4.1.1 ACCOUNTING CYCLE

UNIT 4: THE ACCOUNTING CYCLE

ACCOUNTING CYCLE

A series of steps performed during each accounting period to classify, record, and summarize data for a business and to produce needed financial information

1. Analyzing business transactions from source documents

2. Journalizing business transactions

3. Posting to the general ledger

4. Preparing a trial balance

5. Preparing a work sheet [optional]

6. Journalizing and posting adjusting entries

7. Preparing financial statements

8. Journalizing and posting closing entries

9. Preparing a post-closing trial balance

10. Journalizing and posting reversing entries

4.1.1 Analyzing business transactions from source documents

· Business transactions – financial events that changes the assets, liabilities, and equity of a business entity

· Business documents – source documents that serve as basis for recording business transactions

BUSINESS DOCUMENTS

Document type	Issued by	Issued to	Purpose
Purchase requisition	Sales department	Purchasing department	List of goods to be ordered
Purchase requisition	Any other department	Purchasing department	List of items needed by the requesting department
Purchase order	Buyer	Seller	Order of goods
Receiving report	Receiving department	Purchasing department	After inspection, to show the quantity and condition of the goods received
Invoice			Delivery of goods
Sales invoice	Seller	Buyer
Purchase invoice	Buyer	Seller
Credit note	Seller	Buyer	Return* of goods or for allowances**
Debit note	Buyer	Seller	Return* of goods or for allowances**
Statement of account	Seller	Buyer	Reminder [request] to pay
	Service provider	Customer	Reminder [request] to pay
Remittance advice	Buyer	Seller	Inform that payment is made (normally through bank transfer)
Receipt	Seller	Buyer	Receive payment (cash; cheque; bank transfer)
Promissory note	Payor	Payee	A written promise to pay a specified amount on a certain date
Voucher			Payments made either by cash or by cheque
Petty cash voucher			Payments from petty cash fund
Inventory take sheet/ Stock take sheet			Inventory count, basis for recording ending inventory