FABM1

• Journal


  Chronological record of events or business transactions showing the effects of each transaction in terms of debits and credits
• Ledger


  Book of accounts where transactions are classified and summarized
• Accounting is the process of IDENTIFYING, RECORDING, and COMMUNICATING economic events of an organization to interested users
• Double-entry system


  Every transaction affects at least two accounts, with a debit and a corresponding credit
• Journal


  • It discloses in one place the complete effects of a transaction
  • It provides a chronological record of transactions
  • It helps to prevent or locate errors because the debit and credit amounts for each entry can be easily compared
• Journalizing


  1. Recording transactions in journal

  2. Entering the date

  3. Entering the debit account title and amount

  4. Entering the credit account title and amount

  5. Providing a brief explanation
• Journal entry


  Record of a transaction or event in the journal, composed of a debit and a credit
• Types of journal entries

  • Simple entry (one debit and one credit)
  • Compound entry (one debit and two credits, two or more debits and one credit, two or more debits and two or more credits)
• Special journal


  Book of original entry that records only one kind of repetitive or recurring transaction
• Types of special journals

  • Cash Receipts Journal
  • Cash Disbursements Journal
  • Sales Journal
  • Purchase Journal
• Cash Receipts Journal


  Journal used to record all collections including cash sales
• Cash Disbursements Journal


  Journal used to record all cash payments
• Sales Journal


  Journal used to record all sales on credit (on account)
• Purchase Journal


  Journal used to record all purchases of inventory on credit (on account)
• The Wealth of Nations was written in 1776
• In classical economic theory, the word 'rational' means that economic agents are able to consider the outcome of their choices and recognise the net benefits of each one
• Rational agents will select the choice which presents the highest benefits
• Producers act rationally by


  Selling goods/services in a way that maximises their profits
• Workers act rationally by


  Balancing welfare at work with consideration of both pay and benefits
• Governments act rationally by


  Placing the interests of the people they serve first in order to maximise their welfare
• Rationality in classical economic theory is a flawed assumption as people usually don't act rationally
• Marginal utility


  The additional utility (satisfaction) gained from the consumption of an additional product
• If you add up marginal utility for each unit you get total utility
• Purchase Journal


  Source documents for purchase journal are the invoices from the supplier of the company
• Purchase Journal


  • Date
  • Accounts Credited
  • Terms
  • Accounts Payable (Cr)
  • Purchases (Dr)
  • Office Supplies (Dr)
  • Furn. & Fixt. (Dr)
  • Sundry Account (Dr)
• Accounts Payable (Cr)


  Payables to supplier for purchases made on account
• Purchases (Dr), Office Supplies (Dr), Furn. & Fixtures (Dr)


  Amount of the goods purchases as indicated in the charge invoice from the supplier
• Sundry Account


  Used for various accounts and rare or less regular items
• Ledger


  Accounting book in which the accounts and their related amounts as recorded in the journal are posted periodically
• General Ledger


  Grouping of all accounts used in the preparation of financial statements
• General Ledger


  • Account title
  • Account number
  • Date
  • Item
  • Post Reference
  • Debit
  • Credit
  • Balance
• Subsidiary Ledger


  Group of like accounts that contains the independent data of a specific general ledger account
• Subsidiary Ledger


  • Vendor/Supplier name and address
  • Vendor number
  • Date
  • Description
  • Post Reference
  • Debit
  • Credit
  • Balance
• Information recorded in the ledger

  Always comes from the journal
• Information in the journal

  Grouped according to transactions
• Information in the ledger


  Grouped by accounts
• Journal


  Book of original entry
• Ledger


  Book of final entry
• Posting


  Process of transferring to the ledger the same information recorded in the journal
• Posting


  1. Locate the corresponding account in the ledger

  2. Transfer the entry from the journal to the ledger

  3. Get the balance after each entry

  4. Place the page of the journal where the information transferred is located in the PR (Posting Reference) column of the ledger account

  5. Place the PR (Posting Reference) column of the journal the number of the account in the ledger to which the posting is made