ACCOUNTING PERIOD AND ACCOUNTING CYCLE
• Accounting period or fiscal period is
each segment of time, usually a year, in
which statements are prepared in order
to know the results of the business
operation during that particular period
• The length of each accounting period
depends on the nature of the business.
An accounting period may be annual,
semi-annual, quarterly, or monthly.
• Accounting cycle consists of successive
steps starting with the recording of
transactions in the books of accounts and
ending with a post-closing trial balance.
1. Transaction analysis
2. Journalizing transactions
3. Posting the accounts
4. Preparation of the Trial Balance
5. Adjusting the entries
6. Preparation of the worksheet
7. Preparation of the financial statement
8. Closing the entries
9. Preparation of the Post-closing trial balance
• It is the process of recording business transactions in a journal. In order to have a
permanent record of an entire transaction, the accountant uses a book or record
known as a journal.
• A journal is called the book of original entry. Journals are prepared in accordance
with industry practice and generally accepted accounting principles/Philippine
Financial Reporting Standards for transactions and events
• A journal entry is the recording of a business transaction in a journal.
• A journal entry shows all of the effects of a transaction as expressed in terms of
debit and credit and may include an explanation of the transaction.
STEPS FOR THE PROCESS OF JOURNALIZING
1. Determine the titles of the accounts involved.
2. Understand nature of the accounts.
3. Apply the rule of Debit & Credit.
4. Make the necessary journal entry.
Assets = Liabilities + Owner's Equity
Debits = Credits
DEBIT AND CREDIT
• The left side of a T-account is called
the debit side; often abbreviated Dr.
• When the sum of debits exceeds the
sum of credits, the account has a
• The right side is called the credit
side, abbreviated Cr.
• It has a credit balance when the sum
of credits exceeds the sum of debits.
RULES IN USING DEBIT AND CREDIT
Rule 1: All accounts that normally contain a debit balance will increase in amount when a
debit (left column) is added to them, and reduced when a credit (right column) is added to
them. The types of accounts to which this rule applies areexpenses, assets, and dividends.
Rule 2: All accounts that normally contain a credit balance will increase in amount when a
credit (right column) is added to them, and reduced when a debit (left column) is added to
them. The types of accounts to which this rule applies areliabilities, revenues, and equity.
RULES IN USING DEBIT AND CREDIT
Rule 3: Contra accounts reduce the balances of the accounts with which they are
paired. This means that (for example) a contra account paired with an assetaccount
behaves as though it were a liability account.
Rule 4: The total amount of debits must equal the total amount of credits in a
transaction. Otherwise, a transaction is said to be unbalanced, and the financial
statements from which a transaction is constructed will be inherently incorrect. An
accounting software package will flag any journal entries that areunbalanced.
THE JOURNAL ENTRY
• The General Journal is flexible in that it can be used to record any economic
transaction. A General Journal entry includes the following information about
1. Date of transaction.
2. Titles of affected accounts.
3. Peso amount of each debit and credit.
4. Explanation of transaction.
There are standard procedures for recording entries in a General Journal.
1. Enter the year on the first line at the top of the first column.
2. Enter the month in Column One on the first line of the journal entry. Later
entries for the same month and year on the same page of the journal do not
require re-entering the same month and year.
3. Enter the day of the transaction in Column Two on the first line of each entry.
Transactions are journalized in chronological order (by date).
4. Enter the titles of accounts debited. Account titles are taken from the chart of
accounts and are aligned with the left margin of the Account Titles and
5. Enter the debit amounts in the Debit column on the same line as the
accountsto be debited.
6. Enter the titles of accounts credited. Account titles are taken from the
chart of accounts and are indented from the left margin of the Account
Titles and Explanation column to distinguish them from debited
accounts (an indent of 1 cm is common).
7. Enter the credit amounts in the Credit column on the same line as
the accounts to be credited.
8. Enter a brief explanation of the transaction on the line below the entry.
This explanation is indented about half as far as the credited account
titles to avoid confusing an explanation with accounts. For illustrative
purposes, we italicize explanations so they stand out. This is not normally
9. Skip a line after each journal entry for clarity.