Accounting cycle to trial balance


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Accounting cycle to trial balance

  1. 1. Beginning the Accounting Cycle – Journalizing, Posting, and the Trial Balance Chapter 3 3-1
  2. 2. Learning Objective 1Journalizing: analyzing and recording business transactions into a journal. 3-2
  3. 3. The Accounting Cycle Accounting procedures are performed over a period of time. Procedures are performed in a definite order in the accounting cycle. The accounting period is a period of time covered by the income statement. Usually this is a twelve month period. The accounting cycle has sequential steps to be performed again each year. 3-3
  4. 4. The Accounting Cycle Accounting is the process that...– analyzes,– records,– classifies,– summarizes,– reports, and...– interprets. 3-4
  5. 5. The Accounting CycleA sole proprietorship:– has one owner– begins with a monthly accounting cycle– owner has a capital and withdrawals account 3-5
  6. 6. Business Organizations All three types of business entities use the same basic accounting system. Sole proprietorship Partnerships Corporations 3-6
  7. 7. Recording Business Transactions The Accounting Period One Year Less than One Year Calendar year Quarterly Fiscal year Monthly 3-7
  8. 8. Learning Unit 3-1 The Accounting Cycle:1 Analyzing2 Recording transactions – journalizing3 Posting to the ledger accounts4 Preparing the trial balance The accounting cycle has some variations in a computerized accounting system. 3-8
  9. 9. Learning Unit 3-1What is the general journal? It is the book of original entry. Transactions are written in a journal in chronological order. The format of the journal is important. Journalizing is the process of entering information as debits and credits to the correct accounts. 3-9
  10. 10. Learning Unit 3-1What is the general ledger? It is the book of final entry. The information from the journal is transferred to the ledger in the posting process. Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger. 3 - 10
  11. 11. Learning Unit 3-1What is the chart of accounts? It is the list of accounts used by a business. Each business entity has its unique chart of accounts. Every chart of accounts has the same numbered account categories:– Assets, Liabilities, Owner’s Equity– Revenues, Expenses 3 - 11
  12. 12. Learning Unit 3-1 Journalizing Debits are always recorded first. Indent, then record the credit below the debit. A short explanation is included on the second line. Leave a space between journal entries. 3 - 12
  13. 13. Learning Unit 3-1 Debits must always equal credits. Amounts incurred for items that benefit future accounting periods are recorded as assets. What are some examples?– prepaid rent– prepaid insurance 3 - 13
  14. 14. Learning Unit 3-1 Amounts for items used (expenses incurred) in the current accounting period are recorded as expenses. What are some examples?– supplies used– rent for the month– expired insurance 3 - 14
  15. 15. Learning Unit 3-1 Amounts are recorded as revenue on the date in which they are earned. When are revenues earned? When services are performed, not necessarily when cash is paid. 3 - 15
  16. 16. Learning Objective 2Posting: transferring information from a journal to a ledger. 3 - 16
  17. 17. Learning Unit 3-2 Posting All transactions are recorded in the journal, then amounts are copied to the ledger accounts named on the journal line. Once the amounts are entered into the accounts, a posting reference (PR) must be entered in the journal. New balances are computed in the running ledger accounts. 3 - 17
  18. 18. Learning Unit 3-2 Posting Account: Cash Account: 1000 BalanceDate ref. debit credit debit creditJune 1 jr1 5,000 5,000 Insert the number of the journal page. 3 - 18
  19. 19. Example Journal Page 1Date Account and Explanation Post Ref. debit creditJune 1 Cash 1000 5,000 Clara J. Capital 3010 5,000 Initial investment 3 - 19
  20. 20. Example Journal Page 1Date Account and Explanation Post Ref. debit creditJuly 3 Phone Expense 5040 155 Accounts Payable 2000 155 Paid phone bill 3 - 20
  21. 21. Example Journal Page 1Date Account and Explanation Post Ref. debit creditJuly 6 Insurance Expense 5060 150 Cash 1000 150 Paid insurance bill 3 - 21
  22. 22. Example Journal Page 1Date Account and Explanation Post Ref. debit creditJuly 8 Accounts Payable 2000 200 Cash 1000 200 Paid Accounts Payable 3 - 22
  23. 23. Example Journal Page 1Date Account and Explanation Post Ref. debit creditJuly 8 Accounts Receivable 1020 850 Service Revenue 4000 850 Performed Services 3 - 23
  24. 24. Learning Objective 3Preparing a trial balance. 3 - 24
  25. 25. Learning Unit 3-3 Preparing the Trial Balance The trial balance lists the accounts that have balances in the same order as they appear in the chart of accounts. The trial balance will show if debits/credits have been interchanged, or if amounts have been transposed, or if a debit/credit was omitted or recorded twice. 3 - 25
  26. 26. Learning Unit 3-3 Some errors do not show, such as omissions or recording to the wrong account. Corrections before posting are made in the journal. An audit trail must be left. Do not erase – cross out errors and enter corrections. 3 - 26
  27. 27. Learning Unit 3-3 What about corrections after posting? This means that errors are also in the ledger accounts. Cross out incorrect amounts, change to corrected amounts, and record balance changes. 3 - 27
  28. 28. End of Chapter 3 3 - 28