STEP 1: TRANSACTION STEP 2: SOURCE DOCUMENT
A transaction takes place every time money exchanges hands The source document is proof that the transaction took place and from
between the business and another party. (business and where the transaction will be recorded.
business OR business and individual OR individual and
individual) Source documents are completed in duplicate, the business issuing the
STEP 3: JOURNALS
When recording a transaction in the books of the business, source document keeps the duplicate to record the information and the
the following information is necessary: original is given to the customer. Source documents are recorded in
-the date of the transaction different journals known as subsidiary
The source document will be used to record transactions in the subsidiary
-the parties involved in the transaction. journals.
books.
-the amount of money involved
Subsidiary journals are books of first
-the reason for the transaction
Accounting Cycle entry and where record is kept of all
transactions that took place.
STEP 7: BALANCESHEET (GR 9) A cycle is something that has a starting
Two main journals:
point and then some things are
happening and ends at the starting point Cash Receipts Journal (CRJ)
STEP 4: POSTING TO THE GENERAL LEDGER All cash that is received by a business
STEP 6: INCOME STATEMENT (GR 9)
is recorded in the CRJ.
The General Ledger is a list of all the accounts that the business has.
This incoming cash can be notes and
STEP 5: TRIAL BALANCE The type of accounts depends on the type of business. For example, a hairdresser has some accounts
coins, cheques and credit card and
that are different to those of a spaza shop. However, both businesses have many accounts that are
A Trial Balance is a statement which lists debit card payments.
the same, for example water and electricity, stationery, wages, rent, and so on.
all the balances on all the accounts in
These amounts are called cash
the double entry system. The accounts in a General Ledger look similar to a capital T, which is why they are sometimes referred
receipts.
to as T-accounts. The heading is at the top of the T.
A Trial Balance has a debit and credit
Cash Payments Journal (CPJ)
side. All accounts in the General Ledger The left and right side have the same columns. The left-hand side is called the debit side and the right-
with a debit balance will be entered in hand side is called the credit side. All amounts paid out each month by
the Trial Balance on the debit side and the business are recorded in the CPJ.
Posting to the General Ledger is done through a double-entry system: The double-entry system
all accounts in the General ledger with a
means that, for every time you write something on the debit side (left-hand side) of a ledger account, It is important that all payments out of
credit balance will be entered in the
you need a matching entry on the credit side (right-hand side) of a different account. the business are made by cheque and
Trial Balance on the credit side.
that no payments are made directly
It contains the accounting information that is needed to prepare the: Trial Balance
Both sides will be added separately, if from the cash register.
both sides are the same, we say the Trial The ledger therefore reflects the Accounting Equation: Assets = Owners’ Equity + Liabilities
balance ‘balance’. Payments made by cheque can be
The General Ledger is divided into the following sections: Balance Sheet Accounts Section which tracked by the cheque counterfoils
However, if both sides are not the consists Assets, Equity and Liability accounts AND Nominal Accounts Section which consist Income and can therefore be recorded in the
same, then errors have occurred and Expense accounts Final Accounts Section which consist of the Trading, Profit and Loss Accounts CPJ.