ACCOUNTING

-is a service activity. Its function is to provide information, primarily financial in nature, about economic
events that is intended to be useful in making economic decisions.

USERS OF FINANCIAL INFORMATION:

•Investors

•Lenders and other creditors

•Employee

•Customers

•Government

•Public

ACCOUNTING CYCLE

It is expected that business will continue on forever.

The accounting process starts through the identification of transactions and ends with preparing
financial statements.These processes are rotated continuously in every accounting period.So it is said
that the accounting cycle is the continuous process of recording and processing of all transactions of an
organization.

The first three steps in the accounting cycle are accomplished during the period.

The fourth to ninth steps generally occur at the end of the period.

The last step occurs at the beginning of the next period.

ACCOUNTING CYCLE STEP 1:

Analyzing Business Transactions from Source Documents

Aim. To gather information about transactions or events generally through the source documents.

SOURCE DOCUMENTS

-transactions and events are the starting points in accounting cycle.By relying on source documents,
transactions and events can be analyzed as how they will affect performance and financial position.

common source documents examples:

checks, bank deposit slips, official receipts

OFFICIAL RECEIPTS

- source document evidencing the receipt of payment for services rendered or goods delivered.

BANK DEPOSIT SLIPS

- paper form supplied by the bank to a customer/depositor when deposting funds into a bank account.

CHECKS

-written, dated and signed instrument that contains an unconditional order from the drawer(payer) that
directs a bank to pay a definite sum of money to the payee.

SOURCE DOCUMENTS are the bases for the journal entries.

ACCOUNTING CYCLE STEP 2:

Journalizing the Business Transactions

Aim. To record the economic impact of transactions on the firm in a journal, which is a form that
facilitates transfer to the accounts.

JOURNAL- is a chronological record of the entity's transactions.

JOURNAL ENTRY- shows all the effects of a business transaction in terms of debits and credits.

JOURNALIZING-the process of recording transaction

The standard contents of the journal entry are as follows:

1.Date

2.Accounts titles and explanations

3.P.R( Posting Reference)

4.Debit

5.Credit
ACCOUNTING CYCLE STEP 3:

Posting to the Ledger

Posting- means transferring the amounts from the journal to the appropriate accounts in the ledger.

LEDGER- a grouping of the entity's account

GENERAL LEDGER- is the "reference book" of the accounting system and is used to summarize
transactions, and to prepare data for basic financial statements.

The two accounts in the general ledger are classified into two general groups:

1.Balance sheet or permanent accounts

(assets, liabilities and owner's equity)

2. Income statement or temporary accounts

(income and expenses)

The steps in posting journal entries to the ledger as follows:

1.Transfer the date of the transaction from journal to the ledger.

2.Transfer the page number from the journal to the journal reference column of the ledger.

3. Post the debit figure in 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.

ACCOUNTING CYCLE STEP 4:

PREPARATION OF TRIAL BALANCE

TRIAL BALANCE

- is a list of all accounts with their respective debit or credit balance. It is prepared to verify the equality
of debits and credits in the ledger at the end of each accounting period or at any time the postings are
updated.
The procedures in the preparation of a trial balance are as follows:

1.List the account titles in numerical order.

2.Obtain the account balance of each account from the ledger and enter the debit balance in the debit
column and the credit balance in the credit column.

3.Add the credit and debit .

4.Compare the totals.

The trial balance is a control device that helps minimize accounting errors. When totals are equal, the
trial balance is in balance. This equality provides and interim proof of the accuracy of the records, but it
does not signify the absence of errors.

ACCOUNTING CYCLE STEP 5:

JOURNALIZING AND POSTING ADJUSTING JOURNAL ENTRIES

Why adjust account balances?

Adjusting entries are necessary because the unadjusted trial balance may not contain up-to-date and
complete data.

Adjusting entries update assets and liability accounts as well as revenue and expense accounts.

Adjusting entries help ensure that the revenue recognition and matching principle are followed.