The accounting cycle involves analyzing business transactions, recording them in journals, posting them to ledger accounts, preparing trial balances, making adjustments, preparing financial statements, and closing entries at the end of each period. The key steps are: 1) recording transactions, 2) posting to ledger accounts, 3) preparing an unadjusted trial balance, 4) making adjustments, 5) preparing an adjusted trial balance, 6) closing entries, and 7) a post-closing trial balance. The accounting equation of Assets = Liabilities + Equity must always balance after each step.
The document discusses key concepts in the accounting information system including:
1) The basic steps in the recording process such as analyzing transactions, journalizing, posting to ledger accounts, and preparing a trial balance.
2) The use of debits and credits to record transactions and their effect on different types of accounts.
3) The purpose and use of accounts, journals, ledgers, and the trial balance in the recording process.
1) The document discusses the accounting process and how to analyze and record business transactions. It explains the key steps which include examining source documents, analyzing transactions using debits and credits, recording transactions in a journal, posting to ledgers, and preparing a trial balance.
2) An example transaction is provided to demonstrate how to apply the accounting equation to identify impacts on asset, liability and equity accounts and how to record the journal entry and post to ledger accounts.
3) The revenue recognition principle is explained as recognizing revenue when it is earned rather than when payment is received. An example transaction illustrates revenue being recognized with a receivable recorded before cash is received.
The document provides an overview of basic accounting principles including:
1) The accounting equation that balances assets, liabilities, and owner's equity.
2) Journal entries that record business transactions by debiting and crediting appropriate accounts.
3) The process of transferring journal entries to individual accounts in the general ledger.
1. The document discusses key accounting concepts like the accounting equation, double-entry recording, T-accounts, debit and credit rules for different types of accounts.
2. It provides examples of recording business transactions like starting a business, purchases, expenses, revenues using T-accounts and following the double-entry system.
3. Special accounts like returns inwards, returns outwards are discussed which are used to record returns of goods from customers or suppliers.
Part 3-4 Posting and Trial Balance PreparationMichael Alonzo
The document discusses ledgers, which are used by companies to maintain account balances and track changes. It explains that the general ledger contains all asset, liability, and equity accounts. Journal entries are posted to the ledger accounts to update them. Ledgers use a three-column format with debit, credit, and balance columns to track transactions for each account.
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.
The document discusses key concepts in the accounting information system including:
1) The basic steps in the recording process such as analyzing transactions, journalizing, posting to ledger accounts, and preparing a trial balance.
2) The use of debits and credits to record transactions and their effect on different types of accounts.
3) The purpose and use of accounts, journals, ledgers, and the trial balance in the recording process.
1) The document discusses the accounting process and how to analyze and record business transactions. It explains the key steps which include examining source documents, analyzing transactions using debits and credits, recording transactions in a journal, posting to ledgers, and preparing a trial balance.
2) An example transaction is provided to demonstrate how to apply the accounting equation to identify impacts on asset, liability and equity accounts and how to record the journal entry and post to ledger accounts.
3) The revenue recognition principle is explained as recognizing revenue when it is earned rather than when payment is received. An example transaction illustrates revenue being recognized with a receivable recorded before cash is received.
The document provides an overview of basic accounting principles including:
1) The accounting equation that balances assets, liabilities, and owner's equity.
2) Journal entries that record business transactions by debiting and crediting appropriate accounts.
3) The process of transferring journal entries to individual accounts in the general ledger.
1. The document discusses key accounting concepts like the accounting equation, double-entry recording, T-accounts, debit and credit rules for different types of accounts.
2. It provides examples of recording business transactions like starting a business, purchases, expenses, revenues using T-accounts and following the double-entry system.
3. Special accounts like returns inwards, returns outwards are discussed which are used to record returns of goods from customers or suppliers.
Part 3-4 Posting and Trial Balance PreparationMichael Alonzo
The document discusses ledgers, which are used by companies to maintain account balances and track changes. It explains that the general ledger contains all asset, liability, and equity accounts. Journal entries are posted to the ledger accounts to update them. Ledgers use a three-column format with debit, credit, and balance columns to track transactions for each account.
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.
The document provides an overview of the accounting cycle and key concepts in financial accounting. It discusses [1] what accounts are and how they are used to record business transactions, [2] the basic steps in the recording process including journalizing, posting to ledgers, and preparing a trial balance, and [3] key adjusting entries related to deferrals like prepaid expenses and unearned revenues, and accruals like accrued revenues and accrued expenses. The purpose is to explain the fundamentals of recording and reporting financial information according to generally accepted accounting principles.
The accounting cycle has 8 major steps: 1) recording transactions, 2) posting to ledger accounts, 3) preparing an unadjusted trial balance, 4) making adjusting entries, 5) preparing an adjusted trial balance, 6) closing temporary accounts, 7) preparing post-closing financial statements, and 8) preparing a post-closing trial balance. The example shows the journal entries, ledger accounts, unadjusted trial balance, adjusting entries for depreciation, interest, and unearned revenue, and the closing entries to transfer temporary account balances to retained earnings for Company A.
