Accounting Process (From Source Documents to Financial Statements) | Althaf Haaris | Skillshare

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Accounting Process (From Source Documents to Financial Statements)

teacher avatar Althaf Haaris, Lecturer | ACCA, BSc Hons

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

8 Lessons (1h 14m)
    • 1. Introduction

      0:52
    • 2. Accounting Process / Accounting Cycle

      8:49
    • 3. Source Documents

      25:36
    • 4. Prime Entry Books - Overview

      22:19
    • 5. Ledgers - Overview

      8:50
    • 6. SS Trial Balance - Overview

      3:30
    • 7. Financial Statements

      3:24
    • 8. End

      0:15
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About This Class

You can be a beginner, you can be an expert. Understanding accounting concepts properly is very important.

This class has provided a clear and detailed explanation on the following topics,

  1. What is Accounting Process / Accounting Cycle?
  2. Source Documents in accounting
  3. Types of Prime Entry Books
  4. Type of Ledgers
  5. What is Trial Balance?
  6. Components of Financial Statements

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Althaf Haaris

Lecturer | ACCA, BSc Hons

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Transcripts

1. Introduction: Hi, I am your duty for this program. I am an ECCE. I am a lecturer who is doing professional qualifications such as ECC and schema for significant number of years. I have produced several can't replace Venus. And most importantly, I have produced, well Praise Venus for the professional education. I have designed this program in order to give you a better understanding about eaten every part of a county BC, accounting is the language of business. So for you to get a better understanding of accounting concepts, I have done several videos where you can get a clear understanding of each and every concept in a county. No, you can watch the series of videos and get a good understanding about cacophony. So I hope you enjoy the program. 2. Accounting Process / Accounting Cycle: So we learn what is accounting is. Accounting is a process of providing business information for the interested parties of the organization. So let's get into this in detail and let's get some further understanding on this. So if you take accounting, okay. Normally accounting we'll start with all the transactions and events. So if there are no transactions, if there are no events, there will not be any accounting. So it will start with transactions and events. So once a business do some transaction, if not, if there is any event in the business, okay. First of all, what we will do these transactions, we have to record it somewhere. We have to record it a place call. Prime entry books. Brian, and three books. So what is this prime entry books? Prime entry books, the books where you will be recording your transactions and even for the first time. So in order to record these transactions and events in your prime entry books, what you have to understand for each transaction and event. There should be some source documents. Should be some source documents. So what are these source documents? In other words, I can say the evident document. So let's assume there is a sales transaction. You are doing a sale. So if you do a sale for that sales transaction, there should be evident document. You're purchasing some materials. For that round section, there should be some evident document. So likewise for this transaction, there should be some evident document. So what you have done this 10 for these transactions and even there will be some evident document. So based on that, we will record those transactions in the primate ribs. So in prime and read books, you are not doing any double-entry. Skip that in your mind. You're not doing a double entries. You are just doing, you're just recording it. It's taken example, if there is a sale of a 100 thousand US dollars in prime end three books, you'll just record okay, Sale 100 thousand US dollars. That's it. If there is a purchase of 20000 years dollars, you'll just record it. Okay. There is a purchase of 20000 years DMS that you'll not do any double increase if there is an expense payment, let's assume or 5 thousand US dollars, you will just record that transaction. That means simply in prime end three books, what bookkeeper will do? He may record each and every transactions. So if I ask you a question, how many prime entry books are there? So I didn't be believed Delphi certainly believe N6 actually, but you have to understand, according to the new method of accounting, there are eight primate removes. So what are those prime entry books we learned clade. So as I said you, there shouldn't be transactions and events. So first of all, we'll record these transactions and events where in primates. Okay. After that, whatever the things recorded in the prime entry books, we will record it in somewhere call ledgers. So in ledgers only you will do your all the T accounts. All the double entries will be recorded in the ledgers only. So from the prime entry books, what we will be doing will be transferring those entries for the ledgers. So when we are transferring those increase, we will do a double entry for that. So if you ask me how many ledgers are there? They are our three images in a business. Okay. So once you are done with these letters, what will happen using the balances in the ledgers? They will prepare something called trial balance. Will prepare something called trial balance. So in this trial balance, you'll have all the balances of the Occam's. So with the trial balance, with some additional information, some additional information, what we will do, we will prepare the financial statements, but we will do we'll prepare the financial statements. So you know how many financial statements are there that we learned in our previous video? There are five financial statements normally we will be preparing. So what are the phi financial statements? Statement of profit or loss, statement of financial position, statement of cashflows, Statement of Changes in Equity and notes to the account. So these are the five financial statements that will So let me repeat the steps again. If you take any business in all the businesses, they will be transactions and events. For these transactions and events, there will be source documents. So using these source documents, we will record the all the transactions for the first time in their prime entry books. So we will not do any double increase there. We will just record the brown section. So ansi record the transaction in prime entry books. After that, we will transfer all those transection for the ledgers. So if you take pledgers, what are these wedges? It's like a big book. Inside this MOOC, there will be lots of t occurs. So those days, companies, they used to have these big, big religious, but now everything is computer software. So what we have done less than you can imagine, they just are something like big books. So inside these books, there will be lots of T accounts. So what we'll be doing, all the prime entry book draws sections which we recorded. We will be translating it for the ledgers as an ability using the balances which is there in the ledgers. We'll prepare the trial balance using the trial balance and some additional information, but we will do you'll prepare the financial statements. So when we are preparing the financial statements, we will prepare five types of financial state. Once you are done with the financial statements, what we'll be doing, we will combine these, all the financial statements and we will put it together and we will produce something called annual report. So in this annual report, if you ask me what are other things there, you have your income statement, balance sheet, cash flow statement just in equity and your notes to the accounts and your chairman's report, director report or detailed report. By including all these things. Big companies, they will prepare something called annual report. Inside this annual report, financial statements also there. So once you prepare this annual report, we will give these annual report for the users of the accounts. Users of the accounts. It's not, we can call them as stakeholders. So this is the entire process of the accounting. You will have the transactions and events. For each transaction, there should be a source