Suggested topics for discussions are provided for each question. Discussion need not be confined to the topics indicated.

1. In figure 5.1, the accounting cycle is illustrated. Explain the purpose and importance of each step in the cycle.
 Step 1 of the accounting cycle is to capture the data from every transaction involving the entity in the form of source documents, which may take many different formats. For example, source documents can consist of sales or service invoices, cash dockets, credit card slips, purchase invoices, delivery notes, credit notes, computerised cash register tapes, EFTPOS records. Step 1 is important in that it is the chief means of collecting data about the economic activities of the entity, which then must be recorded in the accounting system. The step provides a vital first stage in developing an audit trail for auditors to assess the effectiveness of control procedures in the accounting information system.
 Step 2 records (enters), in journals, all of the transactions about the entity from source documents developed in Step 1. This is usually done as a double entry process. The journals are important in that they provide a chronological record of the economic transactions and events that affect the entity.
 Step 3 posts all of the information from the journals into the entity’s ledger accounts. In so doing, financial information is reclassified into items of a like nature, i.e. into different types of assets, liabilities and equity accounts.
 Step 4 is performed periodically e.g. at the end of each month, whereby the ledger accounts developed in Step 3 are totalled and a trial balance is prepared. This step is important in that it provides a preliminary check on the accuracy of the double entry process. If interim financial statements are to be prepared, a worksheet may be developed outside of the accounting records to