02 accounting cycle.pptx

8/18/2019 02 Accounting Cycle.pptx

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A LEGGETT & PLATT COPA!"

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Accounting Cycle


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A LEGGETT & PLATT COPA!"The Accounting Cycle

•What Is the Accounting Cycle?

•Recording Transactions•Journalizing

•Posting

•The Trial Balance

• Adjustments

•Preparing Financial tatements

•Closing the Cycle

•The Post!Closing Trial Balance

•Re"ersing #ntries


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A LEGGETT & PLATT COPA!"What Is the Accounting Cycle?

•

The accounting cycle has $ teps%

•#ach transaction must &e analyzed to determine 'hether it (uali)ies as a

&usiness transaction%

•

The accounting cycle runs 'ithin the accounting period%

•The goal o) the accounting cycle is to produce )inancial statements )or the

company%


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A LEGGETT & PLATT COPA!"Recording Transactions

•

ource documents are important &ecause they are the ultimate proo) a &usiness transactionhas occurred%

• An account is a part o) the accounting system used to classi)y and summarize the increases*

decreases* and &alances o) each asset* lia&ility* stoc+holders, e(uity item* di"idend* re"enue*

and e-pense%

• The accounting re(uirement that each transaction &e recorded &y an entry that has e(ual

de&its and credits is called dou&le!entry procedure%

• This dou&le!entry procedure +eeps the accounting e(uation in &alance%


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A LEGGETT & PLATT COPA!"Journalizing

•

pecial journals are designed to )acilitate the process o) journalizing andposting transactions% They are used )or the most )re(uent transactions in a

&usiness%

•Journal entries are prepared a)ter e-amining the source document to see i) a

&usiness transaction has ta+en place%

•The total amount de&ited and the total amount credited should al'ays &e e(ual*

there&y ensuring the accounting e(uation is maintained%


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A LEGGETT & PLATT COPA!"Posting

•

Posting is al'ays )rom the journal to the ledger accounts%

•Postings can &e made at the time the transaction is journalized. at the end o)

the day* 'ee+* or month. or as each journal page is )illed%

•

Cross!inde-ing is the placing o) the account num&er o) the ledger account inthe general journal and the general journal page num&er in the ledger

account%


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A LEGGETT & PLATT COPA!"The Trial Balance

•

A trial &alance is prepared a)ter all the journal entries )or the period ha"e &eenrecorded%

• The trial &alance lists all o) the ledger* &oth general journal and special* accounts and

their de&it or credit &alances%

•

A trial &alance only chec+s the sum o) de&its against the sum o) credits% I) de&its donot e(ual credits then the accountant or &oo++eeper must determine 'hy%


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A LEGGETT & PLATT COPA!" Adjustments

•

The matching principle o) accrual accounting demands that re"enues and associatedcosts are recognized in the same accounting period%

• The types o) adjusting entries are prepayments* accrual* estimates* and in"entory%

• /epreciation is an e-ample o) an estimated adjusting entry%

• In a periodic in"entory system* an adjusting entry is used to determine the cost o)

goods sold e-pense% 0o'e"er* an adjusting entry is not necessary )or a company

using perpetual in"entory%

• Adjusting entries )or e-penses such as interest* ta-es* rent* and salaries are the most

common accrual entries%


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A LEGGETT & PLATT COPA!"Preparing Financial tatements

•

The purpose o) )inancial statements are to pro"ide &oth &usiness insiders andoutsiders a concise* clear picture o) the current )inancial status in the &usiness%

There)ore* the people 'ho use the statements must &e con)ident in its accuracy%

• Closing the &oo+s is ensuring that transactions that ta+e place a)ter the &usiness,s

)inancial period are not included in the )inancial statements%

• Adjusting entries are generally made in relation to prepaid e-penses* prepayments*

accruals* estimates and in"entory%

• When an audit is completed* the auditor 'ill issue a report regarding 'hether the

statements are accurate%


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A LEGGETT & PLATT COPA!"Closing the Cycle

•

Closing may &e per)ormed monthly or annually%

• There are )our &asic steps to closing the &oo+s%

• Closing the re"enue accounts1trans)erring the &alances in the re"enue accounts to a

clearing account called Income ummary%

• Closing the e-pense accounts1trans)erring the &alances in the e-pense accounts to a

clearing account called Income ummary%

• Closing the Income ummary account1trans)erring the &alance o) the Income

ummary account to the Retained #arnings account 2also +no'n as the capital

account3%

• Closing the /i"idends account1trans)erring the &alance o) the /i"idends account to

the Retained #arnings Account%


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A LEGGETT & PLATT COPA!"The Post!Closing Trial Balance

•

A post!closing trial &alance chec+s the accuracy o) the closing process%

• A post!closing trial &alance pro"es that the &oo+s are in &alance at the start o) the ne'

accounting period%

• The post!closing trial &alance di))ers )rom the adjusted trial &alance%


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A LEGGETT & PLATT COPA!"Re"ersing #ntries

•

Re"ersing entries are optional* and some )irms do not per)orm them%

• A re"ersing entry re"erses an adjusting entry e-actly%

• Re"ersing entries are per)ormed &ecause they reduce errors and sa"e time%

02 accounting cycle.pptx

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