look human. Using the source document, we will learn what other source documents and everything. We will record it for the first time in something called prime entry MOOCS. There are eight types of prime entry books really learn what others prime entry looks. So it'll be translating those transection for the legislature. There are three ledgers will be learning, but others ledgers using the balances of the ledger accounts. So inside these ledgers, there will be lots of T-accounts, T-accounts. So using the balance of this ledger accounts or the T-accounts, we'll prepare the trial balance. Trial balance, and with some additional information will bear the financial statement. And after that, peel produce the annual report. Inside the annual report, financial statements are also included. So this annual report will be given to the users of the accounts, for the stakeholders of the accounts. So they can use these statements and they can take a better decision. So this entire process is what accounting is. I say new. Accounting is a process of providing business information for the interested parties of an organization. So we are providing the business information, information regarding the business for the interested parties, stakeholders of the business using what? Using their annual report. So to get this done, to get the annual report done, we have to go through this entire flow. So this process will call it as a counting process or accounting cycle. So I hope you've got a very good understanding of accounting cycle. So in our next video, we learned what are the source documents normally the businesses have. 3. Source Documents: So I said You accounting startlingly transactions and events. So for these transactions and events, there should be source documents. That means evident documents. Now let's see what other source documents are there in the accounting. That means for these transactions, what are the types of evidence documents that you can come across feet? So let's get into that. So let's see, first of all, what is the source document is? Any business transaction will have a proof document, as I said, you it and evident document, the primary source of information used to make increase in the accounts are called as source documents. So as I said, you, in order to input the data into the prime entry books as the proof document. What's the document that you'll be using these source documents, this can be named as business documents as well. So there is another name that we'll be using for the source documents, business document also, there are several distance document which are used in any business. So what are the documents that normally will be used? So here, I have given you 10 source documents that you can come across sweet. So let's take an in-depth understanding of each and every source document for stone that we are going to learn. It is purchase invoice. So what is this purchase invoice? You can understand it easily. If you purchase something as an evidence for the purchase, there should be some document. So that document is what it is purchased document. So when it's competent purchasers, what you have to understand, normally in businesses, they will purchase goods, which is inventory, and they will purchase other assets. So what is this inventory? Inventory means here. I meant by inventory, the items that you are purchasing for your grading purpose. So the goods inventory that you purchase for the grading purposes, that means for your business purpose. As an example, let's assume if you are selling tables, then the table is your product rate that you are selling. So that is a good that you purchase for your trading purpose. If you purchase a vehicle, vehicle is not a product that you are purchasing for in-order to sell, that you are purchasing in order to use. So that is another asset. So here, what's the purchase that I'm trying to explain is if you purchase any good the TAs for grading purpose, okay. There should be some evident document. So when you're purchasing some good or inventory for the grading purpose, Normally in businesses they will purchased for cash as the less detail, but just for clarity. So I'm not talking about these purchases are their asset purchases. I have not taught. I'm talking about the goods or the main way that you are purchasing for the trading purpose. So when you're purchasing that inventory, normally you will purchase it for cash as well as for credit. So what is this cash purchase? You will pay the money and you will get the inventory. If you are purchasing 1000 pebbles, you will give the money for the 1000 tables and you will purchase the tables. If not what you can tell that this applies or play here, see, I will make you the payment in another three months time. You give me the tables today. So you will make the payments in another three months. So those purchases, we will call it as credit purchases. So if there are any credit purchases, What's the document that you will get? That's what we are going to learn, not the cash purchases. If there are some credit purchases, What's the document that you will get? That document, we'll call it as bird us in Weiss, we'll call it S. But just in case if you purchase some goods, which is therefore the trailing purpose on credit for that transaction, proof document that you are getting, it is purchase invoice. So let's go through the definition. When purchasing goods on credit basis, the parties providing goods are known as suppliers or trade creditors. As I said you, the people who are giving these goods, those people are suppliers, or we'll call it S trade creditors. If not, we'll call it as trade payables. Trade payables, these are different names that we'll be using for the suppliers that we have to make payments in the future because it's a liability for you. So the liability, it's a payable to you. So what payable? It's a trade payable because this inventory you purchase for the grading purposes. So the payable is a trade payable if front-wheel called MS, Creditors also. So these terminologies are very important for you all when we are proceeding for them, the depth of two predators are liabilities of the business. Suppliers when providing goods on credit, prepare and send a source document, including information regarding that supply. The source document is invoice. In the perspective of the purchasing business, it is the purchase invoice. So if we are purchasing the inventory for us, this is what gets this is a purchase invoice. What do you have to understand for the business? Who is selling it? For them? It should miss sales invoice. But here we are looking from just perspective, since we are purchasing that trading goods, inventory on credit for that one, what's the document that you are getting? It is purchasing invoice. So in this invoice, they will mention what are the items that you are purchasing, watch surprise, or the quantity, everything they will mentioned in this. Now let's get into the next document which is received, received from the suppliers. So actually we are going to learn about something called visits. So what is this receipts, as I said you previously, when you're making purchases, you will purchase inventory, which is for the trading purpose, you'll purchase inventory and there will be other purchases also, other budgets. So I'm not talking about other Burgesses. I am talking about the inventory or the purchasers that you are making for that reading books. So this purchasers also can be two types. One is cash purchase, other one is that credit purchase. So for the credit purchase, what's the document that you are getting source document. It is your purchase invoice, but just in voice VLAN in the previous slide. So if you are purchasing something for cash, What's the source document that you are getting? So it's like this novae New make a payment to someone. He will give you a receipt. So it is a receipt for you. So it's a receipt that you are getting from whom? From their suppliers, suppliers. So your source document will be what? If you purchase the inventory for cash, it will be received. So in the receipt told that they will mention what are the types of products that you are purchasing, what's the quantity? And in March, the total cost, everything they will mentioned in the receipt as now, let's get into that next time. So next one is credit note. So at is this credit or they are done less than, as I said, you when you're