Week 002

Review of the Accounting

Process
Week 002: Review of the Accounting Process

Objectives
• Define the accounting process

• Enumerate the steps in the accounting cycle

• Identify the type of economic event to be recorded

• Understand how to record transactions in journals

• Understand how to post to ledger accounts

Source:
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636269220092757522-16x9.jpg
Date of access:
10/5/2017
Week 002: Review of the Accounting Process

Course Outline
1.1 Steps in the accounting cycle

1.2 Identification of economic events to be recorded

1.3 Journalizing business transactions

1.4 Posting to the ledger

Source:
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yles/banner/public/financial_statement_ivsigns.jpg?i
tok=ylGeWfhT
Date of access:
10/5/2017
Week 002: Review of the Accounting Process

Steps in the accounting cycle

- Accounting process – a sequence of interrelated
procedures the primary purpose of which is to
produce financial statements for the period

- identical accounting steps are followed under both

the manual accounting system and computerized
accounting system

Source:
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content/uploads/2015/04/accounting-cycle-
1080x675.png
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Steps in the accounting cycle

The following are the steps in the accounting cycle, in
order:

1. Identify the events to be recorded

2. Journalize transactions and events

3. Post from journal to the ledger

Source:
4. Prepare the unadjusted trial balance https://www.move2clouds.com/wp-
content/uploads/2015/04/accounting-cycle-
1080x675.png
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Steps in the accounting cycle

5. Identify the events to be recorded

6. Journalize transactions and events

7. Post from journal to the ledger

8. Prepare the unadjusted trial balance

9. Prepare post-closing trial balance

Source:
https://www.move2clouds.com/wp-
content/uploads/2015/04/accounting-cycle-
10. Journalize and post reversing entries 1080x675.png
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Steps in the accounting cycle

Source:
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content/uploads/2015/04/accounting-cycle-
1080x675.png
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Identifying and recording transactions and other events

- the first step in the accounting cycle is to determine
what to record

- although generally accepted accounting principles

provides guidelines, no simple rules exist that state
which events a company should record

Source:
https://theegeek.com/wp-
content/uploads/2013/06/Transaction_Management.
jpg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Identifying and recording transactions and other events

What to record?
• Reportable events – those events that affect the
elements of financial statements. They are
classified into:

 External events

 Internal events
Source:
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content/uploads/2013/06/Transaction_Management.
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Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Identifying and recording transactions and other events

What to record?
• External events are further sub-classified into:
a) Transfers – transfer of resources and/or
obligations from or to other enterprise. They
are also called transactions.

b) External event other than transfers

Source:
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content/uploads/2013/06/Transaction_Management.
jpg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Identifying and recording transactions and other events

What to record?
• Internal events are those that only the entity
participates. Examples are:
a) depreciation,

b) consumption of supplies production, and

c) casualties such as fire, theft, etc.

Source:
https://theegeek.com/wp-
content/uploads/2013/06/Transaction_Management.
jpg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Identifying and recording transactions and other events

What to record?
• An item should be recognized in the financial
statements if it is an element, is measurable, and
is relevant and faithfully represented.

Source:
https://theegeek.com/wp-
content/uploads/2013/06/Transaction_Management.
jpg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Journalizing business transactions

Journalization - process of recording the economic
events in the books of original entry called the journal

• these economic events (otherwise known as

transactions) are recorded using the double entry
bookkeeping system.

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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Journalizing business transactions

- in recording the business transactions, the entity
may adopt the use of the general journal only or the
special journals

- a general journal chronologically lists transactions

and other events, expressed in terms of debits and
credits to accounts.

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Journalizing business transactions

- Each general ledger consists of four parts:
a) accounts and amounts to be debited
b) accounts and amounts to be credit
c) date
d) an explanation

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Journalizing business transactions

- in some cases, a company uses special journal in
addition to the general. Special journals summarize
transactions possessing a common characteristic.

- special journal normally includes sales journal, cash

receipts journal, purchases journal, and cash
payments journal

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Posting to the ledger

- transferring journal entries to the ledger accounts is
called posting.

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Posting to the ledger

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Posting to the ledger

What is a ledger?
• books of final entry

• group of accounts which are systematically

categorized into elements of financial statements

• accumulate all the effects of the transactions

during a period

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Posting to the ledger

What is a ledger?
• the numbers in the “Ref.” column of the general
journal refer to the ledger accounts

• posting is completed when a company records all

of the posting reference numbers opposite the
account titles in the journal.

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

Posting to the ledger

What is a ledger?
• there are two types of ledger:
1. General ledger – serves as control account in
the trial balance

2. Subsidiary ledger – provides details of the

general ledger accounts

Source:
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07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017
Week 002: Review of the Accounting Process

In summary:
The following are the steps in the accounting cycle, in order:

1. Identify the events to be recorded

2. Journalize transactions and events
3. Post from journal to the ledger
4. Prepare the unadjusted trial balance
5. Identify the events to be recorded
6. Journalize transactions and events
7. Post from journal to the ledger
8. Prepare the unadjusted trial balance
9. Prepare post-closing trial balance Source:
10. Journalize and post reversing entries https://corporatefinanceinstitute.com/uploads/2017/
07/AdobeStock_103350836.jpeg
Date of access:
10/15/2017