4. accounting cycle short mba
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Transcript of 4. accounting cycle short mba
The Accounting Cycle
Accounting Cycle
It refers to a complete sequence of accounting
procedures, which are required to be repeated in the
same order during each accounting period.
It is complete sequence beginning with the recording
of the transaction and ending with the preparation of
the final accounts.
The Accounting Cycle
1. Analyze the transaction
2. Journalize the transaction
3. Post the transaction to accounts in ledger
4. Prepare the trial balance
5. Prepare financial statements
The Accounting Cycle: Steps
Accounting Cycle
• The sequence of steps in recording
transactions:
Transactions Documentation Journal
Financial
Statements
Trial
Balance Ledger
The Accounting Cycle: Steps
Accounting Cycle
• Analysis of transactions from source documents
• Journalising the transactions
• Posting of journal entries into the ledger accounts
• Balancing of each ledger account
• Preparation of a trial balance to establish equality of
debits and credits in the ledger accounts.
• Recording of adjusting entries in the journal
• Recording of adjusting entries in the Ledger account.
• Recording of closing entries in the journal
• Preparation of financial statements/final accounts
The Accounting Cycle: Steps
Accounting Cycle
• The process starts with source
documents, which are the supporting
original records of any transaction.
– Examples are sales slips or invoices,
check stubs, purchase orders, bank
deposit slips, and cash receipt slips.
1. Analyze the transaction
The Accounting Cycle: Steps
2. Journalize the transaction
• In the second step, an analysis of the
transaction is placed in the book of
original entry, journal, which is a
chronological record of how the
transactions affect the balances of
applicable accounts.
– The most common example is the
general journal - a diary of all events
(transactions) in an entity’s life.
The Accounting Cycle: Steps
• In the third step, transactions are entered into
the ledger.
– Remember that a transaction is not
entered in just one place; it must be
entered in each account that it affects.
– Depending on the nature of the
organization, analysis of the transactions
could occur continuously or periodically.
3. Post the transaction to accounts in ledger
The Accounting Cycle: Steps
Accounting Cycle
• The fourth step includes the preparation
of the trial balance, which is a simple
listing of all accounts from the ledger
with their balances.
– Aids in verifying accuracy and
in preparing the financial statements
– Prepared periodically as necessary
4. Prepare the trial balance
The Accounting Cycle: Steps
Accounting Cycle
• In the final step, the financial statements
are prepared.
– Financial statements may be prepared
after each quarter of the year.
– the companies may prepare
financial statements at
various other intervals to
meet the needs of their users.
December 2007
5. Prepare financial statements
The Accounting Cycle: Steps
JOURNAL
Journal
• It is a list in chronological order of all the
transactions for a business.
What is a journal?
•It is the book of original (first) entry
Date Particulars V.NO. L.F Debit Credit
Format of Journal
Recording transactions
in the journal.
Journalizing
• It is the process of entering transactions
into the journal
Journal entry
An analysis of the effects of a transaction on the
accounts, usually accompanied by an
explanation of the transaction.
–This analysis identifies the accounts to be
debited and credited.
Types of journal entries
Simple entry
- an entry for a transaction that affects only two
accounts
Compound entry
- an entry for a transaction that affects more
than two accounts
• Remember: debits and credits must always be equal.
Journal entry
What does a journal entry include?
– Date of the transaction
– Title of the account debited
– Title of the account credited
– Amount of the debit and credit
– Description of the transaction (narration)
Steps Involved in Journalizing
• Identify transaction from source documents.
• Specify accounts affected.
• Apply debit/credit rules to determine which
accounts are to be debited and those to be
credited .
• Record transaction with description.
How to Record Transactions in a Journal
• Enter date in first column(date column)
• In particulars column enter the name of the account
debited at extreme left of column and abbreviation Dr. at
right end of particulars column.
• Write amount in Debit column
• In particulars column enter the title of the account to be
credited indented to right preceded by the word “To”
and write amount in Credit column.
• Insert a narration which is a brief description of
transaction
• Draw a line across particulars column
Journalizing
• On April 1, Garge invested Rs 30,000 in GillenTravel.
Journal entry
Date Particulars Debit Credit
April Rs Rs
1 Cash Account Dr 30,000
To Garge Capital 30,000
(Received initial investment
from owner)