making purchases. I'm talking about the inventory that you are purchasing for their trading purpose. Not other goods. The goods that you are purchasing, all the inventory that you are purchasing for the trading purpose. If you are doing a business, if you purchase a vehicle where he is an asset that you are purchasing for the usage for the trading Berbers. So it's not a trailing item. So if you have any goods or inventory that you purchased for the trade in purpose, I said you, those purchases can be cached, purchasers, credit purchases. What you have to understand very importantly, in accounting, one assumption that we're making. In accounting, there will not be any returns of the goods that you purchased for cash. So if you purchase some goods for cash, you will not be able to return it. So whatever their purchase return will be there, whatever the purchase return will be there, or newly for your credit purchases, That's a general assumption that we are making. So when new or returning whatever the items that you purchased. So on what basis? Purchase on credit basis, purchase when you are returning whatever the items that you purchased on credit basis in order to record those transactions in your prime entry books, there should be a source document. So what's the source document that you should have? They'll call it S credit mode. So what will happen in-order get this credit note as the company, we will prepare something called the bit node and we will send it to the supplier. So supply will prepare credit note and he'll send it to me. So this is a credit note for me. So using this credit note, what I can do, I can reduce the whatever the obligation which is they are for me with regard to that particular subnet. So let's go through the definition. Sometimes goods that have been purchased returns out to be for the wrong color, the wrong size, or not useful in some other way. These goods will be returned to the supplier. The supplier. In due course, the supplier will send credit nodes. So once we send a debit note for the supplier, by requesting for a credit note, supply will send the credit note for us. So using this credit note, we can make other entries in the primate tree. So credit note why we are using it. We're using it to record whatever the returns of the purchases that we made on credit basis. So if you want to return any item that you purchase on credit basis, in order to return that item, you will request a document from your supplier called credit not so sublevel, send that credit not using the credit note, you can return the documents back to the sampling. Now let's get into the next one. David notes, a debit note, also known as debit memo, can be issued from buyer to seller to indicate or request a return of funds due to incorrect or damaged goods received, purchase cancellation, or other specified circumstances. As I said you previously, what we did as the company, we will prepare something called the bit node and we will send it to this applied, even send it to the supply. So supply of arterial do sublevels and the credit note for us. So using this credit note VK and make the entry in our primary MOOC. So in order to request a credit note from the subplot, what's the document that we will be preparing as the customer? It is debit. So that's one debit notice, as I mentioned here, for whatever the credit purchases that you make. If you want to return the item back to the supplier, you will request some credit note from the supply. So in order to request the credit note from the supplier as the company, we will prepare what we'll prepare something called Debbie. So debit note is prepared by whom? What you have to understand. Debit notice prepared by the customer for what in order to request for credit note. So this is one debit notice. Now let's get into the extra sales invoice. So if you take in business, as I said, you for purchases, there will be sales of two items. One is the items that you purchased for your trading purpose, inventory that you, just for your training purpose, you will sell those things. Let's assume if my business is selling tables. So table is made trading item. If I select table, it is, I say, if not in businesses sometimes what they will do, they will sell other assets like you or non-current assets. So we will call that oneness normally non-current assets example, the we'll call that one as normal disposal. So these other different names that we're used, the sale of non-current asset will be using another name which is B. Suppose. So I'm not going to talk about this, so I'm going to talk about this. The inventory that you purchased for your grading purposes. If you are selling that inventory or that product, normally the sales will happen. Cash sales or credit sales. So what is this cash sales? Your customer will give you the cash and he will take the table and go, what is this credit sale? Credit sale means customer will not give the cash. Customer will tell you here, see, I will give you the payment in another 60 days. You give me the table. I will make the payment later. So you are given this table to your customer based on credit. So this is a receivable for you. Receivable, if not, we will call the mass in accounting, data's also datas. Our table, the table that you saw, let's assume it has a value of $50. So this $50 is a receivable for you. So now what I'm going to talk is regarding this, the credit sales, not the caches. If you are selling any item that you purchased for the same purpose, if you sell that item on credit in order to record that transaction in your prime entry books, there should be a source document. So what is that source document? Is your sales invoice. So let's go through the definition. When selling trading goods on credit. And invoice is issued to datas. So as I say, new data's this document is known as sales invoice, so we'll call it as well sales invoice. The business retains a copy of sales in ways. So we'll give the original to the customer, will keep a copy. So using this copy, we can make the first entry in our prime entry. Once we recording the prime entry MOOC I, as I said, you can record it in other ledger accounts or in our T-accounts. Now let's get into the next two given receipts to customers. So are there other receives that we are giving to the customers? As I said you again, if you take sales in company, you will sell inventory, which is bought for the creating purpose and other assets. So I'm not going to talk about other assets in when repurchase for training purpose. So this sales can be cash sales. The sales can be credit sales. So for the credit sales, what's the document that we are giving? It's your sales invoice. If there are any cash sales, if the customer gives you cash, in return, you will give a document to the customer. So are still document that we are giving to the customer. It is received. He makes a payment, you'll give him a receipt. So using this receipt, you can enter the transactions of the cash sales of their trading in mentoring. So that is what receipt is given to customers. Now let's get into the next document. Next term is the copy of credit note. So I say new art is the credit note. Credit note is something prepared by supplied. So in order to request for a credit note, customer will prepare a debit note. So what you have to understand, if one of my customer, my customer, sends me and debit note saying that my goods are not good. There are some defects in my group. The color that he is requested not the same color. So what this customer will do, that customer will send me my company. Let's assume this is my company, okay? This customer will send me a debit note. Since I got a debit note, what I will have to do, I will have presented credit note for the customer. So this is what so this is the document that you will prepare, which is credit note, is the document that you will prepare for whatever your sales return. So sales return means what your customers wants to send the goods back to me. My goods are not good. So sales return on sales return. So what sales return? I'm talking here, I'm talking about credit sales return and not cash sales. Whatever the trading goods or trading inventory that I sold for credit, if that item is getting return, that is a sales return. We will call it as, it's a general assumption that we are making. So whatever the trading item, if we get returned, it's a sales return. So for that one, but the