Chapter 2 Principles of financial accountingAli Shah
The document discusses accounting concepts and methods, including the cash basis and accrual basis of accounting. It provides examples of business transactions recorded using journal entries and T-accounts. Key concepts covered include the fundamental accounting equation, analyzing transactions, general journal entries, unearned revenue, and the accounting cycle.
- Accounts is where business transactions are recorded in a ledger using double entry bookkeeping. It allows owners and stakeholders to evaluate performance.
- Double entry bookkeeping requires every debit to have a corresponding credit. Transactions are recorded in accounts like cash, capital, purchases and sales.
- A ledger contains individual accounts with debit and credit columns. Worked examples show recording transactions like starting capital and purchases.
- Exercises provide additional practice recording transactions and preparing a trial balance, trading and profit and loss accounts to calculate net profit or loss.
1. The document discusses accounting concepts including the accounting equation, assets, liabilities, and owner's equity.
2. It provides an example of analyzing the effects of business transactions on the accounting equation for a repair shop owner.
3. Each transaction has a dual effect that maintains the balance of the accounting equation by increasing or decreasing at least two items.
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 involves recording, classifying, and summarizing financial transactions and events. It defines transactions as financial events and establishes accounts for assets, liabilities, capital/equity, revenues and expenses. The accounting cycle includes identifying transactions, journalizing them, posting to ledger accounts, preparing a trial balance, adjusting entries, preparing financial statements, and closing entries at the end of the period.
The document provides an overview of accounting concepts including the accounting equation, balance sheet, trading and profit and loss statement, and accounting for stock. It defines key terms like assets, liabilities, owner's equity, revenues, and expenses. It also explains how business transactions affect the accounting equation and financial statements. Specifically, it shows how transactions like introducing capital, borrowing money, purchasing assets, and buying/selling stock on credit impact the balance sheet and expanded accounting equation of Assets + Expenses = Owner's Equity + Revenues + Liabilities.
The document discusses various books of original entry used in accounting, including journals, cash book, petty cash book, and their purposes. It explains how transactions are recorded in these books, such as recording sales, purchases, payments and receipts in the general journal and cash book. It also discusses accounting for cash discounts, bank transactions like overdraft, and loans.
The document discusses key accounting concepts such as debits and credits, T-accounts, the general journal, posting journal entries to ledger accounts, and preparing a trial balance. It provides examples of analyzing business transactions and recording debits and credits to the appropriate accounts. It also explains how a trial balance is used to prove the equality of total debits and credits after journal entries have been posted to ledger accounts.
This document provides an overview of accounting concepts including the accounting cycle, T-accounts, trial balance, adjusting entries, and closing entries. It explains the steps in the accounting cycle as transactions are recorded in journals and ledgers, trial balances are prepared, adjusting entries are made, and financial statements are produced. T-accounts are introduced as the format for recording debits and credits to general ledger accounts. The roles of the trial balance, adjusting entries, and closing entries in preparing accurate financial statements are also summarized.
This document defines trading companies and outlines the accounting cycle process for such companies. It discusses that trading companies engage in buying and selling goods. The accounting cycle includes analyzing transactions, recording transactions in a journal, making adjustments, preparing a working paper/worksheet, and generating financial statements. The financial statements produced are the income statement, balance sheet, statement of equity changes, and statement of cash flows. The document provides an example of transactions recorded in a journal by a trading company and explains steps in the accounting cycle like posting journal entries to general ledgers and making adjusting entries.
The document provides information about accounting, including definitions, key concepts, branches of accounting, and accounting transactions. It defines accounting as recording, summarizing, reporting and examining financial transactions. It outlines the main branches of accounting as financial, cost, management, fiduciary, fund, government, tax, and auditing accounting. It also includes sample accounting transactions, ledger accounts, and final accounts such as trading account, profit and loss account, and balance sheet.
Every business transaction affects two or more accounts. Under double entry bookkeeping system equal debit and credit entries are made for every economic activity.
The document discusses accounting concepts related to debits and credits, including:
1. Setting up a chart of accounts to organize asset, liability, equity, revenue and expense accounts.
2. Analyzing business transactions and determining the proper debit and credit treatment based on whether the account balance will increase or decrease.
3. Preparing T-accounts and journal entries to record transactions, and ensuring debits equal credits.
4. Preparing a trial balance from the journal entries to check that accounts balance.
5. Using the trial balance to generate basic financial statements - the income statement, statement of owner's equity, and balance sheet.
The document discusses the income statement and how it is used to report revenues and expenses to calculate income over an accounting period. Revenues increase retained earnings and are recorded as credits, while expenses decrease retained earnings and are recorded as debits. The income statement classifies expenses as operating or non-operating and reports gross profit, operating income, income before taxes, and net income. It also discusses the retained earnings statement and how the journal and ledger are used to record transactions that affect account balances over time.
Quick Learn: concepts accrual accounting and cash flowEddie Zhong
The document provides an overview of accrual accounting concepts and cash flow statements. It includes examples of accrued income and expenses. It also works through the preparation of an income statement and statement of financial position based on provided transaction information. Key points covered include:
1) Accrual accounting recognizes transactions when they occur rather than when cash is received or paid.
