Accounting

4.

The Accounting Cycle

4.1.

Step 1: Identifying and Analyzing Transactions

4.1.1.

Source Documents

4.1.1.1.

4.1.1.2.

4.1.1.3.

Bank Statements

4.1.1.4.

4.1.1.5.

Purchase Orders

4.1.2.

Analyzing Transaction Effects

4.1.3.

Documentation Requirements

4.2.

Step 2: Journalizing Transactions

4.2.1.

The General Journal

4.2.1.1.

Journal Entry Format

4.2.1.2.

Recording Debits and Credits

4.2.1.3.

Journal Entry Components

4.2.2.

Chronological Record of Transactions

4.2.3.

Special Journals

4.3.

Step 3: Posting to the General Ledger

4.3.1.

The General Ledger

4.3.1.1.

Structure and Purpose

4.3.1.2.

Ledger Account Format

4.3.2.

Chart of Accounts

4.3.2.1.

Account Numbering

4.3.2.2.

4.3.2.3.

Account Organization

4.3.3.

Posting Process

4.4.

Step 4: Preparing an Unadjusted Trial Balance

4.4.1.

Purpose of the Trial Balance

4.4.2.

Verifying Equality of Debits and Credits

4.4.3.

Identifying Errors

4.4.4.

Trial Balance Format

4.5.

Step 5: Recording Adjusting Entries

4.5.1.

Accrual vs. Cash Basis Accounting

4.5.1.1.

Timing of Revenue and Expense Recognition

4.5.1.2.

Differences in Financial Results

4.5.2.

Types of Adjusting Entries

4.5.2.1.

Accrued Revenues

4.5.2.2.

Accrued Expenses

4.5.2.3.

Unearned Revenues

4.5.2.4.

Prepaid Expenses

4.5.2.5.

4.5.3.

Adjusting Entry Examples

4.5.4.

Timing of Adjustments

4.6.

Step 6: Preparing an Adjusted Trial Balance

4.6.1.

Purpose and Process

4.6.2.

Verification of Adjustments

4.7.

Step 7: Preparing Financial Statements

4.7.1.

Order of Preparation

4.7.2.

Using Adjusted Trial Balance

4.7.3.

Statement Interrelationships

4.8.

Step 8: Closing the Books

4.8.1.

Purpose of Closing Entries

4.8.2.

Closing Temporary Accounts

4.8.2.1.

4.8.2.2.

4.8.2.3.

Dividends/Withdrawals

4.8.3.

The Income Summary Account

4.8.4.

Preparing Closing Entries

4.8.5.

Post-Closing Account Balances

4.9.

Step 9: Preparing a Post-Closing Trial Balance

4.9.1.

Verifying Account Balances

4.9.2.

Ensuring Only Permanent Accounts Remain

4.9.3.

Preparation for Next Period

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5. The Core Financial Statements