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Accounting Cycle

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by

Wen Li

on 18 June 2013

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Transcript of Accounting Cycle

Accounting Cycle
Business Transactions: Info is obtained from original business paper, the source documents

Specialized Journals - A journall used to record only one kind of transaction
Closing Entries
Posting: After all business transactions are recorded, the amount recorded in each account are posted onto ledgers
Financial Statements: A record of the business's financial acitvities
Adjusting Entries
Journal entries at the end of an acconting period
Used to correct entries that could have been inaccurately recorded so that the balance of the accounts are correct, by subtracting the adjusting entry from the beginning balance
Recorded on the worksheet and general journal
Federal Income Tax
Find Net Income before Federal Income Tax which is determined by subtracting the debits and credits of the income statement and the debits and credits subtracted on the balance sheet of the worksheet should also be the same.
If it is on the ouside it is a net income, but if it is on the inside it is a net loss
Use government percentages to determine tax
The adjusting entry is when you subtract what you already paid from what you have to pay
Sales Journal
Purchases Journal
General Journal
Cash Payments Journal
Cash Receipts Journal
General Ledgers
Subsidiary Ledgers: Sub accounts that contains details that support the amount in the trial balance
Trial Balance
Trial Balance
Post - Closing Trial Balance
Asset, Liabilities and Owner's Equity
Owner's Equity
Balance Sheet
Income Statement
Accounts Payable
Accounts Receivable
Records the amount of sales sold on account
Source Document - S
Sales is separated into departments of the business
Accounts Receivable is debited, (Department) Sales and Sales Tax Payable determined by multiplying the sales by sales tax are credited
Account: A record that summarizes the information to an item in the accounting equation

Account Number: Assigned to different ledger acounts

Accounting Equation: Assets = Liabilities +Owner's Equity

Asset accounts: Resources owned by a business
Liability accounts: Accounts the business owes money to
Equity accounts: Equity of the business after subtracting liabilities from assets
Revenue accounts: The business's eranings
Expense accounts: Expenses the business pays to operate itself

Departmental Accounting System - Accounting system showing the information for two or more departments
Merchandising Business: A business that purchases and sell goods
General Ledger - All the Financial accounts of the business needed to prepare financial statements
Post by debiting or crediting the account base on the transaction, the final total should equal the balance of the account on the Trial Balance
Sales and Cash should only be posted after the totals are determined
Records purchases made by the business on account, which is then sold to customers
Source Document - P
Accounts Payable is credited, so the business owes more money and Purchases is debited, so the business has more assets
The Purchases Journal is separated into departments, where the business will purchase individually for each department
Record entries by debiting one or more accounts and crediting one or more accounts, which should always be equal
Source Document - M, CM, DM
Payroll Taxes of each individual departments are recorded separetely
Records the payment made by a business in cash, cash is credited
Source Document - C
Indirect Expenses - Expenses of the business as a whole
Direct Expenses - Expense for a specific department
Salaries Expenses are recorded individually based on the departments
Purchases Discount is also split into invidividual departments
Cash received by the business, cash is debitted
Source Document - R
Sales of businesses in cash are separated into departments
List of vendors of the business
Each business transaction recorded that affects the accounts payable is posted on the Accounts Payable Ledger and is debited or credited
List of customers of the business
Every business transaction that affects the accounts receivable are individually posted on to the accounts receivable ledger
A list of all general ledger accounts and the balance of the account
After posting, the total of the accounts payable and receivable on the trial balance should be equal to the ledgers
After the adjusing entries, the trial balance should have the final balance of the accounting period before the closing entries are done
Summary of the financial balances and equity for a sole proprietor, the capital, and for corporations, the Retained Earnings
Balances of the assets, liabilities, and the owner's equity are recorded
Total of the assets should equal the liabilities and the owner's equity
Responsibility statements reports and individual departments' revenue, costs, and direct expenses, and after all expenses are taken into account, the departmental margin is derived
The information is derived from the worksheet
Shows which departments are more profittable
The Income statement is a financial statement that measure the business's financial performance
Calculates the net income from the business's sales and expenses
Cooperation – Stockholder’s Equity Statement
Changes to the equity on the balance sheet, such as the retained earnings and the shares
Partnership/Proprietorship – Capital Statement
Opening balance of the capital and then added is investment or profits earned, deducted is the withdrawals or loss of the business
Journal entries in the general journal at the end of an accounting period transfering the balance of temporary accounts to permanent accounts, the income summary
Retained Earnings and Dividends are moved into the Income Summary
This way their accounts return to zero for the new accounting period
The Trial Balance should show the balance of permanent accounts once all the temporary accounts are closed
It verifies that the total of debits equals the total amount of credits
Full transcript