2) Accrued income and expenses are amounts earned or incurred in one period but recorded in another.
3) A cash flow statement records cash inflows and outflows and is separated into operating, investing, and financing activities.
4) Reconciling net income to cash flow from operating activities accounts for non-cash items and changes
Accounting Books Journal and Ledger.pptmarvinrosel4
This document provides information about accounting journals and ledgers. It discusses the journal as the book of original entry and the general ledger as the book of final entry. It provides examples of transactions to record in journals and how to post them to T-accounts to determine account balances. It also discusses compound journal entries and includes practice problems for students to journalize and post transactions and prepare a trial balance.
The document provides an overview of the accounting cycle and key concepts in financial accounting. It discusses [1] what accounts are and how they are used to record business transactions, [2] the basic steps in the recording process including journalizing, posting to ledgers, and preparing a trial balance, and [3] key adjusting entries related to deferrals like prepaid expenses and unearned revenues, and accruals like accrued revenues and accrued expenses. The purpose is to explain the fundamentals of recording and reporting financial information according to generally accepted accounting principles.
The accounting cycle has 8 major steps: 1) recording transactions, 2) posting to ledger accounts, 3) preparing an unadjusted trial balance, 4) making adjusting entries, 5) preparing an adjusted trial balance, 6) closing temporary accounts, 7) preparing post-closing financial statements, and 8) preparing a post-closing trial balance. The example shows the journal entries, ledger accounts, unadjusted trial balance, adjusting entries for depreciation, interest, and unearned revenue, and the closing entries to transfer temporary account balances to retained earnings for Company A.
Chapter 2 Principles of financial accountingAli Shah
The document discusses accounting concepts and methods, including the cash basis and accrual basis of accounting. It provides examples of business transactions recorded using journal entries and T-accounts. Key concepts covered include the fundamental accounting equation, analyzing transactions, general journal entries, unearned revenue, and the accounting cycle.
- Accounts is where business transactions are recorded in a ledger using double entry bookkeeping. It allows owners and stakeholders to evaluate performance.
- Double entry bookkeeping requires every debit to have a corresponding credit. Transactions are recorded in accounts like cash, capital, purchases and sales.
- A ledger contains individual accounts with debit and credit columns. Worked examples show recording transactions like starting capital and purchases.
- Exercises provide additional practice recording transactions and preparing a trial balance, trading and profit and loss accounts to calculate net profit or loss.
1. The document discusses accounting concepts including the accounting equation, assets, liabilities, and owner's equity.
2. It provides an example of analyzing the effects of business transactions on the accounting equation for a repair shop owner.
3. Each transaction has a dual effect that maintains the balance of the accounting equation by increasing or decreasing at least two items.
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 involves recording, classifying, and summarizing financial transactions and events. It defines transactions as financial events and establishes accounts for assets, liabilities, capital/equity, revenues and expenses. The accounting cycle includes identifying transactions, journalizing them, posting to ledger accounts, preparing a trial balance, adjusting entries, preparing financial statements, and closing entries at the end of the period.
The document provides an overview of accounting concepts including the accounting equation, balance sheet, trading and profit and loss statement, and accounting for stock. It defines key terms like assets, liabilities, owner's equity, revenues, and expenses. It also explains how business transactions affect the accounting equation and financial statements. Specifically, it shows how transactions like introducing capital, borrowing money, purchasing assets, and buying/selling stock on credit impact the balance sheet and expanded accounting equation of Assets + Expenses = Owner's Equity + Revenues + Liabilities.
The document discusses various books of original entry used in accounting, including journals, cash book, petty cash book, and their purposes. It explains how transactions are recorded in these books, such as recording sales, purchases, payments and receipts in the general journal and cash book. It also discusses accounting for cash discounts, bank transactions like overdraft, and loans.
The document discusses key accounting concepts such as debits and credits, T-accounts, the general journal, posting journal entries to ledger accounts, and preparing a trial balance. It provides examples of analyzing business transactions and recording debits and credits to the appropriate accounts. It also explains how a trial balance is used to prove the equality of total debits and credits after journal entries have been posted to ledger accounts.
This document provides an overview of accounting concepts including the accounting cycle, T-accounts, trial balance, adjusting entries, and closing entries. It explains the steps in the accounting cycle as transactions are recorded in journals and ledgers, trial balances are prepared, adjusting entries are made, and financial statements are produced. T-accounts are introduced as the format for recording debits and credits to general ledger accounts. The roles of the trial balance, adjusting entries, and closing entries in preparing accurate financial statements are also summarized.
This document defines trading companies and outlines the accounting cycle process for such companies. It discusses that trading companies engage in buying and selling goods. The accounting cycle includes analyzing transactions, recording transactions in a journal, making adjustments, preparing a working paper/worksheet, and generating financial statements. The financial statements produced are the income statement, balance sheet, statement of equity changes, and statement of cash flows. The document provides an example of transactions recorded in a journal by a trading company and explains steps in the accounting cycle like posting journal entries to general ledgers and making adjusting entries.
