The accounting cycle is the process by which accountants prepare financial statements for an entity over a period of time. It involves analyzing transactions, journalizing them, posting to ledger accounts, adjusting entries, preparing a trial balance and financial statements, and closing entries. Key steps include journalizing, posting, preparing a trial balance, adjusting entries, and financial statements.
Accounting Cycle- Accruals and Defferls- Adjusting entriesFaHaD .H. NooR
An accrual occurs before a payment or receipt. A deferral occurs after a payment or receipt. There are accruals for expenses and for revenues. There are deferrals for expenses and for revenues.
An accrual of an expense refers to the reporting of an expense and the related liability in the period in which they occur, and that period is prior to the period in which the payment is made. An example of an accrual for an expense is the electricity that is used in December, but the payment will not be made until January.
An accrual of revenues refers to the reporting of revenues and the related receivables in the period in which they are earned, and that period is prior to the period of the cash receipt. An example of the accrual of revenues is the interest earned in December on an investment in a government bond, but the interest will not be received until January.
A deferral of an expense refers to a payment that was made in one period, but will be reported as an expense in a later period. An example is the payment in December for the six-month insurance premium that will be reported as an expense in the months of January through June.
A deferral of revenues refers to receipts in one accounting period, but they will be earned in future accounting periods. For example, the insurance company has a cash receipt in December for a six-month insurance premium. However, the insurance company will report this as part of its revenues in January through June.
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Accounting Cycle- Accruals and Defferls- Adjusting entriesFaHaD .H. NooR
An accrual occurs before a payment or receipt. A deferral occurs after a payment or receipt. There are accruals for expenses and for revenues. There are deferrals for expenses and for revenues.
An accrual of an expense refers to the reporting of an expense and the related liability in the period in which they occur, and that period is prior to the period in which the payment is made. An example of an accrual for an expense is the electricity that is used in December, but the payment will not be made until January.
An accrual of revenues refers to the reporting of revenues and the related receivables in the period in which they are earned, and that period is prior to the period of the cash receipt. An example of the accrual of revenues is the interest earned in December on an investment in a government bond, but the interest will not be received until January.
A deferral of an expense refers to a payment that was made in one period, but will be reported as an expense in a later period. An example is the payment in December for the six-month insurance premium that will be reported as an expense in the months of January through June.
A deferral of revenues refers to receipts in one accounting period, but they will be earned in future accounting periods. For example, the insurance company has a cash receipt in December for a six-month insurance premium. However, the insurance company will report this as part of its revenues in January through June.
Check this article with accounting journal entries, for more details visit site. https://www.accountingassignmenthelp.net/basic-journal-entries-examples/
clubs & societies : final accounts of non - profit organisationsSanjaya Jayasundara
Final accounts of clubs and societies, Receipts and payments account , subscription , income and expenditure account , life subscription calculation, accumulated fund , accrual concept, differences between receipts & payments account and income and expenditure account. Cambridge O Level (7110 ; 7707) past papers and model papers,
clubs & societies : final accounts of non - profit organisationsSanjaya Jayasundara
Final accounts of clubs and societies, Receipts and payments account , subscription , income and expenditure account , life subscription calculation, accumulated fund , accrual concept, differences between receipts & payments account and income and expenditure account. Cambridge O Level (7110 ; 7707) past papers and model papers,
Accounting Cycle - Ledgers - Capturing accounting eventFaHaD .H. NooR
What is a general ledger account?
A general ledger account is an account or record used to sort and store balance sheet and income statement transactions. Examples of general ledger accounts include the asset accounts such as Cash, Accounts Receivable, Inventory, Investments, Land, and Equipment. Examples of the general ledger liability accounts include Notes Payable, Accounts Payable, Accrued Expenses Payable, and Customer Deposits. Examples of income statement accounts found in the general ledger include Sales, Service Fee Revenues, Salaries Expense, Rent Expense, Advertising Expense, Interest Expense, and Loss on Disposal of Assets.
Some general ledger accounts are summary records which are referred to as control accounts. The detail that supports each of the control accounts will be found outside of the general ledger in what is known as a subsidiary ledger. For example, Accounts Receivable could be a control account in the general ledger, and there will be a subsidiary ledger which contains each customer's credit activity. The general ledger accounts Inventory, Equipment, and Accounts Payable could also be control accounts and for each there will be a subsidiary ledger containing the supporting detail.
Introduction to Accounting
Theory base of Accounting
Recording of Transactions – I
Recording of Transactions – II
Bank Reconciliation Statement
Trial Balance and Rectification of errors
Depreciation, Provisions and Reserves
Bill of Exchange
Financial Statements -I
Financial Statements -II
Accounts from Incomplete Records
Application of Computers in Accounting
Computerised Accounting System
2. The Accounting Cycle 1. Analyze business transactions 2. Journalize the transactions 6. Prepare an adjusted trial balance 7. Prepare financial statements 8. Journalize and post closing entries 9. Prepare a post-closing trial balance 4. Prepare a trial balance 3. Post to ledger accounts 5. Journalize and post adjusting entries
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5. Double entry accounting According to Pacioli, “ Double-entry accounting is based on a simple concept: each party in a business transaction will receive something and give something in return. In accounting terms, what is received is a debit and what is given is a credit. The T account is a representation of a scale or balance.” Luca Pacioli Developer of Double-Entry Accounting, c1494 Scale or Balance Receive DEBIT Give CREDIT
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8. Debits and Credits Account Name Debit / Dr. Credit / Cr. If Debit entries are greater than Credit entries, the account will have a debit balance. $10,000 Transaction #2 $3,000 $15,000 8,000 Transaction #3 Balance Transaction #1
9. Debits and Credits If Credit entries are greater than Debit entries, the account will have a credit balance. $10,000 Transaction #2 $3,000 $1,000 8,000 Transaction #3 Balance Transaction #1
21. 2. Posting Posting – the process of transferring amounts from the journal to the ledger accounts. General Ledger General Journal Jan. 3 Sale of stock GJ1 100,000 100,000 100 GJ1
22. 3. Trial Balance Trial Balance – a list of each account and its balance; used to prove equality of debit and credit balances.