source document that we will prepare and give it to the customer, it's credit, no. So copy of the credit note is the source document for us to record the return of the sales by the customer. Now let's get into the next time. So next one is checkbook count avoidance. So what we have to understand as a business, we will have to make lots of payments. So when we're making payments for other parties, normally we will make the payments through cash. We will make the payment through bank. So we need to come to the bank payments. Normally what we will do, we will issue some ticks. So the other party, so we knew issuing cheque, you should have a proof for that. You should have a reference for them. So you are giving your first check off your checkbook to 1%. You are giving some can check off your textbook for another person. So you should know we check is given to which person. So in order to have the dry cough that in textbooks you will have something like this. A small part, can you see? Yeah. So this is what checkbook counter for elites. So in this one we'll mention, okay, How much is the amount that I have given, whether it is 10000 or 20000, What's the party's name? The name will be included. What's the purpose of giving this payment? So everything will be included in this checkbook count of us. So this is another source document that we'll be using in our county. So which kind of payments will be using the source document for the payments that you made from the chicks. If you want to record whatever the payments that you made from the checks as the source document, what you will have you will have the checkbook counter, right? So now let's get into the next top bank statement. So in business, we'll be using bank statement also as a reference document or evident document. Why is that? In bank statement, there will be certain ground section sometimes what our customers can do if I am selling tables, there is a table I sold for a customer, let's assume for $50, that customer took a 30 day credit. So what did customer did was after 30 days, he directly went to my bank and he deposited this $50. But he didn't inform how I will get to know whether I have received this payment honored once I get my bank statement on me. So likewise, in your bank statements, sometimes there will be bank charges, sometimes there will be a checkbook charges, SMS charges, E banking facility charges. So likewise, all these charges also included in the backstage. So if you want to record these transactions in your prime entry book, there should be a source document. So what's the source document that you will have four such transactions. It is the bank state. So now let's get into the next one. The next one is petty cash voucher. To record the transaction with small values can simply be identified as petty cash book. So whatever the small transactions will be recording it in petty cash book, the petty cash voucher is used to record the petty cash payments. So it is this poetic edges, it is small, small payments that you'll be making. Let's assume there is a payment of $1, very small payment in $1 payments. So for this $1 payment, you should issue a check, right? So this one got a payment can be made through the petty cash. Let's assume for your business urgently want to purchase some templates. Ten pins, okay? So in order to purchase the pins, you can't write a check and you can't give it to the bookshop person. So what you can do, you can get the money from petty cash and you can purchase the pins because it's a very small payment. For small payments you are not required to give a check. So likewise for small ground sections, for whatever the payments that you are making as the source document, what's the document that we are keeping? It is petty cash voucher. So these are the certain source documents that you will come across in accounting. So you will learn some further source documents when we are proceeding with the primate tree roots. So as a summary, if I'm giving to you for whatever the credit purchases, What's the source document? Purchase, invoice. Whatever the cash purchases source document is received received from the supplier. So what are these purchases? I say new. These are the purchasers of the inventory which you are buying for the trading purpose, not other assets. Our table, the purchase return. So I said you this purchase return should be the purchases on credit because cash purchases normally you will not be able to return. So for that one master source document that you will have, It's the credit note received from supplier. And next one is credit sales. Sales means what I am talking about the inventory that tube chest for the creating purpose. So if you sell that inventory on credit, the source document will be one sales invoice. If there are any cash sales, the source document will be what? Preceded, given to the customer. And if they are our sales returns, whatever the credit sales return, cash sales return will not be there. I said you normally cash sales return will not be there. Only credit sales return will be there. That's a general assumption that we're making. So what's the source document? It's the credit note given to customer. So what you have to understand, sometimes for this purchase return in businesses as the source document, they will use the credit note. Sometimes they will use the debit note also. So I say do our taste debit note, debit notice prepared by the customer to request a credit note. So sometimes as the source document for purchase return, that debit note also will be used. So if we prepare a debit note and if we send it to the supplier. So that debit note also can be recognized as a source document in order to enter the records in your primate books so that turnover, so it can be used. Debit note also can be used. Record the cheque payments. They can use checkbook counter phi. And for the small payments as the source document, we can use petty cash voucher and to identify certain other transactions. As the source document we can use bank statement. So these are the certain source document that you can come across in accounting. So there will be some other source documents also. You'll be learning those things when we are proceeding with prime entry books. So I hope you got a very good understanding about what are the source document are there in accounting. 4. Prime Entry Books - Overview: So now let's see what are these prime entry books are when we are learning the accounting process, o accounting cycle, we learn whatever the transactions or events for the first time we'll be recording it in prime entry books. So for these transactions and events, you will have a source document. So what we will do using the source document, all these transactions and events for the first time, we'll be recording it in the primate tree books. Once we record it in the primate tree bookstore, it'll be translating it for the ledgers. That means for your T-accounts, whatever that debit increase credit entries will be recorded after you record in the primate remotes. So let me take an example. There is a sale of a 100 thousand US dollars. So in prime entry book, what do you do? You will just record that a 100 thousand US dollar sales. So after that, whatever the debit entry credit in R3 will be recorded in the majors. So let's see what is this prime entry bouquets. Prime Minister books are the books in which first NGRI of business transactions or events are recorded. As I said, nuke. In prime entry books only you'll be recording your business transactions and events for the first time. If not, we can do prime into books are the books in which business transactions and events are recorded prior or before being recorded in the latest. So before we record it in the ledgers, we are are we recording it? We are recording it in the primate tree roots. So if you ask me how many prime into books are there? As I said, doing the accounting process of accounting cycle, there are eight prime entry books you might have learned. They are a phi prime entry books, e-books. But according to the new accounting, actually they are or how many primates? Books, eight primary books. Actually for this prime entry books in accounting, we'll be using different terminology. So at other terminologies that we'll be using for the prime entry books, we'll be using the name called journals. If not, we will name it as day books. If not, we'll call it as books of original