the steps of the accounting cycle. the accounting period accounting records are summarized for a...
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The Steps of the Accounting CycleThe Steps of the Accounting Cycle
The Accounting PeriodThe Accounting Period
Accounting records are summarized for a certain period of time, called an accounting period or fiscal period.
An accounting/fiscal period can be:Monthly, Quarterly, YearlyIf yearly, it can cover aCalendar year
January 1 - December 31
Any period of twelve months Example: July 1 – June 30
Accounting records are summarized for a certain period of time, called an accounting period or fiscal period.
An accounting/fiscal period can be:Monthly, Quarterly, YearlyIf yearly, it can cover aCalendar year
January 1 - December 31
Any period of twelve months Example: July 1 – June 30
The Second Step in the Accounting Cycle: Analyzing Business Transactions
The Second Step in the Accounting Cycle: Analyzing Business Transactions
Section 1 The Accounting Cycle (cont'd.)Section 1 The Accounting Cycle (cont'd.)
Analyzing business transactions to determine
the accounts effected
the account(s) to debit and the amount
the account(s) to credit and the amount
Analyzing business transactions to determine
the accounts effected
the account(s) to debit and the amount
the account(s) to credit and the amount
ANALYSIS Identify 1. Identify the accounts affected.
Classify 2. Classify the accounts affected.
+ / – 3. Determine the amount of the increase or decrease for each account affected.
4. Which account is debited? For what amount?
5. Which account is credited? For what amount?
6. What is the complete entry in T- account form?
7. What is the complete entry in general journal form?
BUSINESS TRANSACTION ANALYSIS
The Third Step in the Accounting Cycle: Recording Business Transactions in a Journal
The Third Step in the Accounting Cycle: Recording Business Transactions in a Journal
What do you record? the debit and credit parts of each
business transaction in a journal. A journal is
a chronological record of all of the transactions of a business – the book of original entry.
Journalizing is the process of recording
business transactions in a journal is called journalizing.
What do you record? the debit and credit parts of each
business transaction in a journal. A journal is
a chronological record of all of the transactions of a business – the book of original entry.
Journalizing is the process of recording
business transactions in a journal is called journalizing.
What is a General Journal ?
It is an all purpose journal in which all the transactions of a business may be recorded.
What is a General Journal ?
It is an all purpose journal in which all the transactions of a business may be recorded.
The parts of the general journal entryThe parts of the general journal entry
Name of theaccount creditedName of theaccount credited
Name of the account debitedName of the account debited
Amount of the debitAmount of the debit
Source documentreference or an explanation
Source documentreference or an explanation
Amount of thecreditAmount of thecredit
Year & Month - At the top of each page and when the month changes
Day – for each and every transaction
Year & Month - At the top of each page and when the month changes
Day – for each and every transaction
Not written in until entry is posted. It will contain the general ledger account # the entry is posted to.
Not written in until entry is posted. It will contain the general ledger account # the entry is posted to.
Page #Page #
Recording a General Journal EntryRecording a General Journal Entry
The debit part of the entry is at the left margin in the description column
The credit part of the entry is indented approximately ½”
The explanation is indented an additional ½”
This allows for easier reading of the journal.
The debit part of the entry is at the left margin in the description column
The credit part of the entry is indented approximately ½”
The explanation is indented an additional ½”
This allows for easier reading of the journal.
Business Transaction 1
Maria Sanchez,Cash in Bank Capital
Debit
25,000
Credit
+
25,000
Credit
–
Debit
–
Recording a General Journal Entry On October 1, Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1.
Delivery Accounts Payable—Equipment North Shore Auto
Credit
+
12,000
Debit
–
Debit
+
12,000
Credit
–
Business Transaction 2
Recording a General Journal Entry On October 9, Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200.
Correcting Errors in General Journal EntriesCorrecting Errors in General Journal Entries
An error should never be erased. To correct an error in your general
journal Draw a horizontal line through
the entire incorrect item and write the correct information above the crossed-out error.
