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

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

Statement of account

Seller

Buyer

 

Reminder [request] to pay

Service provider

Customer

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

*Return actual return of goods

**Allowance no actual return of goods but a mere request for a price reduction

 

Reasons for returns & allowances:

Damaged goods, Damage of goods during delivery, Wrong specifications (size, color, shape)

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