entry. So these are the different names that we'll be using in the accounting for the prime entry books, prior military books journal. If not, we'll call it as why is that in those books only we will be recording all your day-to-day transactions for the first time. After that, it'll be transferring those transaction for your ledger accounts. If not, we'll call it S books of original entry. So it's better to know these terminologies as well. Now let's get a detailed understanding of each and every primate tree book. So the first prime end that we are going to learn is cash receipts journal. So what we have learned, burst whatever the cash receipts and cash payments we'll be recording in the cache. That's what we have learned. But now it's not like that. Whatever the cash receipts, you'll be recording it in cash receipts journal. There is a separate journal for the cash receipts. So from terminology itself, you can understand in cash receipts journal, what are the transactions you'll be recording for the first time? If you are getting some cash, that transaction will be recorded for the first time in that cash received yet. So let me take some examples. If you made a sale on cash, so what you'll get, you'll get cash. So that transection for the first time will be recorded in the journal in that cash received. Yet sometimes you'll get cash from your receivables. So we're now getting cash from your receivables or from the data's record those transactions for the first day in the journal, in the cash receipts journal. And sometimes your investors or the owners will inject money for the business. So they were the money that they're injecting for the first standard transaction will be recorded in the journal in that calf's messenger. And if you take a bank loan, you'll get cached. So if you're getting cash, it's a cash inflow to you. So whatever the cash inflows will be recorded in the week journal, cash receipts journal, and next one, cell or disposal of non-current asset. So if you set it a non-current asset, what will happen? Get cash, right? So that transaction and also for the first time will be recorded in the journal, cash receipts journal and other incomes like commission income, rent income because these are the cash inflows to. So these cash inflows will be recorded in the cash is in general. And this is a very important one that you have to remember. Very important, whatever the discount love to debtors also will be recorded in the cash receipts journal. Because when you are getting cash from your receivables, we will be recording it in the cash receipts journal. They are for number two and number so it is actually connected when you are getting cash from the receivables, sometimes you'll give discounts. So that one also will be recorded in the cash receipts journal when you're getting cached on the receivables, You will love some discount unit, give some discount for your trade receivables. Since you are giving discount for your trade receivables, discount a loved also be recorded inlet cash receipts journal. We'll be doing examples. So for the time being, very important thing that you have to remember. What is that discount, uh, love to debtors will be recorded in cash received generally, don't forget it. So as I said, if any other cash receipts are there, those transactions for the first 10 will be recorded in the journal. Cash receipts journal. So what's the source document for all these cash receipt john has? Mainly we will be using the source document when it is received. It's like this, no venue or getting cash. You'll give a receipt to the customer. So copy of that receipt will be the source Tokyo man for you. So this is what cast is a journalist. So you can get a better understanding about the next one which is cash payment. So cash receipts journal, you will record all the cash receipts and cash payments journal, but you will record all the cash payments. So if you have any cash payment transactions, those transactions for the first time will be recorded in the cash payments journal. So let me take some examples. If you purchase some materials for cash, so your cash is going out for the first time. It will be recorded in the cash payment Jenna, 12 recorded in the cash payment journal. You will translate it for the ledger account for the T accounts later on, debit credit record will be recorded later on. Not when you are recording your first entry in journals, you'll be recording on liver first entry and whatever the cash payment for your trade payables. So sometimes you will purchase materials on credit. So later on when you're making payments for those pebbles or trade payables or for our creditors. We have to record it somewhere. So we will be recording it in the cash payments and whatever the cash drawings. If you're owners withdraw money and repayment of the loans. If you repay loans, what will happen? Your cash is going out. Purchase of non-current asset, acquisition of non-current asset. If you purchase some asset, what will happen? Your cash is going out. So those transactions will be the caudate in there for the first time in their cash payment, term, expenses paid. So if you pay some expenses, finance distribution, and when expenses, if you make payments for these expenses, it will be recorded in the cash payment journal. And Value Added Tax VAT, sales tax paid will be recorded in the cash payment Jenner. And the next one, this is again very important discount received from the creditors. So as I said, you discount, love to datas or trade receivable will be recorded in the cash receipts. Journal. Discount received from the creditors will be recorded in the cash payments journal because it's like this. No, actually, these two are connected because when you are making payments for your creditors, those creditors will give you a discourse. They will give you some discount. So if they're giving discounts, what will happen, the amounts that you have to make will get reduced since there is an impact for your trade receivable payments because of the discount will be recorded in discount received from our creditors also in that cash payments journal. So don't forget that it's a very important. So as I said, you, if there are any other cash payment transactions will be recording it in that cache beam and Agena. So simply what you have to remember, what they would cash receipts will be recorded in the cash receipts journal, whatever the cash payments will be recorded in the cash payment. And the source document for cash payments journal. Normally we will use it as payment voucher. Now let's get into the next one which is petty cash journal. So are these these petty cash? Petty cash means this is a journal that we are recording. Oldest small, small transactions, petty cash transactions. So here in the cash receipts journal and cash payments journal, normally we'll be recording the significant transactions, okay? Whatever the small, small transactions we will be recording in the petty cash. So what other types of transaction will be recording in the petty cash journal if you pay for the stationary. So that's a small expense rate for a business. So that will be recorded in the petty cash Janet and travelling expenses. Sometimes you are staff might travel from one place to another place. Let's assume there is one of your office assistant in your company. For that office assistant, you are giving your CAS to deposit in the bank. And so if you give us such a task to that office assistance, sometimes he might travel from the bus. So for the bus fare you will give some amount. So that amount is small amount for entertainment expenses, sometimes you might make payments, those are small amounts for cleaning expenses. You might be a small amount for postage expenses. You want to post something. So for those things you'll make a small payment. And if there are any other small, smaller transection, any other small transactions, whatever their petty cash transactions will be recorded in the petty cash generally. So what is the source document for the petty cash? January we will prepare document called petty cash budget. So as of now we have learned three prime end three books. What are the three prime end three books? One is the cash receipts journal. You will record all the cash receipts. An externalist cash payment journal. You'll record all the cash payments except for petty cash payment. And an externalist, petty cash, you'll record