business-entity - a business should be a separate entity from the owner of a business personal...
TRANSCRIPT
ACCOUNTING CYCLE
Accounting Concepts
Business-entity - A business should be a separate entity from the owner of a business Personal items Records and transactions
Accounting Concepts
Continuing-concern concept – the business will continue to operate. Allows assets to be recorded at cost
Remain at that figure no matter what the market value may be
If sold, the assets of the company will be valued at market value to determine selling price
Accounting Concepts
Time-period concept – divides the business into equal periods of time, ie month, quarter or year
Accounting Concepts
Cost principle – assets are carried at cost on the financial statements Cost is what was paid for the asset An item from your home - used value
Accounting Concepts
Matching principle – earnings and expenses are recorded in the period when one benefits the other ie September expenses are recorded in
the same period as September revenue
Accounting Concepts
Consistency Principle – Methods and procedures are kept the same over time. Allows for better comparison of data If changed, change and effect must be
reported on Financial Statements
Steps in the Accounting Cycle
Adjusting Entries – Unpaid and/or unrecorded transactions at the end of the accounting period.
Steps in the Accounting Cycle
Balance Sheet - A “snapshot” of the business’ Assets, Liabilities and Owner’s Equity on a specific date.
Steps in the Accounting Cycle
Closing Entries – entries made to close (zero out) all temporary accounts at the end of the accounting period.
Steps in the Accounting Cycle
Income Statement - profit or loss of a business• Earnings less expenses• reflects a period of time (usually one month)
Steps in the Accounting Cycle
Journal – the book of original entry all transactions are recorded here
first
Steps in the Accounting Cycle
Transactions – business papers and source documents that change the financial position of a business
Steps in the Accounting Cycle
Step 1Business Transactions occur Source
Documents (receipts, invoices, tapes, checks and memorandums)
Book of Original
Entry
Steps in the Accounting Cycle
Step 2Analyze and Record the Transactions Information is
placed in the Journal by date of occurance
Book of Original
Entry
Steps in the Accounting Cycle
Step 5Journalize Adjusting Entries No source
documents End of fiscal period To match revenue
with expenses in that period
Book of Original
Entry
Steps in the Accounting Cycle
Step 6 Post Adjustment from Journal to Ledger General Leger
only
Book of Original
Entry
Steps in the Accounting Cycle
Step 7Prepare Adjusted Trial Balance To determine if
an error in posting has occurred before Financial Statements are prepared
Book of Original
Entry
Steps in the Accounting Cycle
Step 8Journalize Closing Entries Close all
temporary( NOMINAL) accounts Revenue Expenses Drawing
Book of Original
Entry
Steps in the Accounting Cycle
Step 9 Post Closing Entries from the Journal to the Ledger General Ledger
only
Book of Original
Entry
Steps in the Accounting Cycle
Step 10 Post Closing Trial Balance Permanent
accounts only
Book of Original
Entry
Steps in the Accounting Cycle
Step 11Prepare the Financial Statements Basic
Statements Income
Statement Balance Sheet
Book of Original
Entry
Temporary and Permanent Accounts
Permanent Accounts
AssetsLiabilitiesCapital
Temporary Accounts
RevenueExpensesDrawing
CASH OR ACCRUAL ACCOUNTING
Record Revenue (earnings) and expenses Cash basis
Cash in Cash out
Accrual basis Record Revenue & Expenses when
earned/incurred Cash is not the same as revenue Matching principle
Tax Form – Schedule C 1st question asked:
Cash Accrual Other
Cash Basis
Small businesses Simple to understand Record cash only when received Record expenses when cash is paid or check is
issued Record credit card charges when signed for
Combination Income and expense clearly shown Consistently Can not switch between the two
Accrual Basis
Always use when merchandise is a factor Production Purchase Sale
More difficult to understand Timing of revenue and expenses Nothing to do with payments or receipts
Only Cash
Not Paid
All Revenue