Slides complete steps 1 3 in the accounting cycle

• List steps in the Accounting Cycle • Describe terminology journal, ledger, debit, credit • Record transactions in tabular format under the accrual basis... The Accounting CycleRecord T

Complete Steps 1-3 in Accounting Cycle

Principles of Cost Analysis and Management

What is the Accounting Cycle?

The Accounting Cycle is the systematic process by

which accounting information is recorded, compiled,

and reported to users

Terminal Learning Objective

regulations/course handouts, and awareness of Operational Environment

(OE)/Contemporary Operational Environment (COE) variables and actors

• List steps in the Accounting Cycle

• Describe terminology (journal, ledger, debit, credit)

• Record transactions in tabular format under the accrual basis

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Trial Balance

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Trial Balance

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Trial Balance

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Prepare Statements

Close Accounts

Post-Closing Trial Balance

The Accounting Cycle

Record Transactions

Post to Ledger

Prepare Trial Balance

Adjust Accounts Adjusted

Trial Balance

Prepare Statements

Close Accounts

Post-Closing Trial Balance

Check on Learning

The Journal

• Accounting events are recorded in the JOURNAL

• Each transaction requires a journal entry

• Each journal entry consists of at least one Debit and one Credit: “Double Entry”

Accounting

• Debit amounts must equal Credit amounts

• Debit: an entry on the left-hand side of the account

• Credit: an entry on the right-hand side of the account

Regarding Debits and Credits

• Debit ≠ decrease

• Credit ≠ increase

• It depends on the type of account

credit

BALANCE

“Normal” Account Balances

Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so:

Assets = Liab + FinPosition + Rev – Expense

+ Expense = + Expense

(Add Expense to both sides)Assets + Expense = Liab + FinPosition + Rev

Everything on the LEFT side of the equation increases with an entry to the LEFT

side of the account

“Normal” Account Balances

Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so:

Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense

(Add Expense to both sides)

Assets + Expense = Liab + FinPosition + Rev

Everything on the LEFT side of the equation increases with an entry to the LEFT

side of the account

“Normal” Account Balances

Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so:

Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense

(Add Expense to both sides)Assets + Expense = Liab + FinPosition + Rev

Everything on the LEFT side of the equation increases with an entry to the LEFT

side of the account

“Normal” Account Balances

Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense

(Add Expense to both sides)Assets + Expense = Liab + FinPosition + Rev

Everything on the LEFT side of the equation increases with an entry to the LEFT

side of the account

“Normal” Account Balances

Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense

(Add Expense to both sides)Assets + Expense = Liab + FinPosition + Rev

Everything on the RIGHT side of the equation increases with an entry to the

RIGHT side of the account

“Normal” Account Balances

Assets + Expense = Liab + FinPosition+ Rev

+ – + – – + – + – +

Check on Learning

account?

Anatomy of a Journal Entry

Date of Transaction

Anatomy of a Journal Entry

Account Debited

Anatomy of a Journal Entry

Amount Debited

Anatomy of a Journal Entry

Account Credited

Anatomy of a Journal Entry

Amount Credited

Anatomy of a Journal Entry

Explanation of Transaction

Anatomy of a Journal Entry

Posting Reference (Leave Blank)

Anatomy of a Journal Entry

Becoming fluent in Debits and Credits takes practice beyond the scope of this course We will demonstrate a few journal

entries to give you the flavor, and then proceed to Step 2

Becoming fluent in Debits and Credits takes practice beyond the scope of this course We will demonstrate a few journal

entries to give you the flavor, and then proceed to Step 2

Lacy’s Journal

Transaction Description Cash + Other Assets = Liab + Financial

Position + Rev – Exp

Lacy’s Journal

Transaction Description Cash + Other Assets = Liab + Financial

Position + Rev – Exp

Credit to Financial Position (right side) reflects an increase in the

financial position account.

Credit to Financial Position (right side) reflects an increase in the

financial position account.

Lacy’s Journal

Transaction Description Cash + Other Assets = Liab + Financial

Position + Rev – Exp

Debit to Other Assets (left side) reflects an increase in the Other

Debit to Other Assets (left side) reflects an increase in the Other

Lacy’s Journal

Transaction Description Cash + Other Assets = Liab + Financial

Position + Rev – Exp

Credit to Cash reflects a decrease in the Cash account.

The Ledger

• The LEDGER is a Summary of all Transactions By Account

• We will represent each Ledger Account with a T-Account

Lacy’s Ledger

Lacy’s Ledger

(+)

200

20 65 20 40 - 140

(-) 5

-(-) 40 -

(+) 40 -

Lacy’s Ledger

(+)

200

20 65 20 40 - 140

(-) 5

-(-) 40 -

(+) 40 -

200

Lacy’s Ledger

(+) 20 65 20 40 - 140

(-) 5

-(-) 40 -

(+) 40 -

(+) 10 5 -

15

(-)

15 20 50 -

85

200

After all transactions are posted, the Ledger

Balances agree with our equation

After all transactions are posted, the Ledger

Balances agree with our equation

The Trial Balance

• Forces accountant to find errors before preparing statements

Lacy‘s Trial Balance

Check on Learning

transactions

Practical Exercise

Accounting Cycle Spreadsheet

Journal entries may be entered by hand (this step is optional)

Journal entries may be entered by hand (this step is optional)

Accounting Cycle Spreadsheet

Post transactions to T-Accounts Balances calculate automatically

Post transactions to T-Accounts Balances calculate automatically

Accounting Cycle Spreadsheet

The Trial Balance is generated automatically from

the T-Accounts.

Note that debits = credits

The Trial Balance is generated automatically from

the T-Accounts.

Note that debits = credits

Practical Exercise