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25. Classes of Adjusting Entries 1. Prepaid Expenses. Expenses paid in cash and recorded as assets before they are used or consumed. Prepayments 3. Accrued Revenues. Revenues earned but not yet received in cash or recorded. 4. Accrued Expenses. Expenses incurred but not yet paid in cash or recorded. 2. Unearned Revenues. Revenues received in cash and recorded as liabilities before they are earned. Accruals
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27. Adjusting Entries – “Prepaid Expenses” Example: On Jan. 1 st , Phoenix Corp. paid $12,000 for 12 months of insurance coverage. Show the journal entry to record the payment on Jan. 1 st . Cash 12,000 Prepaid insurance 12,000 Jan. 1 Debit Credit Prepaid Insurance 12,000 12,000 Debit Credit Cash
28. Adjusting Entries – “Prepaid Expenses” Example: On Jan. 1 st , Phoenix Corp. paid $12,000 for 12 months of insurance coverage. Show the adjusting journal entry required at Jan. 31 st . Prepaid insurance 1,000 Insurance expense 1,000 Jan. 31 Debit Credit Prepaid Insurance 12,000 1,000 Debit Credit Insurance expense 1,000 11,000
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30. Adjusting Entries – “Unearned Revenues” Example: On Nov . 1 st , Phoenix Corp. received $24,000 from city School for 3 months rent in advance. Show the journal entry to record the receipt on Nov. 1 st . Unearned rent revenue 24,000 Cash 24,000 Nov. 1 Debit Credit Cash 24,000 24,000 Debit Credit Unearned Rent Revenue
31. Adjusting Entries – “Unearned Revenues” Example: On Nov. 1 st , Phoenix Corp. received $24,000 from city High School for 3 months rent in advance. Show the adjusting journal entry required on Nov. 30 th . Rent revenue 8,000 Unearned rent revenue 8,000 Nov. 30 Debit Credit Rent Revenue 8,000 24,000 Debit Credit Unearned Rent Revenue 8,000 16,000
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34. Adjusting Entries – “Accrued Revenues” Example: On July 1 st , Phoenix Corp. invested $300,000 in securities that return 5% interest per year. Show the journal entry to record the investment on July 1 st . Cash 300,000 Investments 300,000 July 1 Debit Credit Investments 300,000 300,000 Debit Credit Cash
35. Adjusting Entries – “Accrued Revenues” Example: On July 1 st , Phoenix Corp. invested $300,000 in securities that return 5% interest per year. Show the adjusting journal entry required on July 31 st . Interest revenue 1,250 Interest receivable 1,250 July 31 Debit Credit Interest Receivable 1,250 1,250 Debit Credit Interest Revenue
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37. Adjusting Entries – “Accrued Expenses” Notes payable 200,000 Cash 200,000 Feb. 2 Debit Credit Cash 200,000 200,000 Debit Credit Notes Payable Example: On Feb. 2 nd , Phoenix Corp. borrowed $200,000 at a rate of 9% per year. Interest is due on first of each month. Show the journal entry to record the borrowing on Feb. 2 nd .
38. Adjusting Entries – “Accrued Expenses” Example: On Feb. 2 nd , Phoenix Corp. borrowed $200,000 at a rate of 9% per year. Interest is due on first of each month. Show the adjusting journal entry required on Feb. 28 th . Interest payable 1,500 Interest expense 1,500 Feb. 28 Debit Credit Interest Expense 1,500 1,500 Debit Credit Interest Payable
39. 5. Adjusted Trial Balance Shows the balance of all accounts, after adjusting entries, at the end of the accounting period. Assets (Various) Unbilled Services Receivable Inventory Prepaid Rent Prepaid Insurance Buildings Equipment Land Liabilities (Various) Accrued Wages Payable Accrued Interest Payable Unearned Revenue Owner’s Equity Stock Retained Earnings
40. 6. Preparing Financial Statements Financial Statements are prepared directly from the Adjusted Trial Balance. Balance Sheet Income Statement Statement of Cash Flows Statement of Retained Earnings
41. 6. Preparing Financial Statements Balance Sheet Assume the following Adjusted Trial Balance
42. 6. Preparing Financial Statements Income Statement Assume the following Adjusted Trial Balance
43. 6. Preparing Financial Statements Statement of Retained Earnings Assume the following Adjusted Trial Balance
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45. 7. Closing Entries Example : Assume the following Adjusted Trial Balance
46. 7. Closing Entries Example: Prepare the Closing journal entry from the adjusted trial balance on the previous slide. Sales 185,000 Income summary 202,000 Interest income 17,000 Income summary 115,000 Cost of goods sold 47,000 Salary expense 25,000 Depreciation expense 43,000 Income summary 87,000 Retained earnings 87,000 Retained earnings 10,000 Dividends declared 10,000
47. By Hashim Khan BBA(Hons) IMStudies University Of Peshawar