What are Accounts?

· Accounts are the financial records of a business.

· All business transactions are recorded in the accounts,

o which are then aggregated into the financial statements.

· The accounts may be examined on an annual basis by auditors,

o to determine whether an entity's financial statements present fairly its financial results and condition.

What is a Transaction?

A transaction is a business event that has a regulatory impact on an entity's financial statements and is recorded as an entry in its accounting records. Examples of transactions are as follows:

Paying a supplier for services rendered or goods delivered.
Paying a seller with cash and a note to obtain ownership of a property formerly owned by the seller.
Paying an employee for hours worked.
Receiving payment from a customer in exchange for goods or services delivered.

What is a General Ledger?

· A general ledger is the master set of accounts.

o that summarize all transactions occurring within an entity.

How a General Ledger Works

· The general ledger contains a debit and credit entry for every transaction recorded within it, so that the total of all debit balances in the general ledger should always match the total of all credit balances.

· If they do not match, the general ledger is said to be out of balance and must be corrected before reliable financial statements can be compiled from it.

Contents of a General Ledger

· The general ledger is comprised of all the individual accounts needed to record the assets, liabilities, equity, revenue, expense, gain, and loss transactions of a business. In most cases, detailed transactions are recorded directly in these general ledger accounts.

What is an Accounting System?

· An accounting system can be entirely paper-based, this situation is usually only found in quite small businesses.

· In most cases, accounting systems are largely based upon off-the-shelf accounting software, supplemented by any procedures needed to input information into the software.

An accounting system is a set of accounting processes with integrated procedures and controls. The intent of an accounting system is to engage in the following activities:

Record business transactions
Summarize the transactions into an aggregated form.
Create reports that can be used by decision makers to monitor, analyze, and improve operations.

An accounting system typically includes coverage of the following functional areas of an organization:

Purchases of goods and services.
Sales of goods and services
Payments to employees for wages earned
Financing activities,

such as obtaining debt, selling shares, and paying interest to lenders

The specific components of an accounting system include the following modules:

Accounts payable
Billings and accounts receivable
Fixed assets
Inventory
Payroll

Depending on the volume of transactions being processed, there may be specialized accounting staff assigned to each of the preceding modules.

Back To Home

What is a Source Document?

· A source document is the original document that contains the details of a business transaction.

· A source document captures the key information about a transaction, such as the names of the parties involved, amounts paid (if any), the date, and the substance of the transaction.

· Source documents are frequently identified with a unique number, so that they can be differentiated in the accounting system.

· The pre-numbering of documents is particularly useful since it allows a company to investigate whether any documents are missing.

Once the information in a source document has been recorded in the accounting system, the source document is indexed for easy access and archived.

Documents generated within the past year are generally stored on-site, with older documents being stored in less expensive off-site storage facilities.

Source documents are critical to auditors, who use them as evidence that recorded transactions occurred. A source document is also used by companies as proof when dealing with their business partners, usually regarding a payment.

Examples of source documents are:

Cancelled check
Credit memo
Deposit slip
Expense report
Invoice
Materials requisition form
Purchase order
Time card
Sales receipt

Back To Home

What is a Business Transaction?

· A business transaction - should always be supported by a source document.

o For example, the purchase of inventory from a supplier could be supported by a purchase order, while the payment of wages to an employee could be supported by a timesheet.

· A business transaction - is an economic event with a third party that is recorded in an organization's accounting system.

o Such a transaction must be measurable in money.

Examples of business transactions are:

· Buying insurance from an insurer

· Buying inventory from a supplier

· Selling goods to a customer for cash

· Selling goods to a customer on credit

· Paying wages to employees

· Obtaining a loan from a lender

· Selling shares to an investor

· High-volume business transactions may be recorded in a special journal,

o such as the purchases journal or sales journal.

· Once business transactions are entered into these journals, they are periodically aggregated and posted to the general ledger.

· Lower-volume transactions are posted directly to the general ledger.

· These transactions are eventually summarized into the firm's financial statements.

What are the two types of general ledger?

General Ledger – General Ledger is divided into two types –

· Nominal Ledger and

· Private Ledger.

Nominal ledger gives information on expenses, income, depreciation, insurance, etc.

Private ledger gives private information like salaries, wages, capitals, etc.

Back To Home

What is Public Ledger in Blockchain?

Blockchain has the potential to help for small business compete with much larger chains and it is a decentralized peer-to-peer public ledger of transactions.

PEER-TO-PEER SHARING

· Peer-to-peer (P2P) is when a transaction occurs between two either two individuals, two business, or a business and individual, directly.

· For example, when a customer goes to purchase a product from a store, the transaction of money from the customer’s account to the business happens instantly without a bank approving the sale.

· But how could there be assurances that a one party does not engage in fraudulent behaviour against the other party if there is no bank, or government, acting the mediator?

PUBLIC LEDGER

· This brings us to the public ledger portion of our definition.

· With the blockchain, there is an automatic public ledger.

· The public ledger organizes into a long chain of blocks of information.

· When a buyer and a seller engages in a transaction, the blockchain verifies the authenticity of their accounts.

· This is done by using the public ledger and by checking if the funds are available proceeds with the transactions.

· However, if the funds are either not available in the buyer’s account or are promised to another party, then the sale is prevented effectively making double buying impossible.

But where do they keep the public ledger?

DECENTRALIZATION

· This brings us the concept of decentralization.

· Instead of the public ledger being maintained and monitored by a central authority, like banks or governments, the public ledger is stored on the personal computers or electronic devices of the individuals and businesses who use the blockchain.

In other words, to use the blockchain, you must donate to the collective.

· This way, the need for a central authority erases as every member of the blockchain has access to the ledger.

· Further, the ledger itself cannot be fake.

· If one individual alters with their ledger, the blockchain will verify their ledger against the other ledgers owned by the rest of the community and will reject quickly.