Accounting systems – lesson 2

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Accounting systems are a key part of the Processing Bookkeeping Transactions course, Accounting Trainees and Bookkeepers need to thoroughly understand accounting systems.


What are accounting systems?

Good question – what do we mean by an accounting system? Well, essentially most businesses buy and sell goods and/or services. Money comes in and money goes out. All the accounting system does is record this movement of money. A large building contractor may only issue one invoice a month for a substantial amount of money, whereas Amazon the online shopping company makes 12 sales a second and every sale needs an invoice!

So the accounting system used depends upon the nature of the business.

All businesses carry out financial transactions such as selling goods and services. Can you list some other financial transactions a business may undertake?

If these transactions are not recorded accurately, the business owner will not know how much his customers owe him and HMRC will not know how much profit he is making and how much tax is due.

Remember this is only an introduction to Accounting Systems.

You will learn a lot more about accounting systems as the course develops. But you should be aware that an accounting system is about recording data and producing information.

There are five stages to the accounting system. You will need to learn them:

Financial transaction
Financial documents
Books of prime entry
Ledger accounts
Trial balance

Don’t worry if you find these terms confusing, it is very early in the course and we will go into much more detail as the course progresses. By the time you get to the end of the course you will be using these terms like an old hand.
Quick Question
Earlier we said that there are five stages to the accounting system.
What is the third stage called?

Answer: The third stage of the accounting system is to record financial transactions into the Books of Prime Entry.

Financial transactions and Documents

There are a wide variety of financial documents used in bookkeeping, can you think of four?

I suggest that you Google each of the terms below:
an invoice,
a credit note,
a cheque
a petty cash voucher
a day book
a cash book
a petty cash book

Print them out and learn the definitions and keep them in your  study folder.

Books of Prime Entry

Now that you are aware of financial transactions ( eg the buying and selling of goods and services) and that these transactions result in the creation of financial documents (eg Invoices etc), we now need to record the data on the documents into what we call “Books of Prime Entry”

The main books of prime entry are _________ __________?

The bookkeeping entries in these books will be covered later in the course but for the moment you just need to know they exist and become familiar with their names.

Ledger Accounts

After entries have been recorded in books of prime entry, we use a system called double entry bookkeeping to record them into “Ledger Accounts” such as the _________________ and __________________

Again we will cover the ledgers as the course progresses.

Trial Balance

At the end of each month the bookkeeper will list all the totals (or balances) in the ledger and produce what is called a Trial Balance.

You should Google “trial balance” and get a print out and keep an examplein your study folder.

A trial balance is used by the company accountant to check that all entries are correct and that we have not missed a transaction. Again we will do much more on the trial balance as the course progresses.

You may at this stage realise that Accounting is full of fancy terminology such as double-entry, assets and profits etc. Accounting is said to be the language of business, so I’m afraid you will have to learn these terms eventually  – but we will do it gradually over the duration of the course so don’t panic and enjoy the quiz below on the introduction to the accounting system.


You should have read this web page entitled "Introduction to the Accounting System" and Googled the various terms and printed examples of them out and put them in your study folder. You should have learnt all the definitions before taking this test.


Please attempt all questions.


When you have finished, click the submit button and you will then be taken to your results page.


Goods and services can be sold for immediate payment, this is known as a credit sale?

Examples of financial transactions to be included in an accounting system, include the following:

An invoice is an example of a financial document.

The textbook states that there are five stages to an accounting system. What is the fifth stage ?

The place in the books of a business where a financial transaction is recorded for the first time is known as a book of

‘Total‘ accounts contained in the general ledger are known as

A customer who owes a business money is known as a

A supplier owed money by a business is known as a

A delivery van owned by a business is an example of an

Items owed by a business are called

The investment made in a business by the owner is called

A list of the balances of the ledger accounts drawn up in two columns,debit and credit, is known as a

Leaderboard for Introduction to the accounting system

1. Sana-36 Points
2. -36 Points
3. -36 Points
4. Ann Smith-36 Points
5. Susan-36 Points
  2. Accounting systems – lesson 2 (this page)
  3. Sales documents – lesson 3
  4. sales returns – lesson 4
  5. Processing customer transactions – lesson 5
  6. supplier documentation – lesson 6
  7. purchase return – lesson 7
  8. paying suppliers – lesson 8
  9. Cash book accounting – lesson 9
  10. Petty cash – lesson 10
  11. Balancing off accounts – lesson 11
  12. Draft initial trial balance – lesson 12


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