oil, the petty cash transactions in that petty cash yet. So now let's get into the next one, which is just done. So in this purchase January bacterial record, this credit purchases of goods or the inventory transactions. So what do you have to understand in this bird? Just dirt, you have to record all the inventory that you are purchasing. You are creating purpose for your trading purpose, for your business purpose, sometimes you might purchase inventory. Now, let's assume if I am selling tables, if I am purchasing and selling pebbles, table is the item which I am testing for the trading puppets. So if you purchased those tables on credit, so if you buy just the timbers on cash, as they said You hear here, see, if you just goods and services. By paying cash, you will record it in the cash payment, John, if you purchase those goods or the inventory that you are using for the grading purposes on credit basis. Those transactions for the first time you'll be recording it in there. But just generally, so the source document for whatever the credit purchases will be you, but just in reverse. So it's come with a credit purchases. What you have to remember, your credit purchases of inventory, which you will be purchasing for the trading purpose. So as you might be, purchasing a vehicle which has a value of 10 thousand US dollars on credit basis. Okay. So that vehicle but just I just on credit, it is not a trading item. Right? That vehicle I'm purchasing for my usage purpose, for my business usage purpose. So I am not buying and selling vehicles. I am selling tables. So that vehicle purchases, it's a credit purchase, but it's not creating invented budgets. It's a normal purchase offer, Vega. So I just learned about you have to record again, I'm delete if you purchase some inventory for the trade purpose on credit. So those credit purchases will be recorded in Europe. I've just done. So next one is your sales journal. So what is the sales turn? Very simple. If you sell your goods on credit, whatever this is, will be the caudate in your sales giant. So as I said you previously, if you do some sales on cash, cash sales of your goods and service, they will be recorded in the cash receipts journal that if you do sales on cash, if you do sales on credit, so those cells will be recorded in your sales Jana. So whatever the inventory that you, just for the trading purpose, if you sell on credit, those transactions will be recorded in the sales yet. So we'll assume something like this. You have a machine which has a value of 5 thousand US dollar US over this machine for one of your friend on credit basis. Okay. So the sale, you can't record it in the sales journal because the machine that you sold for your friend, It's not a trading inventory. It's not your trading item. You are not trading machines. You are buying and selling their tables. So what do you have to understand in sales journal, but you will record all the credit sales of their trading in military, you have to record it in the sales journal. So the source documents for the sales journalist says invoice. Now let's go to the next one which is purchase return gel. So in this purchase return journal, bacterial record is whatever the credit purchase goods 310 transection. So if you return any of your credit purchases, normally I say we'll make an assumption. You are cash purchases, you will not be able to return it. In accounting, we'll make that general assumption. So whatever their credit purchase items are there. So if you want to return that goods back to yourself player, first time, we'll be recording that one in the journal, in the purchase rate engine. So input just returned journal, but we'll be recording whatever they invented that tube. Just on credit for the trading purpose. If you are returning those goods back to your supplier, those returns will be recorded in the purchase return journey. So you can understand you are returning your purchasers means what will happen from your base plus the inventories going out because you are sending whatever the inventory that you just back up plan. So in maintenance going out. So another name that we are using for the purchase return journey, return outwards, outward January because you are sending your invented back to your supplier. Your inventory is going out of your business to the supplier, so it is returned outward journey. The source document for the return outward journal, we can use it as they beat not if not, as I say, doing the source document chapter, that credit note, which is seen by the software, both the document you can use and next one is sales returns. So in this sales return journal, what you will record this, whatever the credit sales goods return transection. So whatever the sales that you made on credit, the trading goods, whatever they're trading goods that you sold on credit, if my customers are returning back those goods to me, whatever the sales returns of the creating inventory which I sold on credit basis, my customers are returning those boots back to me. I will record those transactions for the first time in the sales journal. So you can understand when your customers are returning but the inventory to you, what will happen? That inventory is coming in, whatever the items that you sold, it is coming in again because your customers are returning back again. So what's happening? That inventory is coming in. So another thing that we can use for the sales return journey, return inverts Jana. So what's the source document that we'll be using for the return in what generalities? The credit load and the last Jonah general journal. If not, we'll just call it S journey. So in this journal, what are the transaction that you will be recording? Very simple. Any transection which is not recorded in the above, any of this when journal will be recorded in the general region. So what are the types of transactions will be recording in the general journal? Credit purchase of non-current asset. As I said you, if there is a credit purchase of creating good, it will be recorded in the purchase. If there is a credit purchase of non-current asset, general journal credit sale of non-current assets. As I said you if there is any credit sale of creating item, we take me recorded in the sales journal. If it is a non-current asset, will be recording in the general ledger. And credit purchase of stationary if there's any credit purchase of the small, small, small things. Now if you take businesses, they can purchase the Asian rate on credit basis. The Arab people who are playing the station before the businesses on credit basis. So those transactions will be recorded in the general ledger and next one, return checks of the customer. So if you have any return checks of the customers are customers will give you some tics. Sometimes the chicks can get returned because the sufficient funds not they're in there accounts. So if that is the case, those transaction for the first time will be recorded in the general journal issued check returns. Sometimes I will issue a check to my suppliers. I will have to make payments. So for those payments I will give chicks, sometimes in my account, the cash will not be there to make the payment. So if that is the case, might check they'll get credit debt. So those transactions also will be recorded in the general journal and depreciation off the non-current asset. If there are bad, it's irrecoverable validates. So what are these depreciation metallic Unica, or validates? We'll be learning when we are proceeding this chapters. So likewise, there are lots of transactions, which is that in the accounting. What do you have to understand? Whatever the transactions which is not recorded in the above seven journalists will be recorded in the general journal. So for the general journal, but it's the source document that we'll be using. It is journal voucher. So as I said, these are the eight prime entry books that we'll be using in the accounting. So our taste, this prime entry MOOC, whatever the transactions that you are recording for the first time, you will record it in their prime end three books. So let's look at a small summary. If you take prime entry books, okay, first primary MOOC, we learned cash receipts journal, cash receipts journal. You'll record all the cash received cross-section. The source document is Vc and next one is cash payment journal. In cash payment journal you will record or the cash payment plans