Understanding the Accounting Cycle and Journalizing in Bookkeeping | Schemes and Mind Maps Mathematical Physics

BOOKKEEPING NCIII

MODULE 5 THE ACCOUNTING CYCLE

BOOKS OF ACCOUNT- JOURNALIZING

Learning Objectives:

After reading this MODULE, YOU MUST be able to:

1. learn what an accounting cycle is and its importance

2. identify the different steps in an accounting cycle

3. learn about the books of account

4. learn about general / special journals

5. identify journal entries

6. know the steps in journalizing

Accounting Cycle

Accounting cycle is the financial process starting with recording/business transactions/and leading

up to the preparation of/financial statements. This process demonstrates the purpose of financial

accounting--to create useful financial information in the form of /general-purpose financial

statements. In other words, the sole purpose of recording transactions and keeping track of

expenses and revenues is turn this data into meaning financial information by presenting it in the

form of a balance sheet, income statement, statement of owner's equity, and statement of cash

flows.

The accounting cycle is a set of steps that are repeated in the same order every period. The

culmination of these steps is the preparation of financial statements. Some companies prepare

financial statements on a quarterly basis whereas other companies prepare them annually. This

means that quarterly companies complete one entire accounting cycle every three months while

annual companies only complete one accounting cycle per year.

Accounting Cycle Steps

This cycle starts with a business event. Bookkeepers analyze the transaction and record it in the

general journal with a journal entry. The debits and credits from the journal are then posted to the

general ledger where an unadjusted trial balance can be prepared.

After accountants and management analyze the balances on the unadjusted trial balance, they

can then make end of period adjustments like depreciation expense and expense accruals. These

adjusted journal entries are posted to the trial balance turning it into an adjusted trial balance.

Now that all the end of the year adjustments are made and the adjusted trial balance matches

the subsidiary accounts, financial statements can be prepared. After financial statements are

published and released to the public, the company can close its books for the period. Closing

entries are made and posted to the post closing trial balance.

At the start of the next accounting period, occasionally reversing journal entries are made to

cancel out the accrual entries made in the previous period. After the reversing entries are posted,

the accounting cycle starts all over again with the occurrence of a new business transaction.

Here is a simplified summary of the steps in a traditional accounting cycle. Some textbooks list

more steps than this, but I like to simplify them and combine as many steps as possible.

-- Identify business events, analyze these transactions, and record them as/journal entries

-- Post journal entries to applicable T-accounts or/ledger accounts

-- Prepare an/unadjusted trial balance/from the general ledger

-- Analyze the trial balance and make end of period/adjusting entries

-- Post adjusting journal entries and prepare the/adjusted trial balance

-- Use the adjusted trial balance to/prepare financial statements

-- Close all temporary income statement accounts with/closing entries

-- Prepare the/post- closing trial balance/for the next accounting period

-- Prepare/reversing entries/to cancel temporary adjusting entries if applicable

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MODULE 5 THE ACCOUNTING CYCLE

BOOKS OF ACCOUNT- JOURNALIZING

Learning Objectives: After reading this MODULE, YOU MUST be able to:

learn what an accounting cycle is and its importance
identify the different steps in an accounting cycle
learn about the books of account
learn about general / special journals
identify journal entries
know the steps in journalizing Accounting Cycle Accounting cycle is the financial process starting with recording business transactions and leading up to the preparation of financial statements. This process demonstrates the purpose of financial accounting--to create useful financial information in the form of general-purpose financial statements. In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner's equity, and statement of cash flows. The accounting cycle is a set of steps that are repeated in the same order every period. The culmination of these steps is the preparation of financial statements. Some companies prepare financial statements on a quarterly basis whereas other companies prepare them annually. This means that quarterly companies complete one entire accounting cycle every three months while annual companies only complete one accounting cycle per year. Accounting Cycle Steps This cycle starts with a business event. Bookkeepers analyze the transaction and record it in the general journal with a journal entry. The debits and credits from the journal are then posted to the general ledger where an unadjusted trial balance can be prepared. After accountants and management analyze the balances on the unadjusted trial balance, they can then make end of period adjustments like depreciation expense and expense accruals. These adjusted journal entries are posted to the trial balance turning it into an adjusted trial balance. Now that all the end of the year adjustments are made and the adjusted trial balance matches the subsidiary accounts, financial statements can be prepared. After financial statements are published and released to the public, the company can close its books for the period. Closing entries are made and posted to the post closing trial balance. At the start of the next accounting period, occasionally reversing journal entries are made to cancel out the accrual entries made in the previous period. After the reversing entries are posted, the accounting cycle starts all over again with the occurrence of a new business transaction. Here is a simplified summary of the steps in a traditional accounting cycle. Some textbooks list more steps than this, but I like to simplify them and combine as many steps as possible.  -- Identify business events, analyze these transactions, and record them as journal entries  -- Post journal entries to applicable T-accounts or ledger accounts  -- Prepare an unadjusted trial balance from the general ledger  -- Analyze the trial balance and make end of period adjusting entries  -- Post adjusting journal entries and prepare the adjusted trial balance  -- Use the adjusted trial balance to prepare financial statements  -- Close all temporary income statement accounts with closing entries  -- Prepare the post- closing trial balance for the next accounting period  -- Prepare reversing entries to cancel temporary adjusting entries if applicable

Flow Chart After this cycle is complete, it starts over at the beginning. Here is an accounting cycle flow chart. As you can see, the cycle keeps revolving every period. Note that some steps were repeated more than once during a period. Obviously, business transactions occur and numerous journal entries are recording during one period. Only one set of financial statements is prepared however. BOOKS OF ACCOUNT Generally speaking, there are two kinds of books used in bookkeeping and accounting. One kind is called the book of original entry and the other is called the book of final entry. A book of original entry is a book where the business transactions are first permanently recorded before they are entered in some other books for grouping and summarizing. There are several books of this kind and one of them is the journal (also called general journal ). The books of original entry are also called special journals. The General Journal Bookkeeping, in its simplest form, requires the use of two books. One of them is called general journal. The journal (also called general journal ) is a book of accounts where transactions of the business firm are recorded for the first time in chronological order of events. As such, the journal is known as a book of original entry. A page of the standard journal presented below consists of five columns, namely” the date , particulars , folio , debit and credit columns. The first column is where we enter the date of the transaction as they occur. The second column is where we enter the account titles and the explanation of the transactions. The third column is where we enter the account number (see CHART OF ACCOUNTS), which is used for cross referencing. The last two columns are the money columns where we enter the peso amount or value of a transaction (see DEBIT / CREDIT). Date Particulars Folio Debit Amount Credit Amount A page in the General Journal Journalizing and Journal Entries The process of recording business transactions in a journal (general journal), or special journals, is known as journalizing. Each entry made in the journal is called a journal entry. The journal entry may be a simple entry or a compound entry. A simple journal entry consists of one debit

Understanding the Accounting Cycle and Journalizing in Bookkeeping, Schemes and Mind Maps of Mathematical Physics

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Download Understanding the Accounting Cycle and Journalizing in Bookkeeping and more Schemes and Mind Maps Mathematical Physics in PDF only on Docsity!

MODULE 5 THE ACCOUNTING CYCLE

BOOKS OF ACCOUNT- JOURNALIZING