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Beginning the Accounting Cycle – Journalizing, Posting, and the Trial Balance. Chapter 3. Journalizing: analyzing and recording business transactions into a journal. Learning Objective 1. The Accounting Cycle. Accounting procedures are performed over a period of time.

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Presentation Transcript
learning objective 1
Journalizing: analyzing and

recording business

transactions into a journal.

Learning Objective 1
the accounting cycle
The Accounting Cycle
  • Accounting procedures are performed over a period of time.
  • Procedures are performed in a definite order in the accounting cycle.
  • The accounting period is a period of time covered by the income statement.
  • Usually this is a twelve month period.
  • The accounting cycle has sequential steps to be performed again each year.
the accounting cycle4
The Accounting Cycle
  • Accounting is the process that...
  • analyzes,
  • records,
  • classifies,
  • summarizes,
  • reports, and...
  • interprets.
the accounting cycle5
The Accounting Cycle

A sole proprietorship:

  • has one owner
  • begins with a monthly accounting cycle
  • owner has a capital and withdrawals account
business organizations
Business Organizations
  • All three types of business entities use the same basic accounting system.

Sole proprietorship

Partnerships

Corporations

recording business transactions
Recording Business Transactions

The Accounting Period

One Year

Calendar year

Fiscal year

Less than One Year

Quarterly

Monthly

learning unit 3 1
Learning Unit 3-1
  • The Accounting Cycle:
  • Analyzing
  • Recording transactions – journalizing
  • Posting to the ledger accounts
  • Preparing the trial balance
  • The accounting cycle has some variations in a computerized accounting system.
learning unit 3 19
Learning Unit 3-1

What is the general journal?

  • It is the book of original entry.
  • Transactions are written in a journal in chronological order.
  • The format of the journal is important.
  • Journalizing is the process of entering information as debits and credits to the correct accounts.
learning unit 3 110
Learning Unit 3-1

What is the general ledger?

  • It is the book of final entry.
  • The information from the journal is transferred to the ledger in the posting process.
  • Debits and credits in the journal remain exactly the same when posted to the accounts in the ledger.
learning unit 3 111
Learning Unit 3-1

What is the chart of accounts?

  • It is the list of accounts used by a business.
  • Each business entity has its unique chart of accounts.
  • Every chart of accounts has the same numbered account categories:
  • Assets, Liabilities, Owner’s Equity
  • Revenues, Expenses
learning unit 3 112
Learning Unit 3-1

Journalizing

  • Debits are always recorded first.
  • Indent, then record the credit below the debit.
  • A short explanation is included on the second line.
  • Leave a space between journal entries.
learning unit 3 113
Learning Unit 3-1
  • Debits must always equal credits.
  • Amounts incurred for items that benefit future accounting periods are recorded as assets.
  • What are some examples?
  • prepaid rent
  • prepaid insurance
learning unit 3 114
Learning Unit 3-1
  • Amounts for items used (expenses incurred) in the current accounting period are recorded as expenses.
  • What are some examples?
  • supplies used
  • rent for the month
  • expired insurance
learning unit 3 115
Learning Unit 3-1
  • Amounts are recorded as revenue on the date in which they are earned.
  • When are revenues earned?
  • When services are performed, not necessarily when cash is paid.
learning unit 3 2
Learning Unit 3-2

Posting

  • All transactions are recorded in the journal, then amounts are copied to the ledger accounts named on the journal line.
  • Once the amounts are entered into the accounts, a posting reference (PR) must be entered in the journal.
  • New balances are computed in the running ledger accounts.
learning unit 3 218
Learning Unit 3-2

Posting

Account: Cash Account: 1000

Balance

Date ref. debit credit debit credit

June 1 jr1 5,000 5,000

Insert the number of the journal page.

example
Example

Journal Page 1

Date Account and

Explanation Post Ref. debit credit

June 1 Cash 1000 5,000

Clara J. Capital 3010 5,000

Initial investment

example20
Example

Journal Page 1

Date Account and

Explanation Post Ref. debit credit

July 3 Phone Expense 5040 155

Accounts Payable 2000 155

Paid phone bill

example21
Example

Journal Page 1

Date Account and

Explanation Post Ref. debit credit

July 6 Insurance Expense 5060 150

Cash 1000 150

Paid insurance bill

example22
Example

Journal Page 1

Date Account and

Explanation Post Ref. debit credit

July 8 Accounts Payable 2000 200

Cash 1000 200

Paid Accounts Payable

example23
Example

Journal Page 1

Date Account and

Explanation Post Ref. debit credit

July 8 Accounts Receivable 1020 850

Service Revenue 4000 850

Performed Services

learning unit 3 3
Learning Unit 3-3

Preparing the Trial Balance

  • The trial balance lists the accounts that have balances in the same order as they appear in the chart of accounts.
  • The trial balance will show if debits/credits have been interchanged, or if amounts have been transposed, or if a debit/credit was omitted or recorded twice.
learning unit 3 326
Learning Unit 3-3
  • Some errors do not show, such as omissions or recording to the wrong account.
  • Corrections before posting are made in the journal.
  • An audit trail must be left.
  • Do not erase – cross out errors and enter corrections.
learning unit 3 327
Learning Unit 3-3
  • What about corrections after posting?
  • This means that errors are also in the ledger accounts.
  • Cross out incorrect amounts, change to corrected amounts, and record balance changes.