Financial Accounting Process

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Examples of Source Documents

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Sales and purchase invoices, credit notes, cash receipts, till rolls, bank paying-in counterfoils, cheque counterfoils, bank statements.

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Stage 2: Books of Prime Entry

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These books list and group information from transactions to prepare the ledger accounts.

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Examples of Books of Prime Entry

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Sales Day Book, Sales Return Day Book, Purchase Day Book, Purchase Return Day Book, Cash Book, General Journal.

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Stage 4: The Trial Balance

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A list of balances of the ledger accounts, ensuring total debits equal total credits.

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Purpose of the Trial Balance

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Used to prepare financial statements and check the arithmetical accuracy of ledger accounts.

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Income Statement

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Measures profit/loss over a period.

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Statement of Financial Position

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Provides a snapshot of what a business owns and owes at a particular time.

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Diagram of the 5 stages of the Financial Accounting System

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Overview of the financial accounting process from source documents to financial statements.

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Evidence shown by a Sales Invoice

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A credit sale.

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Evidence shown by a Sales Credit Note

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A trade receivable has returned inventory to the business (sales returns/returns inwards).