This reading examines the basic procedures used in a manual accounting system to analyse, record and summarise the effects of transactions on an entity in order to generate information for use in decision making. The recording and summarising functions are mainly performed by computers but the data gathered and stored in a computerised system is based on an analysis similar to the manual one developed in this task. To effectively use financial reports for decision making, it is essential that we understand the underlying accounting system and this is most easily done by studying the procedures used in a manually operated system.
This chapter describes the basic procedures used to record the effects of transactions on an entity's financial position. The focus is on any entity that performs services for its customers/clients. Accounting for entities that engage in retailing and manufacturing operations is examined in future topics.
Task
Read Chapter 3 Recording Transactions - Section 3.1 - 3.2 in your textbook.
Learning Outcome
After reading this chapter, you should be able to:
- identify the nature, purpose and evidence for transactions
- describe the accounting cycle used to record, classify and summarise transactions
Due
Early in Week 1 after reading chapter 2 and prior to the practice questions towards the end of the week.
Suggested Procedure
- Read the chapter.
- After reading, check your understanding by seeing if you can answer the following:
- What is meant by the term transaction? What constitutes a transaction?
- Can you describe the accounting cycle in general terms?
- What items go in the Income statement? What goes in the Balance sheet?
- If you can’t, skim the relevant sections of the chapter to obtain the answers.