis.

2.4 Construct the General Ledger

The main accounting record of the company business will be record at general ledger. This step will be take the business financial transaction from the general accounting journal and construct then recorded in general ledger in summary form. Initially transaction will be recorded by the evidence of the business document such as invoice, checks, payroll and etc. By the basic of information provided by the business document, all the transaction will be record down in chronological order in a journal. After that all the debit and credit will be transfer to the account in the ledger. Using a two column account and posting from the journal to the ledger is easily to be complete. Before do so there are several steps have to be taken. The first step has to be determining the asset, liability, owner equity or the expense accounts are affected. Second step is to determine asset, liability, owner equity or the expense is increase or decreases the account. The third step is to determine the affected transaction should be recorded as debit or as credit in asset, revenue, expense or liability account.

The process of construct and recording the in the T account have to be follow. The date has to be recorded accurately and the format of the date must in date, month and year. All the transaction has to record down followed day by day. Record the debit have to insert the title of the account and to be debited at the extreme left of the description column, the amount enter to the debit column must be accurate. The credit account have to insert the title and to e credited the below account debited, enter the amount in the credit column.

All the transaction is recorded such as debit and credit to the specific account. The title used in the entries should be the same as the account in the ledger. All the account have to balance before move to the next step and no job is complete if the account's numbers that becomes imperative.

2.5 How to Prepare a Trial Balance

After complete the general ledger account for the accounting cycle, the next step is to prepare the trial balance. Trial balance is the way to totaling all the debit and credit for the ledger to make sure that all the accounts are balance for the specific accounting period. First have to balance each of ledger account individually and transfer all the related account to the trial balance format. Trial balance will not provide a complete accuracy proof of the ledger, but it able to indicate the debit and credit all are equal. There are errors will be frequently affect the equality of the debit and credit. When trial balance is not equal, normally due to following error is made.

1) Error in preparing the trail balance such as wrong amount or account insert in the trial balance

2) Error in determining the account balances such as wrong balance key in when preparing the ledger.

3) Error in recoding the transaction of the ledger such as debit or a credit posting was totally omitted.

But there are some of the error will not cause the trial balance's total inequality such as:

Failure to post a transaction

Record the same mistake of amount in debit and credit part of the transaction

Record the same debit and credit transaction more than once.

Posting the transaction debit and credit with date and amount correctly but wrong account were declare.

The accuracy of the account balance and reporting them on the trial balance will be help to determine and is quite obvious. All the existence error can be prevent and detected in several ways such as:

By audit and buyoff procedure

Chance discovery

Through the medium of the trial balance

If the total of the debit and credit of the trial balance cannot come to a agreement, which also prove that there are error occur in the process of recording. The search of error much be proceed, sometime the difference of amount will be give a clue to the specific error where it occurred. At the end of the accounting period, ledger accounts have to bring up to date.  

 

 2.6 How to Make Adjusting Entries in your Accounting Journals

When comes to end of the period of accounting adjustment entries are made in the company accounting journal. The main purpose of adjusting the entries is to adjust the expenses and revenues to the specific accounting period.

2.7 Prepare the Financial Statements

The final step in accounting cycle is preparing all the financial statement. All the information and document were recorded from the journal and general ledger will be used to prepare the financial statement such as retained earnings, balance sheets, and the statement overall cash flows. All the financial statements have to prepare is order as mention. The information of the previous statement will be prepared for the next statement.

2.8 Closing Entries as Part of the Accounting Cycle

When comes to the end of the accounting cycles to closing the entries and the journal entries have to be done. The balance of the temporary account to will be closed and remain zero value to begin the coming accounting period. Some of the account will be close but some of the account will not. The accounts that are closed are expenses account, drawing account and revenue account. The liabilities account, owner's equity account and asset account will not be closed and the remaining balance will be are the beginning balances for the coming accounting period.

2.3 Conclusion

Accounting cycle is important to the company, without the accounting cycle guidance and procedure to follow, accounting will become messy and not standardize. When come to monitor the business current financial status will be a headache to the business owner. Accounting cycles also recorded down the overall business cycle transaction for future reference and monitoring.

Question 2

Assume that you are an owner of a rafflesia Sdn Bhd, below are TWELVE (12) information during the first month of operation for the year 2011 for you to use in recording the following:

Create one transaction for each account, and prepare the necessary Journal Entries.

