The fundamental concepts of accounting system

The accounting systems vary widely from one business to another, depending on the nature of the business and the transactions in which it engages, the size of the firm, the volume of data to be handled, and the information demands that management and others place on the system. The established system of recording transactions and other events as they occur is referred to as double entry accounting. The basic steps in the accounting cycle are (1) identification and measurement of transactions and other events, (2) journalization (3) posting (4) unadjusted trial balance, (5) adjustments (6) adjusted trial balance and (7) statement presentation and closing. Optional procedures are use of a work sheet, a post closing trial balance, and reversing entries. There are two types of events: (1) external events and (2) internal events. Accountants record as many events as possible that affect the financial position of the enterprise; however, measurement limitations result in some events being omitted. Journalization is the initial recording of essential facts and figures in connection with all transactions and selected events in chronological order. Posting is the mechanical (electronic) process of transferring the essential facts and figures from the journal to the accounts in the ledger. A trial balance is a listing of all open accounts in the ledger and their balances. A trial balance taken immediately after all adjustments have been posted is called an adjusted trial balance. A trial balancetaken immediately after closing entries have been posted is called an after closing or post closing trial balance. Adjustments are necessary to achieve a proper matching of revenues and expenses in the determination of net income for the current period and to achieve an accurate statement of the assets and equities existing at the end of the period. The closing process reduces the balances of nominal (temporary) accounts to zero in order to prepare the accounts for measuring the next period transactions. The adjustment of inventories under the periodic method is considered an adjusting or closing entry. Reversing entries can be used to simplify the accounting process. Accrued items and prepaid items debited or credited to a nominal account can be reversed. Reversing entries, however, are optional. A work sheet is often prepared to facilitate the preparation of financial statements. He work sheet does not in any way replace the financial statements; instead it is the accountants informal device of accumulating and sorting the information needed for preparation of the financial statements.
Posted by aw at 1:03 AM Labels: Accounting Standard

Accounting Source Documents

In the context of accounting a "source document" is any form of paper record that is produced as a direct consequence of a financial transaction, and as a result, is evidence that the transaction has taken place. Accounting source documents come in many different forms fior example: Receipts for Goods Purchased with Cash

Receipts for Cash Received Sales Invoices Purchase Invoices Suppliers Invoices Supliers Statements Bank Statements Cash Register Tapes Bank Deposit Slips/Forms Cheque stubs Credit Card Receipts Payroll Records

It is extremely important to keep all Accounting Source Documents and maintain a filing system where they can easily be found when required. Failure to maintain strict filing processes can be very costly in time wasted. Accounting source documents are required for: Verifiying transactions on a month-to-month basis End-of-year financial audit Satisfying the requirements of the Taxation Office

The number of years that Accounting Source Documents must be kept differs from state to state, nation to nation, but it is often the case that the minimum period is 5 years.

The Importance of Standardizing Business Source Documents

By John A. Tracy, CPA

All business transactions require paperwork, called source documents. Business source documents, which are important to bookkeeping, need to be standardized. With standardized source documents, your bookkeeper (or you) can easily identify and interpret the relevant information.

Source documents serve as evidence of the terms and conditions agreed upon by your business and the other person or organization that its dealing with. Both parties receive some kind of source document. For example, for a sale at a cash register, the customer gets a sales receipt, and the business keeps a running tape of all transactions in the register. You need to standardize the forms and procedures for processing and recording all normal, repetitive transactions, and you should control the generation and handling of these source documents. From the bookkeeping point of view, these business forms and documents provide information needed for recording transactions in the businesss accounts. Sloppy paperwork leads to sloppy accounting records, and sloppy accounting records just wont do when the time comes to prepare tax returns and financial statements. Check out an office supply store to see the kinds of forms that you can buy right off the shelf. Also, computer accounting software packages like QuickBooks and Peachtree include templates for most business forms and source documents needed by a business, from invoices and receipts to purchase orders and payroll checks.

Read more: http://www.dummies.com/how-to/content/the-importance-of-standardizing-businesssource-do.html#ixzz1V4efc92x

Each time a company makes a financial transaction, some sort of paper trail is generated. That paper trail is called a source document. If a small business writes a check out of its checking account for office supplies, for example, the source document is the check along with the receipt for office supplies. The source document is essential to the bookkeeping and accounting process. It is the evidence that a financial transaction occurred. If a company is audited, source documents back up the accounting journals and general ledger as an indisputable audit trail. Keeping a source document for a business is just like keeping your receipts for tax-deductible items for your personal taxes. You have to have those receipts in case your taxes are audited. The same is true for your business, but you don't just keep receipts for tax deductible expenses. You keep receipts (source documents) for every financial transaction. A source document describes all the basic facts of the transaction such as the amount of the transaction, to whom the transaction was made, the purpose of the transaction, and the date of the transaction.