An error should never be erased. To correct an error in your general
journal Draw a horizontal line through
the entire incorrect item and write the correct information above the crossed-out error.
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The Fourth Step in the Accounting Cycle: Posting
• Posting is transferring the information from the journal to the proper accounts in the general ledger
• Provide a clear picture of how each account is affected by a business transaction.
• Posting brings the records of the business up-to-date
• Posting leaves an audit trail to easily trace a transaction to its original book of entry!!
The Fourth Step in the Accounting Cycle: Posting
• Posting is transferring the information from the journal to the proper accounts in the general ledger
• Provide a clear picture of how each account is affected by a business transaction.
• Posting brings the records of the business up-to-date
• Posting leaves an audit trail to easily trace a transaction to its original book of entry!!
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What is the General Ledger?
a book or file that contains the accounts used by a business on separate pages or cards.
What is the General Ledger?
a book or file that contains the accounts used by a business on separate pages or cards.
General Journal General Journal
Asset Accounts
Liability Accounts
Revenue Accounts
Expense Accounts
Owner Equity Accounts
General Ledger General Ledger
The Four-Column Ledger Account FormThe Four-Column Ledger Account Form
Opening an Account with a Zero BalanceOpening an Account with a Zero Balance(1) Write the account name at the top
of the ledger account form.(1) Write the account name at the top
of the ledger account form.
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(2) Write the account number on the ledger account form.
(3) Write nothing else.
(2) Write the account number on the ledger account form.
(3) Write nothing else.
Opening an Account with a BalanceOpening an Account with a Balance
(2) Write the account number on the ledger account form.
(2) Write the account number on the ledger account form.
(1) Write the account name at the top of the ledger account form.
(1) Write the account name at the top of the ledger account form.
(3) Enter the complete date (year, month, and day) in the date column.
(3) Enter the complete date (year, month, and day) in the date column.
(4) Write the word “Balance” in the Description column.
(4) Write the word “Balance” in the Description column.
(5) Place a check mark () in the Posting Reference column to show the amount entered on this line is not being posted from a journal.
(5) Place a check mark () in the Posting Reference column to show the amount entered on this line is not being posted from a journal.
(6) Enter the balance in the appropriate balance column of the ledger account form.
(6) Enter the balance in the appropriate balance column of the ledger account form.
Posting from the General Journal to Ledger Accounts
Posting entries in the general ledger from the general journal. Posting entries in the general ledger from the general journal.
The date of the journal entry The date of the journal entry
The journal and journal page number posting from
The journal and journal page number posting from
The debit amount of the journal entry
The debit amount of the journal entry
The new balance in the account; always on the normal balance side
The new balance in the account; always on the normal balance side
Left blank unless a correcting, closing or adjusting entry.
Left blank unless a correcting, closing or adjusting entry.
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Posting entries in the general ledger from the general journal. Posting entries in the general ledger from the general journal.
Posting is done from left to right.
The general ledger account number is then recorded in the general journal post reference column
Then repeat the posting process for the credit part of the entry in the general journal.
Posting is done from left to right.
The general ledger account number is then recorded in the general journal post reference column
Then repeat the posting process for the credit part of the entry in the general journal.
Business Transaction 1 after posted to general ledger
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Computing a New Account BalanceComputing a New Account Balance
Accounts with normal debit balances use the debit balance columns:
Debit amounts are added to debit balances
Accounts with normal debit balances use the debit balance columns:
Debit amounts are added to debit balances Credit amounts are subtracted from debit balances Credit amounts are subtracted from debit balances
Accounts with normal credit balances use the credit balance columns:
Credit amounts are added to credit balances
Debit amounts are subtracted from credit balances.
Accounts with normal credit balances use the credit balance columns:
Credit amounts are added to credit balances
Debit amounts are subtracted from credit balances.
o The new balance (calculated after each posting) should be recorded on the normal balance side.
If the new balance is zero, a line should be drawn across the center of the balance column on the side of the normal balance.
o The new balance (calculated after each posting) should be recorded on the normal balance side.
