1 Accounting Process

• Accounting Cycle


  1. Analyzing the transaction

  2. Journalizing

  3. Posting

  4. Preparing the unadjusted trial balance

  5. Preparing adjusting entries

  6. Preparing the financial statements

  7. Preparing the closing entries

  8. Preparing the post closing trial balance

  9. Preparing reversing entries
• Journals


  Chronological record of transactions, also known as the book of original entry
• Special journals


  • Sales Journal
  • Cash receipts journal
  • Purchase journal
  • Cash disbursement journal
• Simple journal entry


  One which contains a single debit and a single credit element
• Compound journal entry


  One which has two or more elements and often representing two or more transactions
• Types of accounts


  • Real account
  • Nominal account
  • Mixed account
  • Clearing account
  • Controlling account
  • Suspense account
  • Reciprocal account
  • Principal account
  • Auxiliary account
  • Summary account
• General ledger


  Includes all the accounts appearing on the financial statements
• Subsidiary ledgers


  Affords additional detail in support of certain general ledger accounts
• Unadjusted trial balance


  A list of general ledger accounts with their respective debit or credit balance
• Adjusting entries


  To take up accruals, expiration of prepayments and deferrals, estimations and other events often not signaled by new source documents
• Types of adjusting entries

  • Prepayments and Deferrals
  • Accruals
  • Estimates
  • Ending inventory
• Prepaid expenses (asset method)


  Prepaid expense (asset) is debited and cash is credited
• Prepaid expenses (expense method)


  Expense is debited and cash is credited
• Deferred or unearned revenue (liability method)

  Cash is debited and unearned income (liability) is credited
• Deferred or unearned revenue (income method)

  Cash is debited and income is credited
• Accrued income


  Income earned but not yet received, a receivable is debited and income is credited
• Accrued expenses


  Expenses incurred but not yet paid, an expense is debited and a liability is credited
• Doubtful accounts


  The expense to be matched against credit sales
• Depreciation


  Allocation of the cost of fixed assets as expense over its useful life
• Basic financial statements


  • Statement of financial position
  • Income statement or a statement of comprehensive income
  • Statement of changes in equity
  • Statement of cash flows
  • Notes and disclosures
• Closing entries


  Recorded and posted for the purpose of closing all nominal or temporary accounts to the income summary account and the resulting net income or loss is afterwards closed to the capital or retained earnings account
• Post closing trial balance


  A listing of general ledger accounts and their balances after closing entries have been made
• Reversing entries


  Made at the beginning of the new accounting period to reverse certain adjusting entries from the succeeding accounting period
• Reversing entries


  • Accrued income
  • Accrued expense
  • Prepaid expense (if expense method was used)
  • Unearned income (if income method was used)