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Beginning the Accounting Cycle

Chapter 3. Beginning the Accounting Cycle. Learning Objective 1. Journalizing: analyzing and recording business transactions into a journal- Steps 1 & 2 of the Accounting Cycle. LO-1. Accounting Cycle. Normal accounting procedures that are performed over a period of time

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Beginning the Accounting Cycle

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  1. Chapter 3 Beginning theAccounting Cycle © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  2. Learning Objective 1 Journalizing: analyzing and recording business transactions into a journal- Steps 1 & 2 of the Accounting Cycle LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  3. Accounting Cycle • Normal accounting procedures that are performed over a period of time • Takes place over an accounting period LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  4. Semi-annual Reports Accounting Period Period of time covered by the income statement • Monthly • Quarterly • Annually • Calendar year • Fiscal year LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  5. Accounting Period • Calendar year - covers January 1st - December 31st • Fiscal year - Covers any 12-month period • Natural Business Year - A business’s fiscal year that ends at the same time as a slow seasonal period begins LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  6. General Journal • Book of original entry • Simplest form of a journal • Records information from transactions in chronological order as they occur • Information is then transferred to the ledger LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  7. Journalizing A Transaction Jan 1 Cash 10,000 J. Sims, Capital 10,000 Initial investment by owner 1. Debits must equal credits in each entry. 2. The debit is always recorded first. 3. The credit is indented & below the debit portion. 4. The explanation follows after the credit. LO-1 5. Skip a line between entries. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  8. Problem 3B-3 • We will use Problem 3B-3 to apply the concepts presented in the chapter. LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  9. The Chart of Accounts © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  10. June 1: A. French invested $6,000 in the new placement agency. Jun 1 Cash 6,000 A. French, Capital 6,000 Initial investment of cash by owner LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  11. June 2: Bought equipment for cash, $350. Jun 2 Equipment 350 Cash 350 Purchased equipment LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  12. June 3: Earned placement fee commission of $2,100, but payment from Avon Co. will not be received until July. Jun 3 Accounts Receivable 2100 Placement Fees Earned 2100 Billed Avon Co. for feesearned LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  13. June 5: Paid wages expense, $400. Jun 5 Wages Expense 400 Cash 400 Paid Wages LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  14. June 7: A. French paid his home utility bill from the company checkbook, $69. Jun 7 A. French, Withdrawals 69 Cash 69 Paid owner’s personal bill LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  15. June 9: Placed Jay Diamond on a national TV show, receiving $900 cash. Jun 9 Cash 900 Placement Fees Earned 900 Placed J. Diamond LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  16. June 15: Paid cash for supplies, $350. Jun 15 Supplies 350 Cash 350 Purchased Supplies LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  17. June 28: Telephone bill received but not paid, $185. Jun 28 Telephone Expense 185 Accounts Payable 185 Telephone bill in, but not paid LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  18. June 29: Advertising bill received but not paid, $200. Jun 29 Advertising Expense 200 Accounts Payable 200 Advertising bill in, but not yet paid LO-1 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  19. Learning Objective 2 Posting: transferring information from a journal to a ledger LO-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  20. Ledger Account 4 Column Account- A running balance account that records debits and credits and has a column for an ending balance (debit and credit). LO-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  21. LO-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  22. Cross-Referencing • Adding to the post reference column of the journal the account number of the ledger account that was updated from the journal. • Users can refer to journal and ledger transactions by referring to account numbers or general journal pages. © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  23. Ledger Account © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  24. Sample Chart of Accounts LO-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  25. Learning Objective 3 Preparing a trial balance LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  26. Trial Balance • List of individual accounts with their balances • Taken from the ledger • Certain errors can come to light if total debits are not equal to total credits • Computational errors • Transposition or slide errors • Posting errors LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  27. Trial Balance © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  28. Making Corrections • Before Posting • Draw a line through the incorrect entry • Write correct information above the line • Write your initials near the change • After Posting • Draw a line through the error and write correct figure above the line • Change the running balance to reflect the corrected posting • Initial both changes LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  29. Making Corrections • Correcting an entry posted to the wrong account • The journal must include a correction accompanied by an explanation. • The correct information must also be posted to the appropriate ledgers. LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  30. Making Corrections 1. Wages expense was debited. Error was made on June 5. 2. The error was discovered and corrected on June 8. To correct error in which Wages Exp was debited for charges to Phone Co. LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  31. Making Corrections 1. The wages expense ledger account is corrected. Correcting Entry 2. The telephone expense ledger account is corrected. LO-2 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  32. First Steps in Accounting Cycle Business transactions occur Analyze and record transactions in journal Post information from journal to ledger Prepare a trial balance LO-3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

  33. End of Chapter 3 © 2010 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 11e by Slater

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