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Accounting cycle (1) - Coggle Diagram
Accounting cycle (1)
Sales and debtors
Debtors
Monthly statements indicating the following must be sent to debtors
-Name and reference number of order
-Date and details of each invoice
-Opening and closing balances
-All payments received with date reference and amount
-An age analysis of the debt
An age analysis of all debtors must be done regularly so that sufficient control can be exercised over the debtors that exceeded their credit limits and might be unrecoverable
Credit terms may vary, but are usually between 30 and 60 days
Bad debts
Bad debts are specific debtors written off as there is evidence that the debtors will probably not be able to pay their debts
An entity will first follow various steps before writing off a debtor:
-Initially several accounts will be sent to clients
-The client will be phoned and requested to pay the account
-A debt collector will attempt to collect the money on behalf of the entity
-A lawyer will be appointed to collect the outstanding debts
Flow of the system
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3 - General ledger
-Debtors control
-VAT control
-Allowance for credit losses of debtors
-Bank
-Sales
-Bad debts
1 - Source document
-Delivery note
-Invoice
-Debtor monthly statement
-Receipt
-Bank deposit slip
-Bank statement for direct payments
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Accounting systems
2 - Requirements of a system:
-Relevant and accurate information must be available in time
-There must be internal controls to ensure reliable information and to safeguard assets
-The system must be adaptable to accommodate adjustments
3 - The design of a system
-Investigate the system and determine which procedures will be followed
-Design source documents, the format of the journals, ledger accounts and financial statements.
-The necessary internal controls must be implemented to ensure accurate information in thee financial statements.
1 - Objective of an accounting system
-All transactions relating to similar activities are processed by an accounting system
-E.g. Purchases and creditor system, sales and debtor system, inventory system, fixed asset system, salary and wage system
-These systems must provide information essential for decision making to management of an entity, called internal reporting
-The same system must also provide information for external reporting to users of financial statements regarding the financial position and results of the entity
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Main objective
The main objective of the majority of entities is to utilize assets in such a way that income can be generated
The objective of any entity is to increase the ratio of assets to liabilities by the end of an accounting period and to generate an increased income with regard to the previous period
Purchase and creditors
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Flow of the system
- Subsidiary ledger
-Creditors ledger
-Creditors list
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1 - Source document
-Requisition
-Order form
-Goods received note
-Invoice
-Creditors monthly statement
-Cheque counterfoils
-Cheque requisitions
-Bank statement
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