Account Cycle

1. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Accounting Cycle

2. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Learning Objectives
Describe the accounting cycle
Indicate how a journal entry is used in the recording
process.
Explain how a ledger and posting help in the recording
process.
3
Prepare a pre adjusted-trial balance and financial
statements.
2
1
4

3. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
1. Analyze business transactions
2. Journalize the
transactions
6. Prepare an adjusted trial
balance
7. Prepare financial
statements
8. Journalize and post
closing entries*
9. Prepare a post-closing
trial balance*
4. Prepare a trial balance
3. Post to ledger accounts
5. Journalize and post
adjusting entries
LO 3
Accounting Cycle
*Not covered in
the syllabus

4. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Sales
invoice
Bank
Statements
Purchase
Orders
Cheque
Bills from
Suppliers
Employee Earnings
Records
Analyze each
transaction and
event from source
documents – to
see the effect on
accounts
Step 1. Analyzing Business
Transactions

5. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
• Apply the rules of double-entry accounting and record a general
journal entry
• A chronological listing of the transactions. Transactions recorded in
chronological order (the order in which they occur).
Three steps
• Specify each account affected by the transaction and classify by
type
• Determine if each account is increased or decreased
• Use debit credit rules
• Record in journal : Simple journal entry @ Compound journal entry
Journalize the Transactions

6. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Simple Journal entry
General Journal
Date Accounts Titles and
Explanations
Debit Credit
2014
July 1 Delivery equipment 14,000
Cash 14,000
(Purchase of truck by cash)
Simple journal entry involves only two accounts (one debit and
one credit). Standard format requires all debits be listed first
before the credits

7. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Compound Journal entry
General Journal
Date Accounts Titles and
Explanations
Debit Credit
2014
July 1 Delivery equipment 14,000
Cash 8,000
Accounts Payable 6,000
(Purchase of truck by cash and
balance on account)
Whereas a compound journal entry involves three or more
accounts required in a journal entry. Standard format requires
all debits be listed first before the credits.

8. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Post to Ledger Accounts
Account Title
Left side Right side
Debit Credit
❑ The total debits and credits for every business transaction must be equal.
This is the cornerstone of the double entry accounting system.
❑ At the end of the accounting period, post the information from the general
journal to the proper general ledger account.
❑ Use “T” accounts to represent General Ledger accounts where needed.

9. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Posting from Journal to Ledger
JOURNAL
Date Accounts and explanation Debit Credit
May 1 Cash 50,000
Capital 50,000
Owner invested cash into business
Cash Capital
May 1 Capital 50,000 May 1 Cash 50,000
Debits in the journal are always posted as debits in the accounts, and likewise for
credits.

10. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Balancing off Accounts
LO 1
❖Accounts are normally balance off at the end of each month.
❖The purpose of balancing off the accounts is to determine how much
is the balance left in each of the account.
❖Therefore, the debit and credit sides of the account will be compared.
❖If the total debit is more than total credit the account is said to have a
debit balance (Eg: Expense, Drawing, Asset account).
❖On the other hand, if total credit is more than total debit, so the
account has a credit balance (Eg: Revenue, Capital, Liability account).
❖However, if the total debit is equal to total credit, the account has a
zero balance.

11. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Balancing off Accounts
LO 1
❖ The result of the balancing off accounts process is that either a debit
or a credit balance is brought down.
❖ The treatment of this brought down balance will differ depending on
whether the account is a permanent account or a temporary account.

12. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Balancing off Accounts
LO 1
The balance on Permanent account continues to the next accounting
period. The balance known as balance carried down (balance c/d) and
balance brought down (balance b/d) to the next period. The next periods
transactions are added to the balance brought down and at the end of
the period the balancing off accounts process is repeated.
The balance on Temporary account does not continue into the next
accounting period. The temporary account is closed for the period by
transferring the balance to the income statement.
Except for Drawing account, the account is closed by transferring the
balance / debited to the capital account. Because drawing will reduce the
capital amount. Or can directly show in the SoFP as: Capital - Drawings

13. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Sales
Account receivable 240
Income statement 420 Cash 180
420 420
Temporary Account Closed after Balancing Off – Credit balance
Balancing off Accounts
Accounts receivable
Sales 240 Return inward 150
Cash 110
Balance c/d 200
350 350
Balance b/d 200
Permanent Account Closed after Balancing Off – Debit balance

14. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Preparing a Pre-adjusted Trial Balance
LO 1
❑ In order to prepare a trial balance, we first need to complete or ‘balance
off ’ the ledger accounts.
❑ Then we produce the trial balance by listing each closing balance from the
ledger accounts as either a debit or a credit balance.
❑ The trial balance summarizes all the account balances for the financial
statements and shows whether total debits equal total credits.
❑ Purpose is to prove that debits equal credits after posting. It serves as a
check to ensure that for every transaction, a debit recorded in one ledger
account has been matched with a credit in another.
❑ Furthermore, a trial balance forms the basis for the preparation of the
main financial statements : Statement of Financial Position & Statement of
Comprehensive Income.

15. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Sample Format of Trial Balance
Important Hints:
The debit balance
account such as
Expense, Drawing and
Asset accounts must
be on debit column of
trial balance.
While the credit
balance account such
as Revenue, Capital
and Liability account
must be on credit
column of trial
balance.

16. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
DO IT!
LO 4

17. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Financial statements are prepared directly from the Trial
Balance.
▪ Statement of Financial
Position (Balance Sheet)
▪ To present assets, liabilities,
drawing and capital account
▪ Income Statement
▪ To present revenue and
expenses account
Preparing Financial Statements (before adjustment occur)

18. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
• It is used as a primary means of evaluating the economic
performance of the business for a period of time.
• It also measures the accounting profit of a business for a
particular accounting period.
• Accounting profit is defined as the differences between total
revenue earned for a period of time and the total expenses
incurred in earning that revenue for that same period of time
(refer to accounting period of a business).
Income Statement

19. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
RM RM RM
Sales xxx
Less: Return Inward (xxx)
Net Sales xxx
Less: Cost of Goods Sold
Opening inventories xxx
Add: Purchases xxx
(-) Return outwards (xx)
Net Purchases xxx
(+) Carriage Inwards/Transportation Inwards xxx
Import Duties xxx
Factory wages xxx xxx
Less: Closing inventories (xxx) (xxx)
GROSS PROFIT xxx
Add: Other revenue:
Discount received xxx
Commission received xxx
Interest received xxx xxx
Less: Expenses:
Advertising expenses xxx
Carriage outwards/ Transportation outwards xxx
Depreciation xxx
Wages and salaries xxx
Rent expenses xxx
Discount allowed xxx
Interest expenses xxx
NET PROFIT xxxx
The full format
Income
Statement
Profit = Revenue -Expenses

20. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
Statement of Financial Position
• Statement of Financial Position reports the financial position for
a reporting period.
• Also called as “Balance sheet”.
• It is represented by the fundamental accounting equation:
Assets (A) = Liabilities (L) + Owners’ Equity (OE)
• Has the following standard classifications:
►Assets
►Liabilities
►Owners’ Equity
• These classification help to determine: whether the company
has enough assets to pay the debts and;
• to determine claims of short and long term-term creditors on
the company’s total assets.

21. BAB1014 ~ FINANCIAL ACCOUNTING FOR MANAGERS
The full format
Statement of
Financial
Position
Asset = Liabilities + Owner’s Equity
RM RM RM
Non-Current Assets Cost Accum.Depn NBV
Tangible Assets
Building xx (xx) xx
Motor Vehicle xx (xx) xx
Intangible Assets
Goodwill xx
Patent rights xx
Investments
Fixed deposit xx
Current Assets
Inventories xx
Cash in hand xx
Bank xx
Account Receivables xx
TOTAL ASSETS XXX
Financed by:
Owner’s Equity
Capital xx
Add: Net Profit @ less : Net losses xx / (xx)
Less: Drawings (xx)
xxx
Non-Current Liabilities
Bank loan xx
Bond payable xx
Current Liabilities
Account Payables xx
Bank Overdraft xx
TOTAL EQUITY & LIABILITIES XXX