Unit 4 The Accounting Cycle

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Unit 4 The Accounting Cycle

  1. 1. Unit 4 The Accounting Cycle Orcutt Academy High School Accounting & Finance
  2. 2.  What are Source Documents? ◦ ◦ ◦ ◦ ◦ ◦ Invoice Receipt Deposit Slip Check Counterfoil Statement Payment Confirmation 4-1 Source Documents
  3. 3. The first documents that exist relating to a transaction.  Serve as proof for a transaction  ◦ Include date and time Why Source Documents
  4. 4. Normally relate to credit transactions  List goods or services provided and their prices.  Suppliers normally send an invoice with goods (or once services have been delivered)  Indicate payment terms (time, # of payments, etc…)  “Bills”  Invoices
  5. 5. Confirm that services or goods have been received.  Normally relate to cash transactions.  Receipts
  6. 6.  Proof that cash, including currency and checks, has been deposited in a bank account. Deposit Slip
  7. 7.  This is the part of the check kept by the drawer (writer) of the check as a record of the transaction. Check Counterfoil
  8. 8.  A report showing ◦ the amount owed by one business to another ◦ details of transactions between the two businesses Statement
  9. 9.  Proof of Internet transactions Payment Confirmation
  10. 10. 4-2 Accounting Journals
  11. 11.  Debits and Credits in Chronological Order What are Journals?
  12. 12. Used to be an actual book.  Now accountants record journal entries using an accounting program.  What are Journals?
  13. 13.  To keep a day-to-day record of a business and its transactions. Purpose
  14. 14.  Includes a brief explanation of the transaction ◦ should accurately describe what took place, so that anyone who glanced at it for the first time could easily identify what occurred. Explanations
  15. 15.  Each journal can be matched to the relevant supporting document ◦ Check stub ◦ Receipt Supporting Documents
  16. 16. A cross-referencing code or folio number is included.  This code or folio number simply crossreferences between one document and another.  Folio Numbers for Source Documents
  17. 17.  If the this transaction of $15,000 capital was made by issuing check number 38, then one could write “Ch-38” (for example) under the folio number. Folio Numbers for Supporting Documents
  18. 18. To easily trace the recorded transaction back to the source document  To verify that the transaction actually took place.  Why include folio numbers?
  19. 19. Each specific account, such as bank, would have its own folio number  Used to cross reference from the journal entry involving “bank” to the bank’s account in the ledger  ◦ This will be covered in the next section.  Make it simple to trace information through the steps in the accounting cycle. Folio Numbers for Accounts
  20. 20. “Sal-1” is the individual code for the account “salaries.” “J-1” is the code for “journal page 1.”  One could follow information from the journal entry to an account in the ledger, or from an account in the ledger back to the journal entries.  Cross-Referencing Accounts
  21. 21. 1. 2. 3. 4. 5. 6. 7. Cash Receipts Journal – for all cash receipts. Cash Payments Journal – for all cash payments. Sales Journal – all sales on credit. Sales Returns Journal – all sales on credit that have been returned. Purchases Journal – all purchases on credit. Purchases Returns Journal – all purchases on credit that have been returned. General Journal – for all transactions not falling under any of the above journals. The Different Journals
  22. 22. Where you record all cash that has been received. Major categories of receipts, such as from income or from debtors, receive their own  column.  The category called “sundry” is used to represent less regular items, such as capital or receiving cash from a loan.   ◦ The word sundry means “various,” “miscellaneous” or “general.”  The “bank” column is added up to show the total cash received for the period concerned. Cash Receipts Journals
  23. 23.  Where you record all transactions where cash has been paid out. Cash Payments Journal
  24. 24. The cash receipts journal and cash payments journal can be replaced by the cash book, which is simply a combination journal showing all receipts and all payments together.  Petty cash, which is simply a sum of cash on hand kept to pay small expenses, can also have its own separate journal.  Cash Book & Petty Cash
  25. 25. 4-3 Ledger (T-Accounts)
  26. 26. A whole bunch of T-accounts grouped together.  The main ledger is called the general ledger. Virtually all T-accounts in a business fall under the general ledger.  What is a ledger?

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