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Accounting CycleThe process followed by entities to analyze and record transactions , adjust the records at the end of the period,

prepare financial statements and prepare the records for the next cycle.

1.

During The PeriodAnalyze transactions.

Record journal entries

Post amounts to general ledger.

2.

At the End of the PeriodAdjust: revenues and expenses and related balance sheet accounts (record in journal and post to ledger)

Prepare: a complete set of financial statements and disseminate it to users.

Close: revenues, gains, expenses, and losses to Retained Earnings (record in journal and post to ledger)

3.

Adjusting EntriesEntries necessary at the end of the accounting period to measure all revenues and expenses of that period.

4.

4 types of adjustmentsRevenues- Unearned and Accrued

Expenses- Prepiad and Accrued

5.

Unearned ReveuesPreviously recorded liabilities that were created with cash was received in advance, and that must be adjusted

for the amount of revenue actually earned during the period.

Records Cash received in an Unearned or Deferred Revenue account.

Examples: Unearned franchise fees, rent paid in advance, magazine subscriptions, airplane tickets sold in

advance

6.

Accrued RevenueRevenues that were earned but not recorded because cash was recieved after the services were performed or

goods delivered.When companies earn revenue before customers pay.

When earned but not yet recorded.

Examples: Interest Earned

7.

Prepaid ExpensePreviously recorded assets like prepaid rent and insurance, supplies, and equipment, that were created when cash

was paid in advance and that must be adjusted for the amount of expense actually incurred during the period

through use of the asset.

8.

Accrued ExpensesExpenses that were incurred but were not recorded because cash was paid after the goods or services were

used.Numerous expenses incurred in current period without being paid for until the next period.

Examples: wages expense, utilities expense, interest expense.

These all accumulate over time but not recognized until the end.

9.

Trial BalanceList of all accounts with their balances to provide a check on the equality of the debits and credits.

10.

DepreciationAllocation of an asset's cost over it's estimated useful life to the company

11.

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Contra-accountAccounts directly related to another account, but with an opposite balance.

ex. For Property and Equipment, the contra-account is called Accumulated Depreciation

12.

Net book valueThe difference between it's acquisition cost and accumulated depreciation.

13.

Permanent Accounts

Means they retain their balances from the end of the period to the beginning of the next.these accounts are A, L, SE

14.

Temporary AccountsThese accounts balances accumulate for a period, but start with zero balance at the beginning of the next

period.

These are R, E, Dividend.

15.

Closing EntryTransfers balances in temporary accounts to retained earnings and establishes zero balances in temporary

accounts.

Temporary accounts with debit balances are credited and accounts with credit balances are debited.

16.

Post-closing Trial BalanceShould be prepared as the last step of the accounting cycle to check that debits equal credits and all temporary

accounts have been closed.

17.

Earnings Per ShareNet income/ Average # of shares

18.

When have a Depreciation accountDebit Depreciation expense

Credit Accumulated Depreciation

These are usually prepaid expenses

19.

Net Profit MarginNet income/ Net sales

Net income really means your net profit or revenue

Net sales is the bottom of income statement

The Percent you get is how much of every sales dollar generated during the period is profit.

20.

Pretax IncomeRevenues - Expenses

21.

When Company earns interest..It is put as interest expense for how many months usedCredit Interest payable for that amount as well

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