Topic 3 ACC 310, Thornock

The accounting cycle, Part 1

What are the 2 steps that make up the Accounting Cycle?

To measure business activities of the company

Communicate those measurements to external parties for decision making purposes

External transactions

Transactions made with separate economic entities

EX: purchasing supplies from a vendor, paying employees, etc

Account

record of business activities related to a particular item

Compound transactions

transactions that affect more than 2 accounts

Preliminary Financial Statements

Statements that will necesitate future adjustment

Debit

Means left

Credit

Means right

Natural debit accounts

Assets (debit)

Natural Credit accounts

Liabilities and Stockholders Equity (Credit)

Journal

Chronological record of all transactions affecting a company

Posting

the process of transferring the debit and credit information from the journal to individual accounts in the general ledger

General Ledger

In a single collection provides each account with its individual transactions and resulting account balance

Trial balance

list of all accounts and their balances at a particular date, showing total debits equal total credits

also assists with preparing to adjust entries

The closing process

When revenues, expenses, and dividends affect retained earnings

What is a t account?

Simplified version of a general ledger