Accounting Cycle

1. Beginning the Accounting Cycle
–
Journalizing, Posting,
and the Trial Balance
Nadia Danilova

2. Learning Objective 1
Journalizing: analyzing and
recording business
transactions into a journal.

3. The Accounting Cycle
• Accounting procedures are performed over a period of
time.
• Procedures are performed in a definite order in the
accounting cycle.
• The accounting period is a period of time covered by the
income statement.
• Usually this is a twelve month period.
• The accounting cycle has sequential steps to be performed
again each year.

4. The Accounting Cycle
• Accounting is the process that...
– analyzes,
– records,
– classifies,
– summarizes,
– reports, and...
– interprets.

5. The Accounting Cycle
A sole proprietorship:
– has one owner
– begins with a monthly accounting cycle
– owner has a capital and withdrawals account

6. Business Organizations
• All three types of business entities use the same basic
accounting system.
Sole proprietorship
Partnerships
Corporations

7. Recording Business Transactions
The Accounting Period
One Year
Calendar year
Fiscal year
Less than One Year
Quarterly
Monthly

8. • The Accounting Cycle:
1 Analyzing
2 Recording transactions – journalizing
3 Posting to the ledger accounts
4 Preparing the trial balance
• The accounting cycle has some variations in a
computerized accounting system.

9. What is the general journal?
• It is the book of original entry.
• Transactions are written in a journal in chronological
order.
• The format of the journal is important.
• Journalizing is the process of entering information as
debits and credits to the correct accounts.

10. What is the general ledger?
• It is the book of final entry.
• The information from the journal is transferred to
the ledger in the posting process.
• Debits and credits in the journal remain exactly the
same when posted to the accounts in the ledger.

11. What is the chart of accounts?
• It is the list of accounts used by a business.
• Each business entity has its unique chart of
accounts.
• Every chart of accounts has the same numbered
account categories:
– Assets, Liabilities, Owner’s Equity
– Revenues, Expenses

12. Journalizing
• Debits are always recorded first.
• Indent, then record the credit below the debit.
• A short explanation is included on the second line.
• Leave a space between journal entries.

13. • Debits must always equal credits.
• Amounts incurred for items that benefit future
accounting periods are recorded as assets.
• What are some examples?
– prepaid rent
– prepaid insurance

14. • Amounts for items used (expenses incurred) in the
current accounting period are recorded as expenses.
• What are some examples?
– supplies used
– rent for the month
– expired insurance

15. • Amounts are recorded as revenue on the date in
which they are earned.
• When are revenues earned?
• When services are performed, not necessarily when
cash is paid.

16. Posting: transferring information
from a journal to a ledger.

17. Posting
• All transactions are recorded in the journal, then amounts
are copied to the ledger accounts named on the journal
line.
• Once the amounts are entered into the accounts, a posting
reference (PR) must be entered in the journal.
• New balances are computed in the running ledger
accounts.

18. Posting
Account: Cash Account: 1000
Balance
Date ref. debit credit debit credit
June 1 jr1 5,000 5,000
Insert the number of the journal page.

19. Preparing a trial balance.

20. Preparing the Trial Balance
• The trial balance lists the accounts that have balances
in the same order as they appear in the chart of
accounts.
• The trial balance will show if debits/credits have
been interchanged, or if amounts have been
transposed, or if a debit/credit was omitted or
recorded twice.

21. • Some errors do not show, such as omissions or
recording to the wrong account.
• Corrections before posting are made in the journal.
• An audit trail must be left.
• Do not erase – cross out errors and enter
corrections.

22. • What about corrections after posting?
• This means that errors are also in the ledger
accounts.
• Cross out incorrect amounts, change to corrected
amounts, and record balance changes.

23. Thank you