Business activities and transaction processing
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Business activities and transaction processing. Learning objectives To understand the various business activities and business decisions that are made. To decide on the information that is needed for various decisions. To review the steps in the accounting cycle.

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Business activities and transaction processing

Business activities and transaction processing

Learning objectives

To understand the various business activities and business decisions that are made.

To decide on the information that is needed for various decisions.

To review the steps in the accounting cycle.

To understand the principles of internal control.


Key terms

account

account code

adjustment note

assets

chart of accounts

control account

current assets

current liabilities

expenses

field

file

financial statements

gross loss

gross profit

internal control

invoice

journal

ledger

key terms


Key terms cont

liabilities

master file

net loss

net profit

non-current assets

non-current liabilities

owner’s equity

posting

record

reserves

retained profit

revenues

source document

transaction file

transaction processing

key terms (cont.)


Structure and characteristics of businesses

Structure and characteristics of businesses

  • Most common forms of ownership are:

    • sole proprietorship

    • partnership

    • company

  • Capital:

    • an investment of cash or other assets required to establish a business


Structure and characteristics of businesses1

Structure and characteristics of businesses

  • Liability:

    • amount owed by a business to others

  • Equity:

    • amount owed by a business to owners

  • Retained profit:

    • amount of profit not distributed


Structure and characteristics of businesses2

Structure and characteristics of businesses

  • Liabilities of a business:

    • capital contributions by owners

    • retained profit

    • loans

    • accounts payable

    • bank overdraft


Structure and characteristics of businesses3

Structure and characteristics of businesses

  • Assets of a business:

    • land and buildings

    • plant and equipment

    • motor vehicles

    • furniture

    • cash at bank

    • accounts receivable

    • inventory


Business activities

Organising capital

Acquisition of premises and equipment

Recruiting employees

Acquiring inventory

Manufacturing products

Marketing and selling product/service

Collecting amounts owing from customers

Paying amounts owing to vendors

Paying amounts owing to loans

Paying amounts owing to employees

Paying amounts owing to Australian Taxation Office

Business activities


Transaction processing procedures

Transaction processing procedures

  • Consists of the following:

    • capturing transaction data on forms called source documents

    • recording transaction data in books called journals

    • posting data from journals to books of accounts called ledgers


Capturing transaction data

Capturing transaction data

  • Business transactions are recorded on standardised forms that become the source documents

  • Source documents require only variable information to be completed

  • Source documents are prenumbered so it is easy to detect missing documents


Capturing transaction data examples

Capturing transaction data - examples

  • When orders are received the details of the order are recorded on sales order documents

  • When the sale takes place the details are recorded on an invoice

  • When purchases are made the details and authorisations are recorded on purchases order documents

  • Source documents provide an audit trail so transactions can be traced to the journals and ledgers


Recording transactions

Recording transactions

  • Recording is made in a journal

  • Journals can be either specialised or general

  • Specialised:

    • used for repetitive transactions and simplify the process of recording large numbers of transactions (e.g. sales journal, cash receipts journal, cash payments journal)

  • General:

    • records the transactions that cannot be categorised and recorded in specialised journals


Posting transactions

Posting transactions

  • Information in journals is transferred or posted to ledgers where a number of accounts are maintained

  • Ledgers can be divided into general or subsidiary ledgers

  • General:

    • where many accounts are recorded at summary level for assets, liabilities, expenses and revenue

  • Subsidiary:

    • where individual details of these accounts are recorded


Chart of accounts

Chart of accounts

  • The list of all account names and codes in an organisation is called a chart of accounts

  • A well-designed chart of accounts should accomplish the following:

    • adequate description of each account

    • distinction between account titles

    • assistance in the preparation of required reports


Financial statements

Financial statements

  • There are three main financial statements:

    • Statement of financial performance

      • profit and loss statement

    • Statement of financial position (balance sheet)

      • statement of the assets, liabilities and owner’s equity of a business at any point in time

    • Statement of cash flows

      • shows the changes in an organisation’s cash situation between the beginning and end of an accounting period


Management reports

Management reports

  • Specialised reports for management control purposes. For example:

    • inventory levels

    • profitability of each product

    • performance of each salesperson

    • daily cash balances and commitments

    • extent of back orders


Internal control issues

Internal control issues

  • Adequate internal controls are required to:

    • facilitate the capture of reliable business data

    • safeguard assets and business data

    • enable the execution of management objectives

  • Internal control principals include:

    • documented procedures

    • quality of personnel

    • authority

    • recording of transactions

    • internal verification


Computer accounting systems

Computer accounting systems

  • Now used by most organisations

  • Most computer accounting packages may have modules for:

    • general ledger

    • cash book

    • accounts receivable

    • accounts payable

    • inventory

    • payroll

    • asset register


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