Accounting Information and The Accounting Cycle

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The Basics of Accounting
Accounting
Information and
the Accounting
The Accounting Cycle
Cycle
Accounting Information and the Accounting Cycle
Accounting Information and the Accounting Cycle > The Basics of Accounting
The Basics of Accounting

• Terminology of Accounting
• Debits and Credits
• Fundamental Accounting Equation
• An Expanded Equation
• Types of Transactions
www.boundless.com/accounting/textbooks/boundless-accounting-textbook/accounting-information-and-the-accounting-cycle-2/the-basics-of-
accounting-22/
Accounting Information and the Accounting Cycle > The Accounting Cycle
The Accounting Cycle

• What Is the Accounting Cycle?
• Recording Transactions
• Journalizing
• Posting
• The Trial Balance
• Adjustments
• Preparing Financial Statements
• Closing the Cycle
• The Post-Closing Trial Balance
• Reversing Entries
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cycle-23/
Appendix
Key terms
• account A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also
of other things subjected to a reckoning or review
• account A registry of pecuniary transactions; a written or printed statement of business dealings or debts and credits, and also
of other things subjected to a reckoning or review
• accrue (intransitive, accounting) To be incurred as a result of the passage of time.The monthly financial statements show all the
actual but only some of the accrued expenses.
• adjusted trial balance a list of all the General ledger accounts (both revenue and capital) contained in the ledger of a business
after adjusting entries are made
• adjusting entry Journal entries usually made at the end of an accounting period to allocate income and expenditure to the
period in which they actually occurred.
• adjusting entry Journal entries usually made at the end of an accounting period to allocate income and expenditure to the
period in which they actually occurred.
• audit An independent review and examination of records and activities to assess the adequacy of system controls, to ensure
compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies,
or procedures
• audit An independent review and examination of records and activities to assess the adequacy of system controls, to ensure
compliance with established policies and operational procedures, and to recommend necessary changes in controls, policies,
or procedures
• bookkeeping The skill or practice of keeping books or systematic records of financial transactions, e.g., income and expenses.
• closing entry a journal entry made at the end of an accounting period to transfer temporary accounts to permanent accounts
• credit an entry in the right hand column of an account; credits increase liability, income, and equity accounts and decrease
asset and expense accounts
• debit an entry in the left hand column of an account to record a debt; debits increase asset and expense accounts and
decrease liability, income, and equity accounts
• double-entry bookkeeping A double-entry bookkeeping system is a set of rules for recording financial information in a financial
accounting system in which every transaction or event changes at least two different nominal ledger accounts.
• double-entry bookkeeping system A double-entry bookkeeping system is a set of rules for recording financial information in a
financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.
• double-entry bookkeeping system A double-entry bookkeeping system is a set of rules for recording financial information in a
financial accounting system in which every transaction or event changes at least two different nominal ledger accounts.
• equality The fact of being equal; of having the same value.
• Facilitate To make easy or easier.
• general journal where double entry bookkeeping entries are recorded by debiting one or more accounts and crediting another
one or more accounts with the same total amount
• intangible assets non-monetary assets that cannot be seen, touched or physically measured, are created through time and
effort, and are identifiable as a separate asset
• journalizing the act of recording bookkeeping entries
• ledger A book for keeping notes, especially one for keeping accounting records. (accounting) A collection of accounting entries
consisting of credits and debits.
• opinion shopping The process of contracting or rejecting auditors based on the type of opinion report they will issue on the
auditee.
• opinion shopping The process of contracting or rejecting auditors based on the type of opinion report they will issue on the
auditee.
• post-closing trial balance a check that closing entries were done correctly
• posting an item inserted into a register, ledger or diary

• revenue Income that a company receives from its normal business activities, usually from the sale of goods and services to
customers.
• revenue Income that a company receives from its normal business activities, usually from the sale of goods and services to
customers.
• source The person, place or thing from which something (information, goods, etc. ) comes or is acquired.
• summarize To give a recapitulation of the salient facts; to recapitulate or review
• temporary account an account that is closed at the end of the period to be made a permanent account
• trial balance a statement of the balances of all nominal accounts in a double-entry ledger, made to test their equality
Assets and liabilities

Differences between assets and liabilities
Wikimedia. "Difference between assets and liabilities." CC BY-SA http://commons.wikimedia.org/wiki/File:Difference_between_assets_and_liabilities.jpg View on
Boundless.com
Accounting Equation
Angel Hodgdon. "Original figure by Angel Hodgdon. Licensed CC BY-SA 4.0." CC BY-SA 3.0 View on Boundless.com
Debit and credit rules

Debit and credit rules
Wikipedia. "Debit." GNU FDL http://en.wikipedia.org/wiki/Debit View on Boundless.com
The General Ledger

Reversing entries prevent double recording expenses or revenues.
Flickr. "All sizes | y2cary3n6mng-vjl146-journals-to-general-ledger (2) | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/sampjb/7690686912/sizes/l/
View on Boundless.com
The General Ledger

