UNIT 4: THE 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
· 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
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)