1. Beginning the Accounting Cycle –
Journalizing, Posting,
and the Trial Balance
Chapter 3
3-1

2. Learning Objective 1
Journalizing: analyzing and
recording business
transactions into a journal.
3-2

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. The Accounting Cycle
 Accounting is the process that...
– analyzes,
– records,
– classifies,
– summarizes,
– reports, and...
– interprets.
3-4

5. The Accounting Cycle
A sole proprietorship:
– has one owner
– begins with a monthly accounting cycle
– owner has a capital and withdrawals
account
3-5

6. Business Organizations
 All three types of business entities use the
same basic accounting system.
Sole proprietorship
Partnerships
Corporations
3-6

7. Recording Business Transactions
The Accounting Period
One Year Less than One Year
Calendar year Quarterly
Fiscal year Monthly
3-7

8. Learning Unit 3-1
 The Accounting Cycle:
1 Analyzing
2 Recording transactions – journalizing
3 Posting to the ledger accounts
4 Preparing the trial balance
 The accounting cycle has some variations in
a computerized accounting system.
3-8

9. Learning Unit 3-1
What 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. Learning Unit 3-1
What 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. Learning Unit 3-1
What 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. 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. 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. 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. 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