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The accounting cycle

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					The accounting cycle


            Recitation #2
          January 25, 2008
Key topics
   Accounting transactions
   Accounting cycle
   Debits and credits
   Accounting equation revisited
   Trial balances
Accounting transactions
   Transactions
       Economic events that require recording in the financial
        statements
       Examples:
            Issuance of common stock
            Purchase of equipment
Accounting cycle
1.        Prepare journal entry for a transaction
2.        Post journal entry to a ledger
3.        Prepare trial balance
4.        Make adjusting entries in the general journal
5.        Post adjusting entries to the general ledger
6.        Prepare adjusted trial balance
7.        Prepare financial statements
            Income statement
            Retained earning statement
            Balance sheet
            Cash flow statement
8.        Make closing entries in the general journal
9.        Post closing entries to the genera ledger
10.       Prepare post-closing trial balance
Accounting cycle
   Journal
       Chronological record of transactions
   Ledger
       List of balances by account
   Trial balance
       List of accounts and balances
   Adjusting entries
       Journal entries prepared at the end of the accounting cycle
        to update revenue and expense accounts
   Closing entries
       Journal entries prepared at the end of the accounting cycle
        to give revenues, expenses, and dividends zero balances
Debits and credits
   T-accounts used to show account balances and
    transactions
       Debit - entry to left side
       Credit - entry to right side
   Transactions always have debits equal to credits
   Use of debits and credits results in double-entry
    bookkeeping
Debits and credits



  Debits:                          Credits:
  •Increase assets                 •Decrease assets
  •Decrease liabilities            •Increase liabilities
  •Decrease stockholders’ equity   •Increase stockholders’ equity
  •Decrease revenues               •Increase revenues
  •Increase expenses               •Decrease expenses
  •Increase dividends              •Decrease dividends
  Accounting equation revisited

Assets  Liabilities + Stockholders’ Equity


                         Common Stock
                         Retained Earnings
                         Dividends
                        + Revenues
                         Expenses
Trial balances
   Chart that lists accounts and their balances at a point
    in time
   Tests the equality of debts and credits
       Can help uncover errors in the journals and ledgers
       Does not prove that all transactions have been recorded
        properly
   Prepared three times
       Unadjusted
       Adjusted
       Post-closing

				
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posted:8/11/2012
language:English
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