Chapter 3- The practice of
accounting
Learning objectives
The accounting equation in more detail
The double entry principle
What are source documents?
Journal entry
Recording information in the general ledger
Extracting a trial balance
Closing entries
Reviewing the accounting cycle
How do specialised journals form part of the accounting cycle?
The accounting equation in more detail
• Asset= Equity + Liabilities
Class example
• Let’s look at the first two transactions that occurred in Judy’s
business.
• Deposited R8 000 of her own money into a bank account in the
business’s name.
• Borrowed R2 000 from her sister.
Solution
• Transaction 1
• Transaction 2
The double entry principle
• Every transaction must have a debit and credit
Class example
• Let’s look at the following transactions of Handbags for Africa that
occurred during
• January X1:
• Purchased 30 briefcases for R3 600
• Sold 2 briefcases for R600
• Judy withdrew R300 for personal use
• Purchased petrol to be used during the month R300
• Wages paid R150.
Solution
• Transaction 1
Transaction 2
Solution cont.
• Transaction 2
• On transaction 2, what happens if the goods were sold on credit? Give
elements that would be affected- accrual basis
Transaction 3
Transaction 4
Transaction 5
What are source documents?
• A source document is the point of original entry of a transaction and
should provide the information necessary to record the transaction
accurately.
• Examples
 Deposit slip
Loan application
Cheque
Internet banking
Cash receipt
Credit sale/credit purchase invoice
Journal entry
• The journal entry records the effect of the transaction on the assets,
equity and liabilities of the business.
• When each transaction is recorded, the following two rules apply
simultaneously:
• The accounting equation (A = E + L) must balance after each
transaction has been recorded.
• For every debit entry there has to be an equal credit entry (DR = CR).
So, what are debits and credits?
Recording information in the general ledger
• The general ledger is made up of different accounts where each
account is used to record similar transactions that occur in the
business.
• Ledger accounts are also known as T accounts
Extracting a trial balance
• A trial balance is a list of all the accounts in the general ledger and
their final (or closing) balances.
• At the of the period, the debit and credit balance should be equal
Closing entries
• The income and expense accounts need to be closed off to zero
during the profit or loss calculation process so that all income and
expense accounts start the new financial period with a zero balance.
How do specialised journals form part of the
accounting cycle?
• Businesses can make use of the following specialised journals:
• Journal Use
• Cash Receipts journal Records all cash receipts
• Cash Payments journal Records all cash payments
• Purchases journal Records all credit purchases
• Sales journal Records all credit sales
Businesses can make use of the following
specialised journals:
Journal
Use
Cash receipt
Records all cash payments
Cash payment journal
Records all cash payments
Purchase journal
Records all credit purchases
Sales journal
Records all credit sales
Screen short General Ledger
Any questions
End ………..