sections. Your source document is payment project. Next one is your petty cash journal. In petty cash data you record all your small, small petty cash transactions. So the source document is petty cash voucher. And next one is the purchase journal. In purchase journal, but we will record if you purchase some inventory for the trading purpose. Again, I am telling specifically trading purpose on credit. So those transactions will be recorded in the purchase join. The source document is, but just in case. Next one is sales journal. So what you will record in the sales journal, whatever they're trading in wind tree if you sell on credit basis. So those transactions will be recorded in the sales journal. The source document is sales invoice. Next one is purchase return journal. So if you are returning your whatever the grading inventory we chew purchased on credit basis back to your supplier. Those transactions will be recorded in the purchase return journey since you are returning back to your SAP place in so inventory's going out, we'll call it as return outward journal or so. So the source document will be debit note. Next one is sales returns. The says return journal, whatever the trading inventory, if your costumers returned back to you, we choose sold on credit. So those transactions will be recorded in this sales returns. So your customers are returning the inventory back to you. What will happen? You will get the inventories to your business. So we will call it S return invert journal or so. So what's the source document that we'll be using? It's a credit note. Next one is general journal. As I said you if any transaction is they are not recorded in this one of this when journalists okay. Will be recorded in the general journal if there is any transection which is not recorded in one of these journals, those are the transactions will be recorded in the general journal. So the source document for the general journal does what it needs, the general voucher. So I hope you've got a very good understanding about all the prime implicants. 5. Ledgers - Overview: Now we get an understanding about what are these latest. So when you are learning the accounting process of accounting cycle, we learned in businesses, they will be transactions anyways. So for these transactions and events, there will be some source documents. So using the source documents luck we'll be doing, we'll be recording all the transactions and events for the first time in the prime entry books. So we learned there are eight types of crime integrals. So what are the primary books that we learned? Cash receipts journal, cash payment journal, petty cash journal. But just Jonah, sales journal, but just flip down journal, science return journey, and last general journal. So these are the aid, prime entry books or the journalist that villain, that means whatever the transactions for the first time we have to record it in their prime into books. Once we record the transactions for the first time in the primate remarks, what we'll have to do, we'll have to record the double entries for each transactions. So we are we'll be recording these double increase in the ledgers. So what you have to really embrace, the leaders are actually big books. We test the accounts, lots of pecans. For each transaction we learned there should be double-entry Islam. So for this double-entry is what we did. We prepare T-accounts. So all these T accounts will be there in the ledgers. So if you ask me how many ledger books are there? How many these big books are there? Ledger books. Are there? They are three ledger books. So inside these three ledger books, they are a lots of T-accounts. So what's happening? Whatever the transactions that we recorded in the prime entry MOOC for the first time, we will be recording the double-entry of those transactions in the ledger books. So inside the ledger books, but do you have you have lots of t a cos so here see what I have given to you. They just are the books which includes all the T-accounts or ledger accounts maintained by the organization. So all the T-accounts we be there inside this vegetables. Now let's see what are the three types of ledger books that I said to you. So the first one is purchase ledger. If not, we'll call it as creditors ledger, payable ledger. These are different terminologies that we'll be using for the purchase ledger book. So in purchase ledger book, what are the things that we'll be recording? This booklet includes the details of each and every individual trade payable. So when I'm doing a business, I will purchase my trading inventory from different supplies on credit. So all these suppliers information will be recorded in the purchase ledger. So let's assume I am purchasing my ending inventory from suppliers, from supplier Y. And from surprising, I have three supplies. So all these three players, the individual accounts will be there in my purchase ledger. So purchase ledger simply I am maintaining for my trade payables oh, my creditors. So all these three sub place in ritual details will be there in the purchase later. Now let's see what's the next one is It's the sales ledger. If not, we'll call it as data ledger. If not, we'll call it S receivable ledger. These are the different terminologies that we'll be using. So in debtor ledger or in my receivables or sales ledger book, what are the things that I am recording? This book will include the details of each and every individual trade receivables. So if you take a business, there will be lots of customers who will purchase inventory from me for credit. So if they purchased on credit, I shouldn't have the information about each and every customer. Let's assume there is a customer for a customer, a customer be customer, see customer D. Likewise, there will be thousands of customers. All of these costumers records, I should have Whitney. So if you take customer a, I should have the records of customer. If you take customer B, I shouldn't have the records of customer B. If you take customer D, I should have the records of customer D, So I should know how he has made the payments and how much is his balance and everything for how much I have made sales for him. So all these details of customer D will be there in his account. So likewise, all the trade receivables I will have in regional account, all those individual accounts will be there in my sales ledger book. So next one is general ledger. So what you have to understand this, whatever they're trading in NP that you purchased on credit will be recorded in the purchase ledger. And the sales ledger, you'll record whatever they're creating in maintained that you sold on credit will be recorded in the sales ledger or the individual accounts of your trade receivables will be there in the sales ledger. And all other transactions will be recorded in the general ledger. If not, we'll call it S nominal later. Also, actually in accounting, these two ledgers are not required for us actually preparing these two ledgers to have a track of each and every individual supplier that is for purchase later. And to have a dry cough, each and every trade receivable or our customer, that is our sales ledger. That's why we are preparing this purchase ligen sales ledger for our accounting purpose, purchase ledger and sales leader will not be required actually, that means to prepare the financial statements. The purchase ledger and sales lady is not required. Why are we preparing the purchase ledger to have a track of all the trade payables. That means might create suppliers. Why are we preparing our sales ledger to have a trek of our, all the trade receivables or my customers. And generally days the most important ledger in newer accounting. This is the main book of a column which includes all the double entry accounts of the business. All the double entry accounts will be there in the general ledger, everything everything will be there in the general ledger. Trial balance is prepared using the gender, religion. So if you take the general ledger or the sales account when be there in the general ledger, all the sales will be then degenerative. All the purchases will be there in the general ledger. If you have a sales return, if you have purchased return. But they were the capital accounts, all your expense account, all your income account, all your non-current asset account, whatever the accounts, all the accounts will be there. All the T accounts will be there in