Accounting REVIEWER (not complete)

Accounting Cycle

Systematic process of recording and processing all accounting transactions.

Analyze & Record Transactions

This step identifies affected accounts (Assets, Liabilities, Equity, Revenues, Expense). Record in General Journal using debit/credit rules. Leaves Post. Ref. blank until posting.

Post Transactions to the Ledger

This step transfers journal entries into the General Ledger (T-accounts) and posting reference links journal & ledger for tracking.

Prepare Unadjusted Trial Balance

Lists all account balances before adjustments. It’s main purpose is to check if total debits = total credits.

Preparing Adjusted Trial Balance

Verifies correctness after adjustments and ensures debits = credits before financial statements.

Preparing Financial Statements

Step where it organizes financial data from the adjusted trial balance to create reports that show a business’s performance

Statement of Owner’s Equity

is a financial statement that shows the changes in the owner’s capital account over a period.

Net Income/Loss

Revenues – Expenses =

Ending Capital

Beginning Capital + Investments + Net Income – Withdrawals =

Assets

Liabilities + Equity =

Balance sheet

Is a financial statement that shows a company’s financial position at a specific date. It is to show a business’s financial position what it owns, owes, and the owner’s equity at a specific point in time.

Statement of Cash Flows

shows a business’s cash inflows and outflows during a period.

Assembling & Analyzing Adjustment Data

Necessary to identify if some revenues/expenses were not captured in daily records.

Accrual

Revenues recorded when earned, expenses when incurred.

Cash Basis

Revenues/expenses recorded only when cash changes hands.

Journalizing & Posting Adjusting Entries

Step where in it records & post end-period adjustments to match revenues with expenses.

Accrued Revenues

Revenues that are earned, but not yet received (Credit Account)

Accrued Expenses

These are expenses that are incurred, but not yet paid (Debit Account)

Unearned Revenues

Revenues paid in advance, but not yet earned (Credit Account)

Prepaid Expenses

Expenses that are paid in advance, but the service/benefit has not been received yet (Debit Accounts)

Depreciation

The cost of long-term assets over useful life. (Debit Accounts)

Preparing End-of-Period Worksheet

It is the step where it combines the trial balance with adjustments to show adjusted balances, helping organize data before preparing financial statements.

Prepariing Post-Closing Trial Balance

It lists only permanent accounts (Assets, Liabilities, Capital) to ensure debits equal credits before starting a new period.

9

The difference between Debit and Credit totals is divisible by _

Statement of Comprehensive Income (SCI)

It shows the company’s profitability by reporting revenues, expenses, gains, and losses, helping users assess future cash flows.

Revenues

Inflows from goods/services (e.g., Sales, Rent Revenue), what customers pay.

Expenses

Outflows to earn revenues (e.g., Salaries, Utilities), cost of doing business.

Gains/losess

From selling assets or unusual events, outside normal operations.

Service Business

provides intangible services (like salons, law firms, or repairs) and earns Service Revenue.

(Reports Service Revenue – Expenses = Net Income.)

Merchandising Business

buys and sells goods/products (like retail stores) and earns Sales Revenue.

(Reports Net Sales – COGS = Gross Profit) (Gross Profit – Operating Expenses = Net Income.)

Single-Step (Nature of Expense)

Present all revenues together, then subtract total expenses grouped by type (like Salaries, Utilities) to get Net Income.

Multi-Step (Function of Expense)

Present revenues, subtract COGS to get Gross Profit, then deduct selling and administrative expenses to arrive at Operating Income and finally Net Income.

Statement of Changes in Equity

It shows the changes in ownership interest during a period by explaining how net income, owner contributions, and withdrawals or dividends affect equity.

Business Entity

is a legally recognized organization formed to engage in commercial, financial, or industrial activities, and the choice of form should match the goals and liability preferences of the owners.

Equity

is the residual interest in assets after deducting liabilities, also called net assets, and its components depend on the business organization form.

Corporation

A separate legal entity from its owners (shareholders) that enjoys limited liability, continuous existence, and easier access to large capital, but it is costly, heavily regulated, and subject to double taxation.

Partnership

A business owned by two or more people who share profits, losses, and responsibilities; it offers more capital and skills, but profits must be divided and partners are jointly liable for each other’s obligations.

Sole proprietorship

A business owned and run by one person; it is simple, common, and gives the owner full profit and decision-making power, but it has limited capital, cannot be transferred, and ends with the owner.