Accounting Cycle

Overview

1
 The Accounting Cycle
• The accounting cycle is the process by
which accountants prepare financial
statements for an entity for a specific
period of time.

2
 The Accounting Cycle
• For a new business, begin by setting
up ledger accounts.
• For an established business, begin with
account balances carried over from the
previous period.

3
STEPS IN THE ACCOUNTING
CYCLE
1 Analyze business transactions
2 Journalize the transactions
3 Post to ledger accounts
4 Prepare a trial balance
5 Journalize and post adjusting
entries
4
STEPS IN THE ACCOUNTING
CYCLE
6 Prepare an adjusted trial balance
7 Prepare financial statements:
Income statement, Owner’s
Equity Statement, Balance Sheet
8 Journalize and post closing entries
9 Prepare a post-closing trial
balance

5
 THE JOURNAL
 Transactions are initially recorded in
chronological order in a journal before being
transferred to the accounts.
 Every company has a general journal which
contains:
1 spaces for dates,
2 account titles and explanations,
3 references, and
4 two amount columns. 6
 JOURNALIZING
 Entering transaction data in the journal is
known as journalizing.
 Separate journal entries are made for each
transaction.
 A complete entry consists of:
1 the date of the transaction,
2 the accounts and amounts to be debited and
credited, and
3 a brief explanation of the transaction. 7
 GENERAL JOURNAL
POST
DATE ACCOUNT REF DEBIT CREDIT

8
 GENERAL JOURNAL

General Journal Page 1

Date Accounts and Explanation Debit Credit

April 2 Cash 30,000
Gallen, Capital 30,000

Received initial investment from owner.

9
 THE LEDGER
 The entire group of accounts maintained by a
company is called the ledger.
ledger
 A general ledger contains all the assets, liabilities,
and owner’s equity accounts.

GENERAL
LEDGER

10
 ILLUSTRATION
ILLUSTRATION
THE
THE GENERAL
GENERAL LEDGER
LEDGER

Individual Individual Individual

Assets Liabilities Owner’s Equity

Equipment Interest Payable Salaries Expense

Land Salaries Payable Fees Earned
Supplies Accounts Payable J. Lind, Drawing

Cash Notes Payable J. Lind, Capital

11
 GENERAL LEDGER
ACCOUNT : CASH No Account : 1101
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

12
 POSTING
• It is the transfer of information from the
journal to the appropriate accounts in the
ledger.

13
 The T-Account
Account Title
Debit Credit

LEFT SIDE

14
The T-Account
Account Title
Debit Credit

RIGHT SIDE

15
 GENERAL LEDGER
Posting
Account: Account No:
Balance
Date Item Ref. Debit Credit Debit Credit

Insert the number of the journal page.

16
 GENERAL LEDGER
Posting
Account: Cash Account: 101
Balance
Date Item Ref. Debit Credit Debit Credit
Apr 2 Jr l 30,000 30,000

Insert the number of the journal page.

17
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400

1. Analyze and record the transaction as shown.

2. Post the debit side of the transaction.
3. Post the credit side of the transaction.
18
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400
1 General Ledger
Account: Prepaid Insurance Account No. 15
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1

1 Enter the transaction date in the ledger account.

19
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400

General Ledger 2

Account: Prepaid Insurance Account No. 15

Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1 2,400

2 Enter the debit amount in the ledger debit column.

20
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400

General Ledger
Account: Prepaid Insurance Account No. 15
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1 2,400 2,400
3

3 Update the ledger account balance.

21
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 2,400
Cash 2,400

General Ledger 4

Account: Prepaid Insurance Account No. 15

Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1

4 Enter the journal page in the ledger account.

22
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 2,400
5
General Ledger
Account: Prepaid Insurance Account No. 15
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 1 2,400 2,400

5 Enter the ledger account number in the journal.

23
Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 Prepaid Insurance 15 2,400
Cash 11 2,400
1
4 5 2
General Ledger
Account: Cash Account No. 11
Post. Balance
Date Item Ref. Debit Credit Debit Credit
11/30 Balance 5,900
12/1 1 2,400 3,500
3

All five parts of the credit posting are shown.

