The Accounting Process (Cambridge (CIE) IGCSE Accounting): Revision Note

The accounting process

What is the accounting process?

• Stage 1: Transaction

  • A transaction takes place

  • Examples include:

    • The sale or purchase of goods, a service or an asset

    • Withdrawing or depositing cash

    • Paying an expense or receiving income

• Stage 2: Business document

  • A business document is issued or received

  • This is a record of the transaction

• Stage 3: Book of prime entry

  • The amount is entered into a book of prime entry

  • This collates the different types of transactions

• Stage 4: Ledger account

  • The entries from the books of prime entry are entered into the ledger accounts

  • These are part of the double-entry accounting system

Purpose of business documents

What are business documents?

• Business documents are used to keep records of all transactions

• They are used as sources of information

  • The amounts are then entered into the books of prime entry

  • They can be used to check potential errors

What business documents do I need to know?

• Invoices

• Debit notes

• Credit notes

• Statements of account

• Cheques 

• Cheque counterfoils

• Receipts

• Paying-in slips

• Bank statements

• Petty cash vouchers

Are business documents produced and recorded manually or digitally?

• Business documents can be produced and recorded either manually or digitally

• They can be produced and recorded manually by:

  • physical receipts and invoices

  • paper-based bank statements and statements of account

  • cheques

• They can be produced and recorded digitally by:

  • electronic receipts and invoices

  • electronic bank statements and statements of account

Purpose of books of prime entry

What are books of prime entry?

• Books of prime entry are used to record the details of a transaction

  • Older terminology for these books includes

    • Subsidiary books

    • Books of original entry

    • Daybooks

• Information is taken from the business documents and entered into the books of prime entry

• The details are then transferred from the books of prime entry to the ledger accounts

• The seven books of prime entry are:

  • Sales journal

  • Purchases journal

  • Sales returns journal

  • Purchases returns journal

  • Cash book

  • Petty cash book

  • General journal

What are the advantages of using books of prime entry?

• Books of prime entry are another stage which can be used to check for errors

  • They can help in the preparation of control accounts to check the accuracy of the ledger accounts

• Each book of prime entry collects the same type of transaction 

  • The books allow managers to see the totals for different types of transactions easily

  • Therefore, there are fewer entries in some of the ledger accounts

• Bigger businesses may have multiple book-keepers

  • Different book-keepers can be responsible for different books of prime entry without any risk of work being duplicated or missed 

What are the benefits and limitations of using manual or digital methods for entering transactions into books of prime entry?

• The books of prime entry can be updated manually or digitally

  • Manually means the transactions are entered into physical books

  • Digitally means the transactions are entered into spreadsheets or accounting software