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    The Accounting Cycle

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    mckien9

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    The Accounting Cycle

    Uploaded by

    mckien9
    7 views15 pages

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    © © All Rights Reserved

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    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    7 views15 pages

    The Accounting Cycle

    Uploaded by

    mckien9

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    You are on page 1of 15

    The Accounting Cycle

    The Accounting Cycle


    Step 1: Collecting and Analyzing data about economic
    events;

    Step 2: Recording data in the Journal;

    Step 3: Posting from Journal to the T-Accounts [Ledger


    Accounts];

    Step 4: Preparing an Unadjusted Trial Balance;

    Step 5: Recording and Posting adjusting entries;


    Inventory; Depreciation; Prepayments;
    Accruals;

    Step 6: Preparing an adjusted Trial Balance;

    Step 7: Preparing the Financial Statements;


    Step 2: Recording data in
    Journal Entry:
    Steps Involved
     Read Transactions carefully;

     AnalyzeTransactions to derive the various


    accounts (at least 2) that are affected;

     Decide
    which account(s) is the giving account
    and which account(s) is the receiving account;

     Debit the receiving account(s);

     Credit the giving account(s);


    Recording data in Journal
    Entry
    Date Particulars Amount
    Debit Credit
    May 10, Receiving Account(s) (A/C) xxx

    Giving Account(s) (A/C) xxx


    JOURNAL ENTRIES

    May 1: Charley Barkley (a sole proprietor) started business with


    $100,000 in a Cash.

    May 3: Purchased Equipment costing $45,000.

    May 5: Bought Investments costing $3,000.


    JOURNAL ENTRIES (CON’T)

    May 7: Received an 8% Loan from the Communal Co-operative


    Credit Union of $15,000.

    May 9: Bought Land and Building costing $60,000 for business use.
    Charley paid $10,000 and issued a Note Payable for the
    remainder.

    May 11: Charley took $10,000 Cash out of the business for his own
    use.
    JOURNAL ENTRIES (CON’T)

    May 13: Bought more Investments costing $1,200.

    May 15: Charley purchased a Motor Vehicle costing $8,000 for


    business use.

    May 17: Paid Note Payable $10,000.

    May 19: Bought another Motor Vehicle costing $11,500 for business
    use.
    Journal Entry for transactions including
    Expenses
    June 14: Paid rent expense $1,100.

    June 16: Paid salaries and wages $2,300.


    Journal Entry for transactions
    including Revenues other than
    Sales
    June 19: Receive rental income $2,000.

    June 20: Receive commission income $1,250.


    Step 3: Posting to Ledger
    Accounts
    (T-Accounts)
    Account Name
    Debit Side Credit Side
    Receiving Side Giving
    Side
    Posting to Ledger (T-
    Accounts)
    Amount
    Date Particulars Debit Credit

    May 1, Bank Account 15,000

    Capital Account 15,000

    [Narrative if required]

    Bank Account Capital Account


    May 1 Capital 15,000 May

    1 Bank 15,000
    Journal Entry for the Asset
    Inventory:
    The Asset Inventories/goods involves four [4] different accounts.

    Sales A/c: in which sales of Purchases A/c: in which


    inventory are entered; purchases of inventory [net of
    Sales are always Credited trade discounts] are entered;
    Purchases are always
    Debited
    Sales Returns [Return
    Inwards] A/C: in which
    inventory being returned Purchases Returns [Return
    to the business by A/R Outwards] A/C: in which
    are entered; inventory being returned by the
    Sales Returns are business to A/P are entered;
    always Debited Purchase Returns are always
    Credited
    Balancing Ledger (T-
    Accounts)
    Cashbook

    Capital xxx Equipment xxx


    Sales xxx Purchases xxx
    Expenses xxx
    Ac Payable xxx
    Bal b/f xxx
    Step 4: Unadjusted Trial
    Balance
    A Trial Balance [TB] is a
    summary of all the balances
    remaining in the various ledger
    accounts in the debit [left] side
    and the credit [right] side.
    Reason for TB:
    ◦ to check the arithmetical accuracy of
    the ledgers.
    ◦ to check if the total debit balances
    = the total credit balances
    Trial Balance Format
    Business Name
    Trial Balance as at/of December 31, 2020

    Dr. Cr.
    Assets xxx
    Liabilities xxx
    Capital xxx
    Income xxx
    Expenses xxx
    xxx xxx

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