24
General Ledger and Subsidiary
Ledgers
General Ledger

Cash Accounts Receivable

Subsidiary Ledger

Accts. Receivable Customer Accounts

A B C D

Supplies

Accts. Payable

25
 General Ledger and
Subsidiary Ledgers
General Ledger

Cash Accounts Receivable

Subsidiary Ledger

Accts. Receivable Customer Accounts

A B C D

Supplies Accounts Payable

Subsidiary Ledger

Accts. Payable Creditor Accounts

A B C D
26
 SUBSIDIARY ACCOUNT RECEIVABLE LEDGER
CUSTOMER : BRIGHT, Co. No Account : 11210
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

27
 SUBSIDIARY ACCOUNT PAYABLE LEDGER
SUPPLIER : STARS, Co. No Account : 21010
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

28
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000

1. Analyze and record the transaction as shown.

2. Post the debit side of the transaction.
3. Post the credit side of the transaction.
29
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co 2,000
Service Rev. 2,000
1 General Ledger
Account: Account Receivable Account No. 12
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1

1 Enter the transaction date in the ledger account.

30
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co 2,000
Service Rev. 2,000
1 Subsidiary Ledger
Vendor: Offset Co. Account No. 121
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1

1 Enter the transaction date in the ledger account.

31
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000
2
General Ledger
Account: Account Receivable Account No. 12
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000

2 Enter the debit amount in the ledger debit column.

32
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000
2
Subsidiary Ledger
Vendor: Offset Co. Account No.121
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000

2 Enter the debit amount in the ledger debit column.

33
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000

General Ledger
Account: Account Receivable Account No. 12
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000 2,000
3

3 Update the ledger account balance.

34
 Recording and Posting an Entry

General Journal Page 1

Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000

Subsidiary Ledger
Vendor: Offset Co. Account No. 121
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000 2,000
3

3 Update the ledger account balance.

35
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000
4
General Ledger
Account: Account Receivable Account No. 12
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1

4 Enter the journal page in the ledger account.

36
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 2,000
Service Rev. 2,000
4
Subsidiary Ledger
Vendor: Offset Co. Account No. 121
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1

4 Enter the journal page in the ledger account.

37
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 12 2,000
Service Rev. 2,000
5
General Ledger
Account: Account Receivable Account No. 12
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000 2,000

5 Enter the ledger account number in the journal.

38
 Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 12/121 2,000
Service Rev. 2,000
5
Subsidiary Ledger
Vendor: Offset Co. Account No. 121
Post. Balance
Date Item Ref. Debit Credit Debit Credit
12/1 G1 2,000 2,000

5 Enter the ledger account number in the journal.

39
Recording and Posting an Entry
General Journal Page 1
Post.
Date Description Ref. Debit Credit
12/1 A/R / Offset Co. 12/121 2,000
Service Rev. 41 2,000
1
4 5 2
General Ledger
Account: Service Revenue Account No. 41
Post. Balance
Date Item Ref. Debit Credit Debit Credit
11/30 Balance 5,000
12/1 G1 2,000 7,000
3

All five parts of the credit posting are shown.

40
 GENERAL LEDGER AND
SUBSIDIARY LEDGER
On February 2, recorded service
TRANSACTION
TRANSACTION performed on account from Auto Co.
$2,000.

JOURNAL
JOURNALENTRY
ENTRY
Date Description Post Debit Credit
Ref

Feb 2 A/R / Auto Co 2,000

Service Revenue 2,000

41
 GENERAL LEDGER
Posting
Account: Account Receivable Account: 102
Balance
Date Item Ref. Debit Credit Debit Credit
Feb 2 Auto Co G1 2000 2000

42
 ACCOUNT RECEIVABLE
SUBSIDIARY LEDGER
Posting

Vendor: Auto Co Account:1021

Balance
Date Item Ref. Debit Credit Debit Credit
Feb 2 G1 2000 2000

43
 GENERAL LEDGER AND
SUBSIDIARY LEDGER
On February 2, recorded service
TRANSACTION
TRANSACTION performed on account from Auto Co.,
$2,000.