The document provides information about accounting, including definitions, key concepts, branches of accounting, and accounting transactions. It defines accounting as recording, summarizing, reporting and examining financial transactions. It outlines the main branches of accounting as financial, cost, management, fiduciary, fund, government, tax, and auditing accounting. It also includes sample accounting transactions, ledger accounts, and final accounts such as trading account, profit and loss account, and balance sheet.
Every business transaction affects two or more accounts. Under double entry bookkeeping system equal debit and credit entries are made for every economic activity.
The document discusses accounting concepts related to debits and credits, including:
1. Setting up a chart of accounts to organize asset, liability, equity, revenue and expense accounts.
2. Analyzing business transactions and determining the proper debit and credit treatment based on whether the account balance will increase or decrease.
3. Preparing T-accounts and journal entries to record transactions, and ensuring debits equal credits.
4. Preparing a trial balance from the journal entries to check that accounts balance.
5. Using the trial balance to generate basic financial statements - the income statement, statement of owner's equity, and balance sheet.
The document discusses the income statement and how it is used to report revenues and expenses to calculate income over an accounting period. Revenues increase retained earnings and are recorded as credits, while expenses decrease retained earnings and are recorded as debits. The income statement classifies expenses as operating or non-operating and reports gross profit, operating income, income before taxes, and net income. It also discusses the retained earnings statement and how the journal and ledger are used to record transactions that affect account balances over time.
Quick Learn: concepts accrual accounting and cash flowEddie Zhong
The document provides an overview of accrual accounting concepts and cash flow statements. It includes examples of accrued income and expenses. It also works through the preparation of an income statement and statement of financial position based on provided transaction information. Key points covered include:
1) Accrual accounting recognizes transactions when they occur rather than when cash is received or paid.
2) Accrued income and expenses are amounts earned or incurred in one period but recorded in another.
3) A cash flow statement records cash inflows and outflows and is separated into operating, investing, and financing activities.
4) Reconciling net income to cash flow from operating activities accounts for non-cash items and changes
Accounting Books Journal and Ledger.pptmarvinrosel4
This document provides information about accounting journals and ledgers. It discusses the journal as the book of original entry and the general ledger as the book of final entry. It provides examples of transactions to record in journals and how to post them to T-accounts to determine account balances. It also discusses compound journal entries and includes practice problems for students to journalize and post transactions and prepare a trial balance.
Similar to ACCOUNTING_CYCLE_UPTO_TRIAL_BALANCE.ppt (20)
OJP data from firms like Vicinity Jobs have emerged as a complement to traditional sources of labour demand data, such as the Job Vacancy and Wages Survey (JVWS). Ibrahim Abuallail, PhD Candidate, University of Ottawa, presented research relating to bias in OJPs and a proposed approach to effectively adjust OJP data to complement existing official data (such as from the JVWS) and improve the measurement of labour demand.
Falcon stands out as a top-tier P2P Invoice Discounting platform in India, bridging esteemed blue-chip companies and eager investors. Our goal is to transform the investment landscape in India by establishing a comprehensive destination for borrowers and investors with diverse profiles and needs, all while minimizing risk. What sets Falcon apart is the elimination of intermediaries such as commercial banks and depository institutions, allowing investors to enjoy higher yields.
Lecture slide titled Fraud Risk Mitigation, Webinar Lecture Delivered at the Society for West African Internal Audit Practitioners (SWAIAP) on Wednesday, November 8, 2023.
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
Independent Study - College of Wooster Research (2023-2024) FDI, Culture, Glo...AntoniaOwensDetwiler
"Does Foreign Direct Investment Negatively Affect Preservation of Culture in the Global South? Case Studies in Thailand and Cambodia."
Do elements of globalization, such as Foreign Direct Investment (FDI), negatively affect the ability of countries in the Global South to preserve their culture? This research aims to answer this question by employing a cross-sectional comparative case study analysis utilizing methods of difference. Thailand and Cambodia are compared as they are in the same region and have a similar culture. The metric of difference between Thailand and Cambodia is their ability to preserve their culture. This ability is operationalized by their respective attitudes towards FDI; Thailand imposes stringent regulations and limitations on FDI while Cambodia does not hesitate to accept most FDI and imposes fewer limitations. The evidence from this study suggests that FDI from globally influential countries with high gross domestic products (GDPs) (e.g. China, U.S.) challenges the ability of countries with lower GDPs (e.g. Cambodia) to protect their culture. Furthermore, the ability, or lack thereof, of the receiving countries to protect their culture is amplified by the existence and implementation of restrictive FDI policies imposed by their governments.
My study abroad in Bali, Indonesia, inspired this research topic as I noticed how globalization is changing the culture of its people. I learned their language and way of life which helped me understand the beauty and importance of cultural preservation. I believe we could all benefit from learning new perspectives as they could help us ideate solutions to contemporary issues and empathize with others.