The General Ledger contains all entries from both the General Journal and the Special Journals.
Bookkeeping
Purchases and sales in an old ledger
Flickr. "All sizes | Old Ledger | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/tjc/6454659319/sizes/z/in/photostream/ View on Boundless.com
Journal Entry
Journal entries record business transactions so they may later be used to create financial statements.
Flickr. "All sizes | EGL P&L web | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/7paths/3792294012/sizes/m/ View on Boundless.com
The company's income statement

Closing the accounts prepares the ledger for the next accounting period.
Flickr. "All sizes | EGL P&L web | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/7paths/3792294012/sizes/m/ View on Boundless.com
The General Ledger

The General Ledger contains all entries from both the General Journal and the Special Journals.
The General Ledger

The General Ledger contains all entries from both the General Journal and the Special Journals. Using a double entry system to record transactions
keeps the accounts in balance.
T-Account
T-accounts are so named because of their "T" shape, with the name of the account on top, and debits and credits on the left and right, respectively.
Flickr. "y2cary3n6mng-a1txnb-debits-and-credits | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sampjb/7690681446/ View on Boundless.com
The Trial Balance

The post-closing trial balance proves debits still equal credits after the closing entries have been made.
Flickr. "All sizes | y2cary3n6mng-daet13-example-of-a-trial-balance | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/sampjb/7690682230/sizes/m/
Wachovia National Bank 1906 financial statement
Wikimedia. "Wachovia_National_Bank_1906_statement.jpg." Public domain
https://commons.wikimedia.org/wiki/File:Wachovia_National_Bank_1906_statement.jpg View on Boundless.com
Example 3
August financial statements for Highland Yoga
Google. CC BY-SA https://docs.google.com/viewer?a=v&pid=gmail&attid=0.4&thid=13c69c043341f989&mt=application/vnd.openxmlformats-
officedocument.wordprocessingml.document&url=https://mail.google.com/mail/ca/u/0/?ui=2&ik=a1dd8901bc&view=att&th=13c69c043341f989&attid=0.4&disp=safe
The Trial Balance

The post-closing trial balance proves debits still equal credits after the closing entries have been made.
Flickr. "All sizes | y2cary3n6mng-daet13-example-of-a-trial-balance | Flickr - Photo Sharing!." CC BY http://www.flickr.com/photos/sampjb/7690682230/sizes/m/
Example 1
Closing entries for Highland Yoga in July.
Example 2
Closing entries for Highland Yoga in August.
Example 1
July closing journal entries.
Example 2
August closing journal entries.
Example 2
August T-accounts.
The General Ledger

All transactions made by the company in relation to the bond must be recorded in its general ledger. The general ledger contains all entries from both the
General Journal and the Special Journals.
Example 1
Pre-opening and July T-accounts.
Example 2
July financial statements for Highland Yoga
Example 3
August financial statements for Highland Yoga
Example 1
Pre-opening financial statements for Highland Yoga.
Financial statement
Financial statement from Wachovia National Bank, 1906.
Wikimedia. "Wachovia_National_Bank_1906_statement.jpg." Public domain
https://commons.wikimedia.org/wiki/File:Wachovia_National_Bank_1906_statement.jpg View on Boundless.com
The Balance Sheet

If an error is found on a previous year's financial statement, a correction must be made and the financials reissued.
Flickr. "All sizes | y2cary3n6mng-q6hnvf-balance-sheet | Flickr - Photo Sharing!." CC BY-SA http://www.flickr.com/photos/sampjb/7690684984/sizes/m/ View on
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Attribution
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• Boundless Learning. "Boundless." CC BY-SA 3.0 http://www.boundless.com//accounting/definition/post-closing-trial-balance
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• Wikipedia. "Adjusted trial balance." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Adjusted_trial_balance
• Wikipedia. "credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/credit
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• Dropbox. CC BY http://dl.dropbox.com/u/31779972/Accounting%20Principles%20Vol.%201.pdf
• Wiktionary. "posting." CC BY-SA 3.0 http://en.wiktionary.org/wiki/posting
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Boundless Lecture Slides

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Accounting Information and the Accounting Cycle

The Basics of Accounting

The Accounting Cycle

• posting an item inserted into a register, ledger or diary

Assets and liabilities

Debit and credit rules

The General Ledger

The General Ledger

The company's income statement

The General Ledger

The General Ledger

The Trial Balance

Wachovia National Bank 1906 financial statement

The Trial Balance

The General Ledger

The Balance Sheet

• Wikipedia. "Purchase." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Purchase

• Wikipedia. "Accounting equation." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Accounting_equation

• Wikipedia. "Auditor's report." CC BY-SA 3.0 http://en.wikipedia.org/wiki/Auditor's_report

• Wikipedia. "credit." CC BY-SA 3.0 http://en.wikipedia.org/wiki/credit

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