JOURNAL
JOURNALENTRY
ENTRY
Date Description Post Debit Credit
Ref
120/
Feb 2 A/R / Auto Co 1021
2,000
Service Revenue 41 2,000

44
 GENERAL LEDGER AND
SUBSIDIARY LEDGER
On February 5, Purchased Office
TRANSACTION
TRANSACTION Equipment on account from Payne Co.
$1,500.

JOURNAL
JOURNALENTRY
ENTRY
Date Description Post Debit Credit
Ref

Feb 5 Office Equipment 1,500

A/P / Payne Co. 1,500

45
 GENERAL LEDGER
Posting
Account: Account Payable Account: 201
Balance
Date Item Ref. Debit Credit Debit Credit
Feb 5 Payne Co. G1 1500 1500

46
 ACCOUNT PAYABLE
SUBSIDIARY LEDGER
Posting

Vendor: Payne Co. Account:2011

Balance
Date Item Ref. Debit Credit Debit Credit
Feb 5 G1 1500 1500

47
 GENERAL LEDGER AND
SUBSIDIARY LEDGER
On February 5, Purchased Office
TRANSACTION
TRANSACTION Equipment on account from Payne Co.
$1,500.

JOURNAL
JOURNALENTRY
ENTRY
Date Description Post Debit Credit
Ref

Feb 5 Office Equipment 115 1,500

A/P / Payne Co. 201/ 1,500
2011

48
 STEPS
STEPS IN
IN THE
THE RECORDING
RECORDING
PROCESS
PROCESS
The basic steps in the recording
process are:
1. ANALYZE each transaction for its
effect on the accounts.
2. Enter the transaction information in
a JOURNAL (book of original
entry).
3. Transfer the journal information to
the appropriate accounts in the
LEDGER (book of accounts).
49
 ILLUSTRATION
ILLUSTRATION
THE
THE RECORDING
RECORDING PROCESS
PROCESS
JOURNAL

LEDGER
JOURNAL

1 Analyze each transaction

2 Enter transaction in a journal
50
3 Transfer journal information to ledger accounts
LATIHAN POSTING

51
 GENERAL JOURNAL
Page: 1

POST
DATE ACCOUNT REF
DEBIT CREDIT

2003 2,000
Jan 3
Office Supplies
A/P / Jacob Co. 2,000
10 Cash 3,500
Fees Earned 3,500
15 A/R / Hendrik Co. 2,000
Fees Earned 2,000
27 A/P / Jacob Co. 2,000
Cash 2,00052
 Chart of Accounts
100 Assets 200 Liabilities
110 Cash 210 Accounts Payable
111 Notes Receivable 211 Salaries Payable
112 Accounts Receivable 212 Unearned Rent
113 Interest Receivable 215 Notes Payable
115 Merchandise Inventory
300 Owner’s Equity
116 Office Supplies
310 Chris Clark, Capital
117 Prepaid Insurance
311 Chris Clark, Drawing
120 Land
312 Income Summary
123 Store Equipment
124 Accumulated Depreciation—
Store Equipment
125 Office Equipment
126 Accumulated Depreciation—
Office Equipment

53
 Chart of Accounts
400 Revenues
410 Fees Earned Subsidiary Accounts

500 Expenses Account Receivable

510 Insurance Expense
1121 Hendrik Co.
520 Salaries Expense
521 Advertising Expense Account Payable
522 Depreciation Expense—
Store Equipment 2101 Jacob Co.
529 Miscellaneous Expense
530Utilities Expense
531 Rent Expense
532 Depreciation Expense—
Office Equipment

533 Office Supplies Expense

54
 POSTING EXERCISE
Instructions:
1.Post each account to
general ledger.
2.Remember to put
balance after posting.
3.Do it in your paper
work.
55
POSTING
RESULT
56
 GENERAL LEDGER
ACCOUNT : CASH No Account : 110
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

