Let’s look at the process you need to follow to capture and record the financial information so that you can compile your Financial Statements

Since this study unit covers a lot of the accounting process, I’ve created one Class Example (Tim’s Garden Services) and used this as a basis for all the sections in the Study Unit. This will allow you to see and work with the information as it flows through the accounting process. The downloads for the Class examples are located under each section to avoid confusion. Please print them before you start the section 

This Study Unit includes the following sections:

The Double entry system

The General Ledger; Debits and Credits

The Trial Balance

The Annual Financial Statements

NOTES TO DOWNLOAD:

Handout: SU4 – The Double-Entry System and the Accounting Process Notes (PDF)

The Double-entry system

We introduced the double-entry system in Study Unit 2. We will use this as a base for the recording of transactions.

Handout: SU4 – Class example Tim’s Garden Services – Double Entry System (PDF)

Lecture 1: The Double-Entry System (INFOGRAPHIC)

Lecture 2: Tim’s Garden Services: First few transactions (VIDEO)

Follow my explanation as I go through the first few transactions with you.  Solutions on the first few double-entry examples Please ensure you are completely comfortable with the reasons for each entry before you move on, then go back and attempt the rest yourself!

Lecture 3: Tim’s Garden Services: Completed Solution (VIDEO)

Follow the discussion as I work through the rest of the examples for the double-entry system question.

Make sure you understand the work. Don’t learn them off by heart.

The General Ledger: Debits and Credits

While the double-entry system shows us the effect of transactions on the Basic Accounting Equation, it doesn’t show us HOW we actually record these items in real-life. For this, we will teach you the basics of the General Ledger entries.

Handout: SU4 Class example – Tim’s Garden Services – General Ledger (PDF)

Lecture 4: Recording and Summarising the Transactions (VIDEO)

The examples we looked at in the previous lecture give us a lot of detail. In a business, we need to keep track of the amounts in the bank, how much people owe us, how much we owe, the amount we spend on different expenses etc.

Let’s look at the format for this, and how we would record it.

Lecture 5: Debits and Credits (VIDEO)

This is vital for your understanding of how transactions are posted to the General Ledger.

Lecture 6: Debits and Credits (INFOGRAPHIC)

Infographic on the rules for each element of the AFS. You need to learn the debits and credits for each element.

Lecture 7: Multiple Transactions in the General Ledger (VIDEO)

Lecture 8: Closing off the General Ledger Accounts (VIDEO)

Be careful when closing off accounts that have debit and credit transactions in them.

Lecture 9: Tim’s Garden Services (General Ledger): First few examples of the GL question (VIDEO)

Take a look at the way I’ve gone through the first few transactions, so you can post the rest of them to General Ledger accounts yourself!

Lecture 10: Tim’s Garden Services (General Ledger)- Complete solution (VIDEO)

Using the General Ledger we’ve finalised for Tim’s Garden Services, what can we learn from his business? What does the General Ledger tell us, and what does it not tell us?

THE TRIAL BALANCE

We now have a General Ledger, which captures all the details of the transactions, but you can’t have so much information in the Financial Statements. We need to learn how to prepare a Trial Balance from the balances in the General Ledger.

Using the General Ledger we created for Tim’s Garden Services, below is the Trial Balance that we would create.

I’ve included an ‘unsorted’ Trial Balance, and a ‘sorted’ one, to indicate the way the information can be better structured to make the AFS easier to compile. Please note that the layout is set as one slide per page and consists of a total of 6 slides.

Handout: SU4 – Class example: Tim’s Garden Services – Trial Balance (PDF)

Lecture 11: What is the Trial Balance? (VIDEO)

The Trial Balance uses the information from the General Ledger, summarises the balances and makes it easier to prepare Financial Statements.

Lecture 12: Tim’s Garden Services – Trial Balance (VIDEO)

Let’s look at how we would create the Trial Balance from General Ledger information, and sort it in a way that would make life easier in an exam.

The Annual Financial Statements

The Trial Balance is complete, it’s in balance, and now we can compile the Financial Statements.

Download the handout below. We’re going to use the Trial Balance we created to compile the Financial Statements. Please note that the layout is set as one slide per page and consists of a total of 5 slides.
I’ve included:

• The completed Trial Balance
• Blank AFS format
• Completed AFS

Handout: Class example – Tim’s Garden Services – Annual Financial Statements (PDF)

Lecture 13: Tim’s Garden Services – The Statement of Profit or Loss and the Statement of Changes in Equity (VIDEO)

Let’s create the Financial Statements from the Trial Balance we generated for Tim’s Garden Services:

• The Statement of Profit or Loss and other Comprehensive Income
• The Statement of Changes in Equity

Lecture 14: Tim’s Garden Services – The Statement of Financial Position (VIDEO)

We’ve compiled the Statement of Profit or Loss and other Comprehensive Income and the Statement of Changes in Equity, now let’s compile the Statement of Financial Position.