2. Elemental Economics - Mineral demand.pdfNeal Brewster
After this second you should be able to: Explain the main determinants of demand for any mineral product, and their relative importance; recognise and explain how demand for any product is likely to change with economic activity; recognise and explain the roles of technology and relative prices in influencing demand; be able to explain the differences between the rates of growth of demand for different products.
Abhay Bhutada, the Managing Director of Poonawalla Fincorp Limited, is an accomplished leader with over 15 years of experience in commercial and retail lending. A Qualified Chartered Accountant, he has been pivotal in leveraging technology to enhance financial services. Starting his career at Bank of India, he later founded TAB Capital Limited and co-founded Poonawalla Finance Private Limited, emphasizing digital lending. Under his leadership, Poonawalla Fincorp achieved a 'AAA' credit rating, integrating acquisitions and emphasizing corporate governance. Actively involved in industry forums and CSR initiatives, Abhay has been recognized with awards like "Young Entrepreneur of India 2017" and "40 under 40 Most Influential Leader for 2020-21." Personally, he values mindfulness, enjoys gardening, yoga, and sees every day as an opportunity for growth and improvement.
5 Tips for Creating Standard Financial ReportsEasyReports
Well-crafted financial reports serve as vital tools for decision-making and transparency within an organization. By following the undermentioned tips, you can create standardized financial reports that effectively communicate your company's financial health and performance to stakeholders.
2. The Accounting Cycle
For a new business, it begin by setting up ledger
accounts.
For an established business, begin with account
balances carried over from the previous period.
3. The Steps In The Accounting Cycle
1. Analyze source documents & record business
transactions in a journal
2. Post journal entries to the ledger accounts
3. Prepare unadjusted trial balance (TB)
4. Journalize and post end of period
adjustments (EOPA)
5. Prepare adjusted Trial Balance
6. Prepare /Create financial statements &
reports from data in adjusted TB
7. Journalize and post the closing entries
8. Prepare the post-closing trial balance
9. Prepare and post reversing entries
4. Detailed Steps in the Accounting Cycle
Analyze
Business
Transactions
.
Journalize
transactions
in the
journal.
Post entries
to the
accounts in
the ledger.
Prepare
unadjusted
trial
balance.
Prepare
financial
statements.
Post-closing
trial balance
Journalize and
post closing
entries
Journalize
and post
adjusting
entries
Prepare
adjusted trial
balance.
5. Analysis and Recording Business Transactions
Business transaction is an economic event that
causes a change in the financial position
Financial Position:
What the entity controls
How the entity controls them (claims)
7. How do we use the “Accounting” equation?
Recall the Basic Accounting Equation:
Assets = Liabilities + Shareholders’ Equity
Implications:
Total Asset=Claims against the assets
Therefore :
If assets increase : either Liabilities and/or
Shareholders’ should also increase and vice versa
For example: borrow cash, cash (asset) will
increase and Liabilities will increase
when it is paid back: cash (asset) will decrease
and liabilities will decrease
8. How do we record/Account?
An ACCOUNT (ledger Account) : is an
accounting device used to record changes in a
of a specific asset, liability or owners’ equity
item
Has 3 elements: title, debit side and credit side
(also called the “T-Account”)
Changes in the accounts are entered manually
into a book called a ledger or computerized
ledger
Basic forms of book ledgers: the two-column
account format, and the running format
account
Chart of accounts
9. Definition of Ledger Account
Ledger Account
Complete listing of business transactions for an
individual account
Where you look if you want to find the balance of any
given account
General Ledger
A loose-leaf book or computer file containing all the
Ledger Accounts
Each account from the chart of accounts has its own
ledger account in the general ledger
Complete listing of all account tittles and account
names/codes used by an entity is called the chart of
accounts - It is like a table of content in a book
10. Forms of Ledgers
Date Item Post. Ref. * Debit Date Item
Posting
Reference Credit
Account No:
Account
Left-hand or Right-hand or
Debit Side Credit Side
Account Name Account No:
Two-Column Account
T-Account form that depicts the two-column account:
11. How do accounts behave?
Assets = Liabilities + Shareholders’ Equity
+ + +
So Assets increase on the left hand or debit side then
they decrease on the credit side
Assets
+ -
debit credit
12. Behavior of Accounts cont…
Liabilities and Owners’ Equity accounts increase
on the credit side, decrease on the debit side
Liabilities or Owners’ Equity Accounts
- +
debit credit
13. Transaction Analysis and The Duality Concept
Double entry system states that every transactions
affects at least two accounts.
Therefore
• If an asset account increases (decreases), because
of duality concept there must be a corresponding:
1. increase(decrease) in a specific liability account
2. or a decrease(increase) in a another asset
account
3. or an increase(decrease) in owners' equity
account.
14. Accounting Is Fun!
What Is a General Journal?
