Unit 2 The five stage accounting system

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What you will learn in this unit The five stage accounting system An introduction to the books of prime entry An introduction to the ledger account An introduction to the trial balance

The Five Stage Accounting System The accounting system has five stages to get to its final point. This starts with the transactions of the business and flows through the system to get us nearer to producing a set of accounts. Can you remember from unit 1 what sort of transactions we might have in the business? SalesPurchases Bank transactions

The Five Stage Accounting System Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment For example an invoice or a cheque The place where the document is first recorded in the books of the business The main accounting records set up as a double entry system A list of the balance of the ledger accounts Lets look at each in a little more detail click on the financial transactions box

Financial transactions So a transaction will occur that will start the chain of recording in the accounting system. This could be making a sale, buying something, or some money going through the bank account. However, money does not always change hands at this point. Click here to go back

Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment The place where the document is first recorded in the books of the business The main accounting records set up as a double entry system A list of the balance of the ledger accounts Click the box

Financial Documents As a result of the transaction a document is produced. If you make a sale you will raise a sales invoice.

If you have made a payment you may be raising a cheque Or, you may make an electronic payment which will create paperwork to record the payment

If you have had some good returned to you then you may issue a credit note. This cancels the amount of the original invoice. The customer will no longer owe you the money for the goods. Click here to go back

Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment The main accounting records set up as a double entry system A list of the balance of the ledger accounts Click the box For example an invoice or a cheque

Books of Prime Entry A book of prime entry is the ‘first’ book in which you record all the financial transactions. There are a number of books of prime entry. Depending on the type of financial transaction will depend on which book of prime entry that is used.

Lists all the transactions in and out of the bank account Lists all the journals made in the ledger accounts Records all credit notes as a result of goods returned to suppliers Lists all purchases made on credit Records all credit notes as a result of goods returned by customers Lists all sales made on credit Journal book Purchase returns day book Purchase day book Sales returns day book Sales day book Cash book Click on each of the circles to find out more about each book.

A book of prime entry – sales day book This is an example of a sales day book. Invoices issued for sales made on credit are listed and totalled at the bottom. Click to go back

Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment A list of the balance of the ledger accounts Click the box For example an invoice or a cheque The place where the document is first recorded in the books of the business

Ledger accounts The entries into the Day Books – the books of prime entry – then need to be transferred into the ledger accounts of the business. Each transaction has a debit entry and a credit entry. We will look at the ledger accounts, debit and credit entries in more detail in a later unit. Click here to go back

Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment Click the box For example an invoice or a cheque The place where the document is first recorded in the books of the business The main accounting records set up as a double entry system

This is a list of all the balances on the ledger accounts. It is used as a checking device on the accuracy of all the entries that have been made. It also serves as a source of accounting information for the owners and managers of the business. They can clearly see how the total of all Sales they’ve made, or how much money they owe their suppliers, or monitor how much they are spending on various expenses etc. It also is necessary to calculate how much profit the business has made. We will look at the trial balance more later in the course. Click here The Five Stage Accounting System to go back

Financial TransactionsFinancial DocumentsBooks of Prime EntryLedger AccountsTrial Balance For example a sale, a purchase or a payment For example an invoice or a cheque The place where the document is first recorded in the books of the business The main accounting records set up as a double entry system A list of the balance of the ledger accounts

What did you learn? The five stage accounting system What the books of prime entry are What a ledger account is What a trial balance is

Congratulations You have now completed unit 2 of the book keeping course. You are now ready to move onto unit 3 but remember you can come back and review this unit at any time. If you have any questions don’t forget to ask your contact at the academy.