Acctg 1103 Chapter 4 Accounting Cycle for Service Company

Accounting cycle

sequence of operations used to account business transactions during a specific period

1. Analysis of transactions

2. Recording of transactions in the journal

3. Posting of journal entries to the ledger

4. Preparation of trial balance

5. Compilation of data needed to adjust the accounts

6. Preparation of a work sheet

7. Preparation of financial statements

8. Journalizing and posting of adjustment entries

9. Journalizing and posting of closing entries

10. Preparation of post-closing trial balance

11. Journalizing and posting of reversing entries

11 Steps in the Accounting Cycle

Transactions

evidenced by business documents and are analyzed using the rules of the debit and credit

Journal

Accounting book wherein business transactions are recorded for the first time

Journal

Called the book of original entry

General journal

simplest form of journal has only two money columns and may be used for recording all transactions in chronological order

Journalizing

process of recording transactions in a journal

Journal entry

record of the transaction or event

1. Simple entry

2. Compound entry

Two types of journal entries:

Simple entry

an entry with one debit and one credit

Compound entry

contains

a. One debit and two credits

b. Two more debits and one credit

c. Two or more debits and two or more credits

Ledger

Group of related accounts

Ledger

Called the book of final entry

Two-column account

used under manual accounting system

Three-column account

used under the computerbased system

Posting

process of transferring to the ledger the same information recorded in the journal

Chart of Accounts

List of accounts titles classified or arranged according to the financial statements wherein they appear

Chart of Accounts

Agree with the order of the items in the statement of financial position and income statement

Trial Balance

List of all accounts with open balances in the general ledger

Trial Balance

Proves the equality of the debit and credit in the general ledger but does not check or vouch the accuracy of the report

Transposition

interchange in the order of digits of a number or an erroneous rearrangement of digits

Transplacement or slide

the entire number is erroneously moved one or more spaces to the right or to the left