The book in which a person enters the original
record of a business transaction
Commonly referred to as a book of original entry
Chronological listing of all the business
transactions for the company
Each listing records the debits and credits associated with
that business transaction
A book or a location on a hard drive where all
business transactions are listed
Like a diary
15. What’s in a Journal Entry?
1. Date
2. At least one debit entry
Debit account, use exact account title, do not indent
titles
3. At least one credit entry
Credit account, use exact account title, indent titles
4. An explanation of the transaction:
Check number
Invoice number
Accounts receivable customer name
Many other elements OR details as appropriate…
Remember: the accountant must leave a good audit trail
so that users of accounting information can understand
what occurred with each transaction
DR=CR
16. Illustration of the accounting process
1. On Jan 1 2010 Ms.Farida invested $100,000 at the
inception of the business, Express Travel Agency
Event
No
Assets Liabilities Owners’
Equity
1 +100.000 No change +100.000
Total 100.000 0 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
17. 2. On 1 January employed a full time secretary
and a sales representative.
EventNo Assets Liabilities Owners’Equity
1 +100.000 Nochange +100.000
2 Nochange Nochange Nochange
Total 100.000 0 100.000
18. 3. On 1 January rented an office building and paid 3 months
rent of $600.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
Total 100.000 0 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Prepaid Rent 180 600
Cash 100 600
Payment of 3 months of rent in advance
19. 4. On 2 January office furniture and equipment is purchased for
$ 15,000 , for which $ 5,000 is paid in cash and the rest would be
paid later in January and February 2010.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
Total 110.000 10.000 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No Debit Credit
2 Jan 2004
Furniture and Equipment 255 15.000
Cash 100 5.000
Accounts Payable 320 10000
Purchase of furniture and equipment
20. 5. On 3 January insured the office building and the equipment
effective from 1 January to 31 December 2010 and paid $ 120
for the whole period.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
Total 110.000 10.000 100.000
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
3 Jan 2004
Prepaid Insurance 180 120
Cash 100 120
Purchase of insurance policy
21. 6. On 5 January the company signed an agreement with
Keya Airline to sell their airline tickets and receive
commissions in return.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
Total 110.000 10.000 100.000
22. 7. On 10 January Express Travel Agency borrowed $15,000 from the
bank at an annual interest rate of 24% for six months. The principal
and the interest of the loan will be paid together on 10 July 2010.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
Total 125.000 25.000 100.000
23. 7. On 10 January Express Travel Agency borrowed $ 15,000 from the
bank at an annual interest rate of 24% for six months. The principal and
the interest of the loan will be paid together on 10 July 2010.
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No. Debit Credit
10Jan2004
Cash 100 15.000
BankLoan 300 15.000
Borrowingfromthebank
24. 8. On 10 January purchased office supplies for $2.500 in cash.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
Total 125.000 25.000 100.000
25. 8. On 10 January purchased office supplies for $2,500 in cash.
GENERALJOURNAL Page 1
Date AccountTitleandDescription Acct.No. Debit Credit
10Jan2004
OfficeSupplies 136 2.500
Cash 100 2.500
Purchaseofofficesupplies
26. 9. During the first half of January the agency sold tickets to various customers
and on 16 January issued a commission invoice to clients amounting to
$5,000 that will be collected later in January 2010.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
Total 130.000 25.000 105.000
27. 9. During the first half of January the agency sold tickets to various customers
and on 16 January issued a commission invoice to clients amounting to $
5,000 that will be collected later in January 2010.
Left or Debit Side Right or Credit Side
Decrease Increas
e
Rev
enue Accounts
GENERAL JOURNAL Page 1
Date Account Title andDescription Acct.No. Debit Credit
16 Jan2004
Accounts Receivable 120 5.000
CommissionRevenue 600 5.000
Recognitionofcommissiononticket sales
28. 10. On 20 January the company paid $5,000 for the furniture and equipment
that were purchased on 2 January.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5000 -5000 No change
Total 125.000 20.000 105.000
29. 10. On 20 January the company paid $5.000 for the furniture and equipment
that were purchased on 2 January.
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No. Debit Credit
20Jan2004
AccountsPayable 320 5.000
Cash 100 5.000
Paymentforanaccountspayable
30. 11. On 22 January received $7,500 from a customer for organizing the
accounting conference that will be held on February 2, 2010.
Event No Assets Liabilities Owners’ Equity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
Total 132.500 27.500 105.000
31. 11. On 22 January the company received $7.500 from a customer for organizing
the accounting conference that will be held on 2 February 2010.
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No. Debit Credit
22Jan2004
Cash 100 7.500
UnearnedRevenues 340 7.500
Receiptofadvancepaymentfromacustomer
32. 12. The company received the full payment of commission charged to
Kenya Airlines of $ 5.000 on 23 January.
E
v
ent No Assets Liabilities Owners’ E
quity
1 +100.000 No change +100.000
2 No change No change No change
3 +600 No change No change
-600 No change No change
4 +15.000 +10.000 No change
-5.000
5 +120 No change No change
-120
6 No change No change No change
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
12 +5.000 No change No change
-5.000
Total 132.500 27.500 105.000
33. 12. The company received the full payment of commission charged to
Kenya Airline s of $ 5,000 on 23 January.
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No. Debit Credit
23Jan2004
Cash 100 5.000
AccountsReceivable 120 5.000
Receiptofpaymentfromacustomer
34. 13. On 24 January paid salaries of $ 9,000 employees in cash.