On 1 May, Mr Tan, owner of Rafflesia Sdn Bhd, invested RM200,000 cash and premises amounting to RM450,000.

On 2 May, credit purchase of machine RM2000 from ABC Co.

On 5 May, cash RM500 pay for Insurance.

On 6 May, paid a cheque RM1000 to advertising.

On 8 May, cash purchase RM800 on raw materials.

On 10 May, cash sales RM6000.

On 12 May, purchase return RM400 to PQR Co.

On 18 May , cash RM10,000 pay for salary for the month.

On 19 May , paid electricity and water cheque RM100.

On 20 May, sales on credit to Ahmad RM7000.

On 25 Mat, return inwards RM500 from Ahmad.

On 30 May, withdrawal of cash RM3000.

Post to the General Ledger the above Journal entries.

Cash

May-01

Mr Tan

 

200,000

May-05

Insurance

500

10

Sales

6,000

8

Purchase

800

18

Salary

10,000

30

Drawing

3,000

30

B c/d

191,700

206,000

 

206,000

Jun-01

B b/d

191,700

 

Premises

May-01

Mr Tan

 

450,000

May-30

B c/d

 

450,000

450,000

 

450,000

Jun-01

B b/d

450,000

 

 

Insurance

May-05

Cash

 

500

May-30

B c/d

 

500

500

 

500

Jun-01

B b/d

500

 

 

Bank

May-30

B c/d

 

1,100

May-06

Advertising

1,000

19

Electricity & Water

100

1,100

 

1,100

Jun-01

B b/d

1,100

 

PQR Co

May-12

Purchase Return

400

May-30

B c/d

 

400

400

 

400

Jun-01

B b/d

400

 

 

Salary

May-18

Cash

 

10,000

May-30

B c/d

 

10,000

10,000

 

10,000

Jun-01

B b/d

10,000

 

 

Ahmad

May-20

Sales

 

7,000

May-25

Sales Return

500

30

B c/d

6,500

7,000

 

7,000

Jun-01

B b/d

6,500

 

 

Drawing

May-30

Cash

 

3,000

May-30

B c/d

 

3,000

3,000

 

3,000

Jun-01

B b/d

3,000

 

 

Mr Tan

May-30

B c/d

 

652,000

May-01

Cash

 

200,000

1

Premises

450,000

2

Machinery

2,000

652,000

 

652,000

Jun-01

B b/d

652,000

 

Purchase

May-08

Cash

 

800

May-30

B c/d

 

800

800

 

800

Jun-01

B b/d

800

 

 

Advertising

May-06

Bank

 

1,000

May-30

B c/d

 

1,000

1,000

 

1,000

Jun-01

B b/d

1,000

 

 

Sales

May-30

B c/d

 

13,000

May-10

Cash

 

6,000

20

Ahmad

7,000

13,000

 

13,000

Jun-01

B b/d

13,000

 

After getting the balances of (b), Create the Trial Balance

RafflesiaSdnBhd

Trial Balance As At 30 May 2011

Particular

 

 

 

Dr

Cr

Cash

191,700

 

Mr Tan

652,000

Premises

450,000

 

Purchase

800

 

Insurance

500

 

Advertising

1,000

 

Bank

1,100

Sales

13,000

PQR Co

400

 

Purchase Return

400

Salary

10,000

 

Electricity & Water

100

 

Ahmad

6,500

 

Sales Return

500

 

Drawing

3,000

 

Machinery

2,000

 

666,500

666,500

Finally, prepare the two (2) major financial Statements

D.1 Income Statement

RafflesiaSdnBhd

Income Statement For Year Ended 30 May 2011

 

 

 

 

RM

RM

Sales

13,000

 

-

Sales Return

-500

 

Net Sales

12,500

 

-

COST OF GOOD SOLD

 

Purchase

 

800

 

-

Purchase return

-400

-400

Gross Profit

 

12,100

 

-

Expenses

 

Insurance

500

 

Advertising

1,000

 

Salary

10,000

 

Electricity & Water

100

-11600

Net Profit

 

500

 

D.2 Balance Sheet

RafflesiaSdnBhd

Balance Sheet As At 30 May 2011

Fixed Assets

RM

Premises

450,000

Machinery

2,000

Current Assets

Cash

191,700

PQR Co

400

Ahmad

6,500

650,600

Owner Equity

Net Profit

500

Drawing

-3,000

Liability

Mr Tan

652,000

Overdraft Bank

1,100

650,600

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