2003 $10,000
1 Balance √
Jan 10 GJ1 3,500 13,500
27 GJ1 2,000 11,500

57
 GENERAL LEDGER
ACCOUNT : ACCOUNT RECEIVABLE No Account : 112
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

2003 1 Balance $5,000

√
Jan 15 GJ1 2,000 7,000

58
 GENERAL LEDGER
ACCOUNT : OFFICE SUPPLIES No Account : 116
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

2003 1 Balance √ $ 1,500

Jan 3 GJ1 2,000 3,500

59
 GENERAL LEDGER
ACCOUNT : ACCOUNT PAYABLE No Account : 210
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

20031 Balance √ $6,000

Jan 3 GJ1 2,000 8,000
27 GJ1 2,000 6,000

60
 GENERAL LEDGER
ACCOUNT : FEES EARNED No Account : 410
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

200310 GJ1 $3,500 $3,500

Jan 15 GJ1 2,000 5,500

61
 SUBSIDIARY ACCOUNT RECEIVABLE LEDGER
CUSTOMER : HENDRIK, Co. No Account : 1121
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

2003 15 GJ1 2,000 2,000

Jan

62
 SUBSIDIARY ACCOUNT PAYABLE LEDGER
SUPPLIER : JACOB, Co. No Account : 2101
BALANCE
POST
DATE DESCRIPTION REF. DEBIT CREDIT
DEBIT CREDIT

20033 GJ1 2,000 2,000

Jan 27 GJ1 2,000 - -

63
 GENERAL JOURNAL
Page: 1

POST
DATE ACCOUNT REF
DEBIT CREDIT

2003
Office Supplies 116 2,000
Jan 3
210
A/P / Jacob Co. 2101 2,000
10 Cash 110 3,500
Fees Earned 410 3,500
15 112
A/R / Hendrik Co. 1121 2,000
Fees Earned 410 2,000
27 210
A/P / Jacob Co. 2101 2,000
110 64
Cash 2,000
 THE TRIAL BALANCE
A trial balance is a list of accounts
and their balances at a given time.
The primary purpose of a trial
balance is to prove (check) that the
debits equal the credits after posting.

65
 THE TRIAL BALANCE
 If the debits and credits do not agree, the trial
balance can be used to uncover errors in
journalizing and posting.
 The procedures for preparing a trial balance consist
of:
1 List the account titles and their balances.
2 Total the debit and credit columns.
3 Prove the equality of the two columns.
66
 A
ILLUSTRATION
ILLUSTRATION

TRIAL
TRIAL BALANCE
BALANCE

The total
debits must
equal the total
credits.

67
 Locating Trial Balance Errors
• Divide the difference by two.
• Is there a debit/credit balance for this
amount posted in the wrong column?
• Check journal postings.
• Review accounts for reasonableness.
• Computerized accounting programs
usually prohibit out-of-balance entries.
68
 WORKSHEET
• The use of a work sheet is optional.
• When one is used, financial statements
are prepared from the worksheet.
• Adjustments are journalized and
posted from the work sheet after
financial statements are prepared..

69
 ABC CO.
Worksheet
For The Period Ended Dec 31, 200X
Income Balance
Trial Balance Adjustments Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.
Cash
Accounts receivable
Supplies
Equipment
Accum. depreciation
Accounts payable
Salary payable
Unearned revenue
Capital
Withdrawals
Revenue
Salary expense
Supplies expense
Depreciation expense
Totals

70
WORKSHEET WITH 8 COLUMNS
TRIAL
TRIAL BALANCE
BALANCE

The total
debits must
equal the total
credits.

71
 ABC CO.
WORKSHEET
For The Period Ended Dec 31, 200X
Adjusted Income Balance
Trial Balance Adjustments Trial Balance Statement Sheet
Account Title Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr. Dr. Cr.

Cash 15,200
Accounts receivable 2,500
Prepaid Insurance 600
Equipment 5,000
Accounts payable 5,000
Salary payable 2,500
Unearned fees 1,200
C.R. Byrd, Capital 10,000
C.R. Byrd, Drawing 500
Fees Earned 10,000
Salary expense 4,000
Insurance expense 900

Totals 28,700 28,700 72

END

73