Event No Assets Liabilities Owners’ Equity
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
12 +5.000 No change No change
-5.000
13 -9.000 No change -9.000
Total 123.500 27.500 96.000
35. 13. On 24 January paid salaries of $ 9,000 employees in cash.
Left or Debit Side Right or Credit Side
Increase Decrease
Expense Accounts
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No. Debit Credit
24 Jan2004
SalaryExpense 770 9.000
Cash 100 9.000
Paymentofsalaries
36. 14. During the second half of January the agency sold tickets to various
customers and on 31 January issued a commission invoice to Kenya
Airline amounting to $ 7,500 which will be collected in February 2010.
Event No Assets Liabilities Owners’ Equity
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
12 +5.000 No change No change
-5.000
13 -9.000 No change -9.000
14 +7.500 No change +7.500
Total 131.000 27.500 103.500
37. 14. During the second half of January the agency sold tickets to various
customers and on 31 Jan sent an invoice to Kenya Airline amounting to
$7,500 which will be collected in February 2010
GENERALJOURNAL Page 1
Date AccountTitle andDescription Acct.No.
Debit Credit
31Jan2004
AccountsReceivable 120 7.500
CommissionRevenues 600 7.500
Recognitionofcommissiononticketsales
38. 15. Ms. Farida ( the proprietor) withdrew $ 3,000 on 31 January for
her personal use.
Event No Assets Liabilities Owners’ Equity
7 +15.000 +15.000 No change
8 +2.500 No change No change
-2.500
9 +5.000 No change +5.000
10 -5.000 -5.000 No change
11 +7.500 +7.500 No change
12 +5.000 No change No change
-5.000
13 -9.000 No change -9.000
14 +7.500 No change +7.500
15 -3.000 No change -3.000
Total 128,000 27,500 100,500
39. 15. Ms. Farida withdrew $ 3.000 on 31 January for personal use.
Left or Debit Side Right or Credit Side
Increase Decrease
Owners' Withdrawals or Dividends
GENERAL JOURNAL Page 1
Date Account Title andDescription Acct.No. Debit Credit
31 Jan2004
Withdrawals XXX 3,000
Cash 100 3,000
Withdrawalbythe owner
40. Summary of Journalizing
Steps:
1. Determine the effects of transactions on
three components of the accounting
equation,
2. Determine which specific accounts are
affected, and
3. Assure that total of the increases should be
equal to either increases on the other side of
the equation or to decreases on the same
side, or a combination there of.
41. Behavior of Accounts- Summary
Assets = Liabilities + Owners’ Equity
+ - - + - +
Dr Cr Dr Cr Dr Cr
Expense Revenue
+ - - +
Dr Cr Dr Cr
Withdrawals/Dividends
+ -
Dr Cr
42. Accounting Cycle-Revisited
Analyze and
record the
transactions
Post the
transactions and
prepare trial
balance
Adjust the
accounts
and prepare
trial balance
Close the
accounts and
prepare trial
balance
Prepare the
financial
statements
43. Posting -Defined
• The process of transferring figures
from the journal to the ledger accounts
• It simply involves transferring data
from one accounting entry into another
• The purpose is to classify and
summarize transactions and events
affecting specific elements of the
financial statements
44. Four-Step Posting Process
1. Transfer transaction date to account’s date column
2. Transfer the debit/credit amount and calculate the
new balance
3. Write journal page number in posting reference
column of ledger as a cross-reference
4. Go back to journal and write account number in
posting reference column of journal as a cross-
reference
Cross-reference
The ledger account number in the Post. Ref. column
of the journal and the journal page number in the
Post. Ref. column of the ledger account
45. Posting to The Ledger illustrated
GENERAL JOURNAL Page 1
Date Account Title and Description Acct.No. Debit Credit
1 Jan 2004
Cash 100 100.000
Capital 500 100.000
Investment by the shareholders
LEDGER - Cash Acc. No. 100
Date Description Ref Debit Credit Debit
Balance
Credit
Balance
1 Jan 2004
Capital P 1 100,000 100,000
LEDGER - Capital Acc. No. 500
Date Description Ref Debit Credit Debit
Balance
Credit
Balance
1 Jan 2004
Cash P 1 100,000 100,000
46. LEDGER - Cash Acc. No. 100
Date Description Debit Credit
1 Jan Capital 100,000
1 Jan Office rent 600
2 Jan Office furniture and equipment 5,000
3 Jan insurance expense 120
10 Jan Bank loan 15,000
10 Jan Office supplies 2,500
20 Jan Accounts payable 5,000
22 Jan Unearned Revenue 7,500
23 Jan Acccounts Recievable 5,000
24 Jan salaries expense 9,000
31 Jan Withdrawal 3,000
Posting illustrated
47. Exercise
Post all the above transactions (journal entries)
to the following ledger accounts:
Prepaid Rent, Office supplies, Prepaid insurance, Office
Furniture & Equipment, Bank loan, Accounts Payable,
Unearned Revenue, Capital, Withdrawals, Commission
Revenue, & Salary Expense
Cast the ledger accounts
Determine the balances carried down (Bal c/d)
and balances brought down (b/d)
Prepare a summary of the ledger balances in a two
columnar listing to derive the Trial Balance( TB)
48. Category of the Account Increase Recorded
By
Normal Balance
Assets Debits Debit
Liabilities Credits Credit
Shareholders’ Equity
Capital Credits Credit
Dividends or Withdrawals Debits Debit
Revenues Credits Credit
Expenses Debits Debit
SUMMARY -Normal Balances of Accounts
49. Preparing a Trial Balance
List the ledger account balances
in two columns on the trial
balance
Left column = Debits
Right column = Credits
Trial balance proves DR = CR
50. The Balancing of Accounts, The Trial Balance &
Financial statements
Introduction:
In the previous exercise , you have learned the principles
of double entry and how to post to the ledger accounts. The
next step in our progress towards the financial statements is
the trial balance.
