The accounting cycle outlines the key steps businesses follow to record, summarize, and report on financial transactions which include recording transactions, preparing journal entries, posting to accounts, creating a trial balance, making adjustments, preparing financial statements, and closing out accounts for the period. Transactions are first recorded in journals and then posted to accounts with debits and credits according to basic rules. The unadjusted trial balance is then prepared by listing account names and balances.
The accounting cycle outlines the key steps businesses follow to record, summarize, and report on financial transactions which include recording transactions, preparing journal entries, posting to accounts, creating a trial balance, making adjustments, preparing financial statements, and closing out accounts for the period. Transactions are first recorded in journals and then posted to accounts with debits and credits according to basic rules. The unadjusted trial balance is then prepared by listing account names and balances.
The accounting cycle outlines the key steps businesses follow to record, summarize, and report on financial transactions which include recording transactions, preparing journal entries, posting to accounts, creating a trial balance, making adjustments, preparing financial statements, and closing out accounts for the period. Transactions are first recorded in journals and then posted to accounts with debits and credits according to basic rules. The unadjusted trial balance is then prepared by listing account names and balances.
The accounting cycle outlines the key steps businesses follow to record, summarize, and report on financial transactions which include recording transactions, preparing journal entries, posting to accounts, creating a trial balance, making adjustments, preparing financial statements, and closing out accounts for the period. Transactions are first recorded in journals and then posted to accounts with debits and credits according to basic rules. The unadjusted trial balance is then prepared by listing account names and balances.
The accounting cycle is a continuous process of accumulating, summarizing and reporting financial information. The steps include:
Step 1 - Transactions and/or Events
financial transactions and non-financial transactions Examples: list of events 1. Firm buys a printer for the office for P5,500. 2. Firm hires two employees which will be paid P15,000 monthly. 3. Firms rent on the land where its building stands - P12,300. 4. Firm orders 20 packs of brown envelopes from the bookstore at P20 per pack.
Does it affect the composition of either ALORE?
Is there a monetary Yes No amount that can be Yes Record in the books Do not record. assigned to the No Do not record. Do not record. event?
The information needed when recording transactions are taken from forms used to document these transactions. In a typical service business, the following are the business documents used: 1. Official Receipt or Cash Receipt This document is used when a business receives money or a check. An Official Receipt or Cash Receipt is a document that acknowledges that money or a check have been received. 2. Charge Invoice or Sales Invoice A charge invoice is a document used when a service has been rendered, but the client will be billed only after a certain number of days from the date of service. Often, a company will issue a statement of account to a customer, with the charge or sales invoice attached. For example: in a laundry business, a customer may avail of the services of the business. However, that customer and the owner of the business had a prior agreement that all services availed by the customer will be paid only after 30 days. In this case, a charge invoice is issued on the day the client availed of the services. 3. Check or Cash Voucher The check voucher is a document used when a check is issued to pay a certain supplier or vendor. For example, in a laundry business, for the payment of monthly electricity bills, the business may pay either in cash or check. But the company must prepare a cash or check voucher to support this payment. This document will serve as a record of payment and, at the same time, as proof that payment has been made by the company.
Step 2 - Preparation of Journal Entries (journalization)
Rules on Debits and Credits
• The name of the account to be debited is always listed first. The debited account is listed on the first line with the amount in the left side of the register. • The credited account is listed on the second line and is usually indented. The credited amount is recorded on the right side of the register. • The total amount of debit should always equal the total amount of credit.
Let us take the case of Pedro Matapang, a computer technician. Pedro decided to open his computer repair shop on February 14, 2016, naming it Matapang Computer Repairs. Pedro knows that business transactions should be separated from personal finances. Thus, he decided to invest PHP200,000 in this business. He deposited the amount with Nation Bank.
February 15, 2016 - Pedro purchased one computer unit from XY Computer Store to be used for the business. He issued check number 001 amounting to PHP25,000.
February 16, 2016 - Pedro hired Juana Magaling, an experienced secretary.
Entry: No entry. This is not a financial transaction. Step 3 – Posting
“T-accounts” Step 4 - Unadjusted Trial Balance
At the end of an accounting period (for example, one month or one year) the working trial balance is prepared. This involves copying each account name and account balance to a worksheet (working trial balance). The resulting first two columns of the worksheet are called the unadjusted trial balance. In the preparation of the unadjusted trial balance, the balances in all the general ledgers at the end of the reporting date are forwarded to the appropriate column. The unadjusted trial balance for the transactions in our example from Step 3 is the following: Practice Set 2 On June 1, Maya Cruz opened the Ganda Beauty Salon. During the first month, the following selected transactions occurred: 1. Deposited PHP5,000 cash in the City Bank in the name of the business 2. Paid PHP800 cash for beauty supplies 3. Purchased equipment at a cost of PHP12,000 paying PHP2,000 in cash and the balance on account 4. Received PHP1,200 cash for services rendered 5. Paid PHP500 cash as a salary to a beautician 6. Withdrew PHP400 cash for personal expenses
