FAR-RAP ACCOUNTING PROCESS

• Steps in accounting cycle

  1. Analyzing the business documents or transactions

  2. Journalizing

  3. Posting

  4. Preparing the unadjusted trial balance

  5. Preparing the adjusting entries

  6. Preparing the financial statements

  7. Preparing the closing entries

  8. Preparing a post-closing trial balance

  9. Preparing the reversing entries

  
  

  Steps 1 to 4 are within the recording phase, while Steps 5 to 9 are within the summarizing phase
• The accounting process can be classified into two parts: recording phase and summarizing phase
• The unadjusted and post-closing trial balance, reversing entries and worksheet are optional steps in the accounting cycle
• Accounting records

  • Business or source documents
  • Books of original entry
  • Books of final entry
• Business or source documents

  Original source materials evidencing a transaction
• Journalizing

  Process of recording transactions in the journal through journal entries
• Systems of recording transactions

  • Double entry system
  • Single entry system
• Double entry system


  • Each transaction is recorded in two parts: DEBIT and CREDIT
  • Uses the concepts of DUALITY and EQUILIBRIUM
• Single entry system


  • Each transaction is recorded through simple narrative
  • Approach in computing net income is capital maintenance
  • Accounts used are limited (cash, accounts receivable, accounts payable, equity)
  • Books of accounts used are cash books and subsidiary ledgers
• Types of journals


  • General journal
  • Special journals (sales journal, cash receipts journal, purchases journal, cash disbursement journal)
• Posting


  Process of transferring data from the journal to the appropriate accounts in the ledger
• Ledger


  Systematic compilation of a group of accounts
• Kinds of ledger

  • General ledger
  • Subsidiary ledger
• Account

  Basic storage of information in accounting, following the T-account format
• Types of accounts

  • Real accounts (assets, liabilities, equity)
  • Nominal accounts (revenues and expenses)
  • Mixed accounts
  • Contra accounts
  • Adjunct accounts
• Contra accounts

  Accounts deducted from a related account, such as accumulated depreciation and allowance for doubtful accounts
• Adjunct accounts

  Accounts added to a related account, such as premium on bonds payable
• Valuation accounts

  Contra and adjunct accounts
• Trial balance

  List of general ledger accounts with their respective debit or credit balance
• Types of trial balance

  • Unadjusted trial balance
  • Adjusted trial balance
  • Post-closing trial balance
• Adjusting entries

  Entries made at the end of every accounting period to split mixed accounts or to bring the accounts up to date
• Methods of recording unearned income

  • Income method
  • Liability method
• Worksheet

  Multicolumn sheet of paper used by an accountant in compiling and summarizing information necessary for the preparation of financial statements
• Closing entries

  Entries made at the end of an accounting period after adjusting entries and financial statements have been prepared, for the purpose of closing all nominal or temporary accounts
• Reversing entries

  Entries made at the beginning of the new accounting period to transfer all accrued and prepaid items established by adjusting entries to the nominal accounts that are to be used in recording transactions during the new period