Accounting Cycle – General

Journal
Lecture 3
Accounting Cycle:
The sequence of accounting procedures used to record, classify, and
summarize accounting information in financial reports at regular intervals is
often termed the accounting cycle . The accounting cycle begins with the
initial recording of business transactions and concludes with the preparation
of a complete set of formal financial statements. The term cycle indicates
that these procedures must be repeated continuously to enable the
business to prepare new, up-to-date financial statements at reasonable
intervals.
Accounting Cycle (cont.)
The accounting cycle generally consists of eight specific steps:
1. journalize (record) transactions
2. post each journal entry to the appropriate ledger accounts
3. prepare a trial balance
4. making end-of-period adjustments
5. preparing an adjusted trial balance
6. preparing financial statements
7. journalizing and posting closing entries
8. preparing an after-closing trial balance
The contra asset account:
Allowances for bad debt or Allowances for depreciation.

The contra expense account:

Purchase returns and allowances or purchase discount account.

The contra liability account:

Discount on bonds payable account.

The contra equity account:

Owner’s drawing or treasury stock account (Company buys back its stocks).

The contra revenue account:

Sales return and allowances or sales discount account.
Debit & Credit Rule:
 Example:
Overnight Corporation’s transactions during January were as follows, with the resulting balance
sheet indicated in parentheses:
Jan. 20 Michael McBryan started the business by depositing $80,000 received from the
sale of capital stock in a company bank account.
Jan. 21 Purchased land for $52,000, paying cash.
Jan. 22 Purchased a building for $36,000, paying $6,000 in cash and issuing a note
payable for the remaining $30,000.
Jan. 23 Purchased tools and equipment on account, $13,800.
Jan. 24 Sold some of the tools at a price equal to their cost, $1,800, collectible within 45
Days.
Jan. 26 Received $600 in partial collection of the account receivable from the sale of tools.
Jan. 27 Paid $6,800 in partial payment of an account payable.
Jan. 31 Received $2,200 of sales revenue in cash.
Jan. 31 Paid $1,400 of operating expenses in cash—$200 for utilities and $1,200 for
Wages.
Instructions:
• Prepare journal entries
• Prepare Ledger Accounts
• Expanded Accounting Equation (To show the effects of business transaction
on accounting equation
THE END