ACCOUNTING CYCLE Journal Entry – shows all the effects of a business transaction in terms of debits and credits

Refers to a series of sequential steps or procedures to accomplish the accounting process. This cycle Journalizing – process of recording transaction
is repeated each accounting period.
Standard contents of the journal:
The first three steps are accomplished during the period. The 4 th-9th steps generally occur at the end
of the period and the last step occurs at the beginning of the next period. 1. Date
2. Account titles and explanation
Accounting - A service activity to provide information about economic events that is intended to be 3. P.R. (Posting Reference) - code
useful in making economic decisions 4. Debit
5. Credit
STEP #1: Identifying Accountable Events
STEP #3: Journal Entries are posted to the Ledger
- To gather information about transactions through source documents
Posting – transferring the amounts from the journal to the appropriate accounts in the ledger
Users of financial information
Ledger – grouping of the entity’s accounts
a. Investors
b. Lenders/creditors General Ledger – “reference book” of the accounting system and is used to summarize transactions,
c. Employees and to prepare data for basic financial statements
d. Customers
e. Government and their agencies a. Balance sheet or permanent accounts (assets, liabilities, and owner’s equity)
f. Public b. Income statement or temporary accounts (income and expenses)

Source Documents – original written evidences that contain information about the transaction
a. Official receipts – evidencing the receipt of payment for services rendered or
goods delivered
b. Bank deposit slips – paper form supplied by the bank to a depositor after
depositing funds into a bank account
c. Checks – contains an order from the drawer that directs a bank to pay a definite
sum of money to the payee
d. Sales invoices – request of payment to the customer for goods sold or services
provided
e. Delivery receipts – document signed by the receiver of a shipment to indicate that
they have in fact received the item being shipped and have taken possession of
such
f. Completion reports – proof that a project is completed
g. Statement of Account – detailed report of the content of account resulting in an
ending balance
STEP #2: Recording Journal Entries
- To record the economic impact of transactions in a journal, which is a form that facilitates
transfer to the accounts
Steps:
1. Transfer the date of the transaction from journal to ledger
2. Transfer the page number from the journal to the journal reference column of the ledger
3. Post the debit figure from the journal as a debit figure in the ledger and the credit figure from
the journal as a credit figure in the ledger
4. Enter the account number in the posting reference column of the journal once the figure has
been posted to the ledger
STEP #4: Preparation of Trial Balance
Trial Balance – list of all accounts with their respective debit or credit balance; prepared to verify the
equality of debits and credits in the ledger. A control device that helps minimize accounting errors.
When totals are equal, the trial balance is in balance. This equality provides an interim proof of the
accuracy of the records, but it does not signify the absence of errors.
Procedures:
1. List the account titles in numerical order
2. Obtain the account balance of each account from the ledger and enter the debit balances in
the debit column and the credit balance in the credit column
3. Add the debit and credit columns
4. Compare the totals

Journal – chronological record of the entity’s transactions