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The Accounting Cycle
Transcript of The Accounting Cycle
Posting Journal Entries into the Ledger
A ledger is known as secondary book of accounts because it's a summary of all the business accounts. The journal entries are posted into the ledger.
Prepare Trial Balance
The trial balance is a listing of balances in the accounts of the general ledger in order of assets, liabilities, owner's equity, revenue and expense accounts. The trial balance is prepared at the end of the accounting period which could be a month, quarter or maybe a year.
The Accounting Cycle
The journal is know as the primary book of accounts and the analyzed transactions are entered in a systematic way.
The journal has columns such as date, particulars, serial numbers and debit/credit.
When working on the ledger, the amounts from the general journal must match the ones posted on the ledger accounts. Also you must mention the posting reference which is where you get the transactions from the general journal.
The purpose of this procedure is to check the accuracy of the ledger account balances. The debit and credit sides are balanced at the end of the trial balance.
Are entries made at the end of the accounting period to adjust ledger accounts for any changes that relate to the current accounting period that have not been recorded.
The main purpose of it is to match revenues and expenses to the current accounting period which is a mandatory requirement of of the matching principle.
Adjusted Trial Balance
A trial balance that lists all the balances of the ledger accounts which is made after the adjusting entries. It contains balances of revenues and expenses along with the assets, liabilities and equities after the changes occur due to adjusting entries.
It's the step of accounting cycle in which solid numbers from trial balance are summarized up to prepare the financial statements. Financial statements demonstrate the position of the business at the specific date.
- Income Statement
- Balance Sheet
- Statement of Cash Flow
-Statement of changes in equity
- Notes and other disclosures
It's important to close the temporary accounts in order to make their balances zero at the end of the accounting period. Closing entries are based on the balances of accounts in the adjusted trial balance.
Temporary Accounts Include:
- Income Summary
Post Closing Trial Balance
A list of balances of ledger accounts prepared after passing adjusting entries and their postings to the ledgers. It's prepared in the last step of the cycle and it assures that debits equal credits before the new accounting period starts.
Financial transactions is the most primary step of the cycle. Accountants must identify and analyze transactions carefully before it's entered into the journal.
Accountants need to analyze which types of accounts are involved in the transactions an decide which account should be debited and which one should be credited.
Making Journal Entries
An accountant can review, compile or audit financial statements based on clients needs. Explain the differences between them.
Auditing is a systematic and independent examinations of data, statements, records, operations and performances of an a business for a stated purpose. The auditor perceives and recognized the plans before him for examination, finds evidence, evaluates the same and on this basis makes a judgement which is shown on his/her audit report.
Why has the government made the half rule on calculating the amortization for new assets for tax purposes?
Discuss the merger issue of: CAS, CGAS, and CMAS.
The merger issues started about two years ago where the three big accountant associations wanting to be unified under one designations called the Chartered Professional Accountant. In some provinces members of the three designations had been given the right to vote whether they agree to the merging proposal or not.
Not many people agreed to the proposal but on July 2012 it was decided that the three designations should unite into CPA. To become a CPA, one is required to go through a big process where you will be tested by CMA, CGA and CPA content. So at the end you will have three designations but you will be called a CPA because CPA is a summary of all the other designations. They also want to make it easy for people because at the end of the day all of them do the same work but it's named differently.
Question # 1
Question # 2
Question # 3
A review is a service where accountants have limited assurance of any material changes that should be made to the financial statements. A review doesn't ask accountants to have an understanding of internal control or to assess fraud risk or other types of audit procedures. However, reviews are more expensive than compilation and less expensive than an audit. It's preferred by businesses whose creditors and lenders will allow them to use this approach, thereby saving the cost of a full audit
The Capital Cost Allowance was first introduced with the Income Tax Act of 1949, but was amended in 1972 and again in 1987. This system established the basis for the depreciation of capital property for tax purposes, with an overall objective to ensure that all taxpayers benefit from a fair and equitable system for depreciation of capital property.
A financial statement compilation is a service to help the management of a company in presenting its FS. This presentation involves no activities to obtain any assurance that there are no material changes needed for FS to be in conformity that the accounting GAAPS or IFRS.
Question # 1 Continued
The Accounting Cycle
A set of processes taken each month in order to properly account for the financial data of a business
It's is called a cycle because the accounting work flow is circular: entering transactions, manipulating the transactions through the accounting cycle, closing the books at the end of the accounting period and then starting the entire cycle over again for the next accounting period.
* http://www.accountingtools.com/questions-and-answers/what-is-a-financial-statement-compilation.html. Retrieved Oct 2, 2014
* http://www.cga-canada.org/en-ca/ResearchReports/ca_rep_2013-04_cca.pdf. Retrieved Oct 2, 2013
* Grade 12 Accounting Book Notes. Oct 2, 2013
By: Zohra Sadat
Grade 12 Accounting