(Intermediate Accounting 1A)

LECTURE AID

2019

ZEUS VERNON B. MILLAN

Chapter 1 The Accounting Process

Learning Objectives
• Enumerate the steps in the accounting
cycle and explain each briefly.
• State the different types of accounting
records used in the recording process.
• Enumerate the components of a
complete set of financial statements.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Accounting Cycle

• The accounting cycle represents the steps or

accounting procedures normally used by entities
to record transactions and prepare financial
statements.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Steps in the Accounting Cycle
1. Identifying and analyzing transactions
2. Journalizing
3. Posting
4. Preparing the unadjusted trial balance
5. Preparing the adjusting entries
6. Preparing the adjusted trial balance
7. Preparing the financial statements
8. Closing the books
9. Preparing the post-closing trial balance
10. Preparing the reversing entries

INTERMEDIATE ACCTG 1A (by:

MILLAN)
The Double-Entry System
Under the Double-entry system system, each transaction is
recorded in two parts – debit and credit. The double-entry system
makes use of the following concepts:
• Duality – this concept views each transaction as having a two-fold
effect on values – a value received and a value parted with, and each
transaction is recorded using at least two accounts.
• Equilibrium – this concept requires each transaction to be
recorded in terms of equal debits and credits.
  

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Accounting Records
• Journal – “book of original entry”
a. General Journal –used to record transactions other than those that are
recorded in the special journals.
b. Special Journal – used to record transactions of a similar nature.

• Ledger – “book of final entry”

– is a systematic compilation of a group of accounts.
a. General ledger – contains all accounts appearing in the financial
statements.
b. Subsidiary ledger – supporting ledger for controlling accounts in the
general ledger.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Account

• Account is the basic storage of information in accounting, e.g.,

“cash,” “land,” “accounts payable,” etc. Accounts in the ledger follow
the format of a T-account.
• Chart of accounts - list of all the accounts used by the entity.
• Real accounts, Nominal accounts, Mixed accounts, Contra
accounts, and Adjunct accounts.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Trial balance

• Trial Balance – is a list of general ledger accounts and their

balances. It is prepared to check the equality of total debits
and total credits in the ledger.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Adjusting entries

• Adjusting entries are entries made prior to the preparation of

financial statements to update certain accounts so that they reflect
correct balances as of the designated time.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Financial statements
• Financial statements are the means by which the information accumulated
and processed in financial accounting is periodically communicated to the
users.
• A complete set of financial statements consists of:
1. Statement of financial position;
2. Statement of profit or loss and other comprehensive income;
3. Statement of changes in equity;
4. Statement of cash flows;
5. Notes;
(5a) Comparative information; and
6. Additional statement of financial position (required only when certain
instances occur).

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Methods of initial recording of income and expenses

• Income
(a) Liability method
(b) Income method

• Expenses
(a) Asset method
(b) Expense method

INTERMEDIATE ACCTG 1A (by:

MILLAN)
Reversing entries

• Reversing entries may be made on the following:

(a) all accruals,
(b) prepayments initially recorded using the expense method, and
(c) unearned income initially recorded using the income method.

INTERMEDIATE ACCTG 1A (by:

MILLAN)
 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

INTERMEDIATE ACCTG 1A (by: MILLAN)

 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

INTERMEDIATE ACCTG 1A (by: MILLAN)

 END
INTERMEDIATE ACCTG 1A (by: MILLAN)