Before transferring the relevant balances at the year end to the
financial statements, it is usual to test the accuracy of the
double entry bookkeeping records by preparing a trial balance.
This is done by taking all the balances on every account. Due
to the nature of double entry, the total of the debit balances
will be exactly equal to the total of the credit balances.
51. The Balancing of Accounts & The Trial Balance
• Question: Once you have closed all the accounts, what would
do?
• Answer: Prepare a Trial Balance
• Question: What is a Trial Balance then? What is it for? How
does it look like?
• Answer: A Trial Balance is a list of nominal ledger account
and their balances at a given date. It is usually
prepared on the last day of the accounting period.
It consists of a Debit and a Credit balance.
• Its purposes:
• (1) It is prepared to check that the total of debit balances is the
same as the total of credit balances and offer reassurance that the
double entry recording from day books has been done correctly.
• (2) For preparation of statement of income and the statement of
financial position
52. The Balancing of Accounts & The Trial Balance
The rules to prepare the Trial Balance:
Total Debit Entries = Total Credit Entries
Debit Credit
Assets
Expenses
Drawings
Income/ Revenue
Liabilities
Capital
53. The Balancing of Accounts & The Trial Balance
Steps to preparing the Trial Balance:
1) Balance/cast ALL the ledger accounts in the books.
2) List all the Debit balances on the debit side and add them up.
3) List all the Credit balances on the credit side and add them up.
4) Ideally the trial balance should balance after step 3
54. The Balancing of Accounts & The Trial Balance
What if the trial balance shows unequal debit and credit
balances?
If the columns of the trial balance are not equal, there must be
an error in recording or processing the transactions.
4 Errors revealed by the trial balance:
The errors revealed are those errors which cause the Trial
Balance totals to disagree. (i.e do not balance)
There are FOUR types of errors revealed by a trial balance:
1) Posting to the wrong side of an account.
2) Errors in calculation and balancing
3) Incorrect amounts entered on one entry
4) Omission of one entry.
55. The Balancing of Accounts & The Trial Balance
Question: How do we locate all of the above errors?
Answers: 1) Check day-book (journal) totals
2) Check additions of Ledger accounts, ensure
each balance is correct
3) Check all ledger account balances have been
recorded in the Trial Balance.
4) Check all balances have been entered in the
Trial Balance on the correct side.
5) Check additions have been done correctly
56. The Balancing of Accounts,& The Trial Balance
Question: Once you are sure there is no mistake made in the
Trial Balance, what do you do in the next step?
Answers: Prepare End of Period Adjustment & then prepare
the following statements:
1) Statement of Income
2) Statement of Financial Position
In short, these are the steps:
1) Trial Balance
2) End of Period Adjustments
3) Statement of Income
4) Statement of Financial position
57. The Balancing of Accounts & The Trial Balance
However, a trial balance will not disclose the following types
of errors: (Errors not revealed by the trial balance)
1) Errors of omission
Complete omission of a transaction, because neither a
debit nor a credit is made.
2) Errors of commission
This happens when original figure incorrectly
entered. (Correct double entries but incorrect amounts
were recorded)
58. The Balancing of Accounts & The Trial Balance
3) Compensating errors
This happens where errors cancel out each other. (eg an
error of £100 is exactly cancelled by another £100 error
elsewhere).
4) Errors of principles
This happens when the wrong type of account had been
used (eg the purchase of a motor van is debited to a
expense account, such as motor expenses, rather than a
fixed asset account)
5) Complete reversal of entries
This happens when an account should be debited but was
credited (and vice versa)
59. The Trial Balance
Accounts Debit Credit
Cash 102,280
Accounts Receivable 7,500
Office Supplies 2,500
Prepaid Rent 600
Prepaid Insurance 120
Office Furniture and Equipment 15,000
Bank Loan 15,000
Accounts Payable 5,000
Unearned Revenues 7,500
Capital 100,000
Withdrawal 3,000
Commission Revenues 12,500
Salary Expenses 9,000
Total 140,000 140,000
Express Travel Agency
Trial Balance
31-Jan-10
in $