your general ledger. T-accounts. If not, we will call it as a cause. So all the T-accounts or the ledger cards will be there in your general ledger book. So this is the most important. Most important is your general ledger most important book because these two books are the, are keeping just to have a track off trade payables and the trade receivables. That's it. But general ledger has the all the accounts of their business. General ledger is the most important thing. Using the general ledger only we'll prepare the trial balance. Using the trial balance on living, you prepare the financial statements. So we'll call this just laid there and sales suggest memorandum account. So remember these terminologies very important since we are not taking the sludge sludge. In order to prepare the trial balance, we record it as the memorandum. A current account balance are not recorded in the trial balance and the financial statements only general ledger values will be taken into the trial balance. It was in the trial balance and using some additional information on living to be preparing the financial statements. Ledgers are that simple to have a track of all your individuality trade payables. We will have just laid taboo to have a dry cough oil. You are in regional trade receivable. We will have a sales ledger book by including all the T accounts. We will have the general ledger books. So general ledger book is the most important book. So using the general ledger book only will be preparing the trial balance and other financial statements. So I hope you've got a very good understanding about the religious. So in our accounting cycle, we are done with the source documents, we are done with the prime entry books, and we are done with the R3 latest also. 6. SS Trial Balance - Overview: So what is this trial balance? Very simple. Trial balance is a report that you are preparing for a certain day. In that report, you will have the balances of your older ledger accounts. When you're taking the balances, normally you will not take the balances of 0 occurs. So in the trial balance, you will have the balances of your oil, the ledger accounts. So I have given you a format of a trial balance. You can see here this trial balances x limited trial balance. If not, we'll call it as TB as at a particular day. So as I said, Do Trial Balance is a report that you are preparing for a certain day. So as an example, I am telling okay, this x limited trial balance as it maybe 31st December 2009 pin so as at 31st December 2019, What are the ledger accounts this extra Limited has and what are the balances of the ledger accounts? So when it comes to the ledger accounts, what other types of ledger accounts that normally you will have? You will have asset accounts. Asset accounts have a PDF accounts, you will have liability accounts as well as you will have income accounts and you will have expense accounts. And we did sometimes you might have the dividends and you will have fewer drawings as well. At you have to understand in trial balance, you will have one side for Debbie and another site for credit. Whatever the asset balances and Barto, the expense balances will be recorded in the debit side. This is like Qr, double entry. Can you remember in double-entry, whatever the asset increases and whatever the expenses increases, we recorded it in the debit side note. So whatever the assets and expenses will be recorded in the debit side. So in this particular example, the building is an asset that cash is an asset, as well as expense is expenses. And in your credit side, but other types of ledgers that you are recording, normally your income, your liabilities, and equity in double-entry is also the lead. If your income increases, liability increases, equity increases. We will record those things in the credit side. Likewise, in the trial balance, whatever the liability accounts, income accounts, and your equity accounts will be recorded in the credit side. So here in this example, you have the capital bank loan and the payables. These are the certain examples that I have given to you. So as I said before, a certain day, you will take the balances of all the ledger accounts. Those balances will be recorded in the trial balance. So it is a report which will have the balances of all the accounts except for the 0 balances because trial balance should be a nice one. There can be lots of 0 balances. Then what you have to understand always in your trial balance, you are debit side should be equal to the credit side. If you do your transactions properly, if you do your debit records, credit records properly, always your debit side should be equal to the credit side. If it is not equal from that, what you have to understand, there are certain mistakes in the accounts. 7. Financial Statements: What are these components of the financial statements? If you take an organisation for the stakeholders of the organization or the interested parties of the organization. As the business, the business should provide that information for these people to take decisions. So in order to provide the information for the people who are interested about the organization. Organization normally they will prepare something called financial statements. So if you take these financial statements normally in organization, inside these financial statements, they are a fight components included, if not, in other words, I can see there are five types of statements that we are giving to the interested parties of the organization to take decisions. So what are the financial statements that normally we are providing? First one is will call it as statement of profit dollars. In other words, when holidays income statement. So if someone needs business profit information, income information, expense information. So this information will be provided through the statement of profit or loss. And next statement that we are giving, statement of financial position. If not, we'll call it as balance sheet. Because if you take a business, there will be assets, there will be liabilities, that will be equity. If someone wants to get some information about how much acid this business has, how much liabilities businesses, how much equity these businesses in order get debt information will be preparing a statement called the statement of financial position. And another statement that we are preparing, the statement of cash. Certain people wants to know what's the cash inflow of the business? What's the cash outflow of the business? They want to know, okay, how much cash is coming into the business, how much gas is going out from the business. So in order to get that information, will be preparing a statement called statement of cashflows. And next statement that we are preparing, the statement of changes in equity. So if you take a business, the equity portion may get changed due to several reasons. Sometimes it's business generate profits, the equity portion will get checked. If business pays dividends, the equity portion, we'll get to it. So what are the reasons to this equity to get change will be there in the Statement of Changes in Equity. And final one is not through the financial statements. When the accountants are preparing the financial statements, normally they will make assumptions. They will use different techniques. Let's take an example. Certain companies will use straight-line method to the precede. Certain companies will use reducing balance method to depreciate. So what's the method that we have used to depreciate the asset. How are we going to give that information for the users of the course? What are the assumptions that we made when we are preparing the accounts? So all these details will be included in the notes to the financial state. So as I said you in financial statements, there are five components, but other Phi components, statement of profit or loss, statement of financial position, statement of cash flows, statement of changes in equity and notes to the financial statements. So for the people who are interested about the organization, when we are providing information, we will provide this file set of statements so they can go through these five set of statements and they can take that decision. 8. End: Since I want to give you all that detail and clear explanation on eat accounting concepts. I have structured this videos at least in a methodical way. So let's meet again with mixed in Europe series. Thank you.