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THE ACCOUNTING CYCLE IN BRIEF
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Transcript of THE ACCOUNTING CYCLE IN BRIEF
ACCOUNTING MANAGEMENT
Submitted To:
Asst.Prof Smruti Ranjan Sahoo
MECHANICAL(B)
ACCOUNTING CYCLEPresented By:-140301MER107: Sambit Raj140301MER108: Rohit Mohanta140301MER109: Sarthak Tapas Ray140301MER110: Soumya Ranjan Rout140301MER111: P Sunjeet Kumar
The Accounting Cycle
• Accounting procedures are performed over a period of time.
• Procedures are performed in a definite order in the accounting cycle.
• The accounting period is a period of time covered by the income statement.
• Usually this is a twelve month period.• The accounting cycle has sequential steps to
be performed again each year.
The Accounting Cycle
• Accounting is the process that...– analyzes, – records,– classifies,– summarizes,– reports, and...– interprets.
The Accounting Cycle
A sole proprietorship:– has one owner– begins with a monthly accounting cycle– owner has a capital and withdrawals account
Business Organizations
• All three types of business entities use the same basic accounting system.
Sole proprietorship
Partnerships
Corporations
• The Accounting Cycle:1 Analyzing2 Recording transactions – journalizing3 Posting to the ledger accounts4 Preparing the trial balance• The accounting cycle has some variations in a
computerized accounting system.
What is the general journal? • It is the book of original entry.• Transactions are written in a journal in
chronological order.• The format of the journal is important.• Journalizing is the process of entering
information as debits and credits to the correct accounts.
What is the general ledger?• It is the book of final entry.• The information from the journal is
transferred to the ledger in the posting process.
• Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.
What is the chart of accounts?• It is the list of accounts used by a business.• Each business entity has its unique chart of
accounts.• Every chart of accounts has the same
numbered account categories:– Assets, Liabilities, Owner’s Equity– Revenues, Expenses
Journalizing• Debits are always recorded first.• Indent, then record the credit below the
debit.• A short explanation is included on the second
line.• Leave a space between journal entries.
• Debits must always equal credits.• Amounts incurred for items that benefit
future accounting periods are recorded as assets.
• What are some examples?– prepaid rent– prepaid insurance
• Amounts for items used (expenses incurred) in the current accounting period are recorded as expenses.
• What are some examples?– supplies used– rent for the month– expired insurance
• Amounts are recorded as revenue on the date in which they are earned.
• When are revenues earned?• When services are performed, not necessarily
when cash is paid.
Posting• All transactions are recorded in the journal,
then amounts are copied to the ledger accounts named on the journal line.
• Once the amounts are entered into the accounts, a posting reference (PR) must be entered in the journal.
• New balances are computed in the running ledger accounts.
Posting
BalanceAccount: Cash Account: 1000
Insert the number of the journal page.
Date ref. debit credit debit credit
June 1 jr1 5,000 5,000
Example
Journal Page 1
Date Account and Explanation Post Ref. debit credit
Initial investment
June 1 Cash 1000 5,000 Clara J. Capital 3010 5,000
Example
Journal Page 1
Date Account and Explanation Post Ref. debit credit
Paid phone bill
July 3 Phone Expense 5040 155 Accounts Payable 2000 155
Example
Journal Page 1
Date Account and Explanation Post Ref. debit credit
Paid insurance bill
July 6 Insurance Expense 5060 150 Cash 1000 150
Example
Journal Page 1
Date Account and Explanation Post Ref. debit credit
Paid Accounts Payable
July 8 Accounts Payable 2000 200 Cash 1000 200
Example
Journal Page 1
Date Account and Explanation Post Ref. debit credit
Performed Services
July 8 Accounts Receivable 1020 850 Service Revenue 4000 850
Preparing the Trial Balance• The trial balance lists the accounts that have
balances in the same order as they appear in the chart of accounts.
• The trial balance will show if debits/credits have been interchanged, or if amounts have been transposed, or if a debit/credit was omitted or recorded twice.
• Some errors do not show, such as omissions or recording to the wrong account.
• Corrections before posting are made in the journal.
• An audit trail must be left.• Do not erase – cross out errors and enter
corrections.
• What about corrections after posting?• This means that errors are also in the ledger
accounts.• Cross out incorrect amounts, change to
corrected amounts, and record balance changes.
THANK YOU