If the new balance is zero, a line should be drawn across the center of the balance column on the side of the normal balance.
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Posting
Date rules when posting to the general ledger:• Year & Month
• At the top of each account • And when the month changes
• Day – for each and every transaction posted
The frequency of posting depends on:• The size of the business• The number of transactions being processed• If a manual or computer system is being used
Most business post DAILY
Posting
Date rules when posting to the general ledger:• Year & Month
• At the top of each account • And when the month changes
• Day – for each and every transaction posted
The frequency of posting depends on:• The size of the business• The number of transactions being processed• If a manual or computer system is being used
Most business post DAILY
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The Fifth Step in the Accounting Cycle: The Trial BalanceThe Fifth Step in the Accounting Cycle: The Trial Balance
Section 3 Preparing a Trial BalanceSection 3 Preparing a Trial Balance
A formal way to prove that debits equal credits is to
prepare a trial balance.
Prepared on two-column accounting stationery.
Three line heading: Who – the name of the business What – the name of the accounting form When – the fiscal period covered.
Prepared Normally at the end of the fiscal period Can be prepared at any time during the fiscal period
Accounts included All accounts - even zero balance accounts
A formal way to prove that debits equal credits is to
prepare a trial balance.
Prepared on two-column accounting stationery.
Three line heading: Who – the name of the business What – the name of the accounting form When – the fiscal period covered.
Prepared Normally at the end of the fiscal period Can be prepared at any time during the fiscal period
Accounts included All accounts - even zero balance accounts
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Finding Trial Balance ErrorsFinding Trial Balance Errors• Add the debit and credit columns again. • Determine the amount you are out of balance
– If the difference is 10, 100, 1000, possibly an addition error – Re-add columns again
– If the difference is evenly divisible by 9, you may have a • transposition error – two numbers have been accidentally
reversed. Check balances against general ledger• slide error – decimal point moved. Check balances against
general ledger
– Check general ledger for a balance that matches the difference; one account may have been omitted
– If the difference is divisible by 2, possibly one of the balances has been recorded in the wrong column. Check balance types against general ledger.
• Recompute the balances in the general ledger.• Check postings from general journal to general
ledger.
The First Step in the Accounting Cycle: Collecting and Verifying Source Documents
The First Step in the Accounting Cycle: Collecting and Verifying Source Documents
The accounting cycle starts by collecting and verifying the
accuracy of source documents. A source document is
a paper prepared as evidence of a transaction.
Examples: Invoice Receipt Memorandum Check Stub
The accounting cycle starts by collecting and verifying the
accuracy of source documents. A source document is
a paper prepared as evidence of a transaction.
Examples: Invoice Receipt Memorandum Check Stub
Source Documents - InvoiceSource Documents - Invoice
Invoice (2 kinds – Buy and Selling):Invoices for items your business is buying are issued by your creditors. Invoices you issue for services/items your business is selling are issued to your customers. The invoice lists the date of the transaction, the terms, along with the quantity, description, and cost of each item.
Source Documents - ReceiptSource Documents - Receipt
Receipt:A record of cash received by a business.It indicates the date the payment was received, thename of the person or business from whom the payment was received, and the amount of the payment.
Source Documents - MemorandumSource Documents - Memorandum
Memorandum:A brief written message that describes a transactionthat takes place within a business. Often used if no other source document exists for the business transaction.
Source Documents - Check StubSource Documents - Check Stub
Check Stub:The check stub lists the same information that appears on a check: the date written, the person or business towhom the check was written, and the amount of the check. The check stub also shows the balance in the checking account before and after each check is written.
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Correcting errorsCorrecting errors• Error in a journal entry that is not posted
– Correction: Draw a single line through the incorrect item in the journal and write the correction directly above.
• Error in posting to the ledger when the journal entry is correct– Correction: Draw a single line through the
incorrect item in the ledger and write the correction directly above
• Error in a journal entry that is posted. – Correction: Make a correcting entry in the
journal and post to the ledger• When posting to the ledger, include the words
“Correcting Entry” in the description column