Scribd
Upload
305 views

Accounting Process

This document outlines the key steps in the accounting process: 1. Analyzing transactions and journalizing them in journals like the general journal or special journals. 2. Posting journal entries to ledger accounts to classify transactions. This includes a general ledger and subsidiary ledgers. 3. Preparing an unadjusted trial balance and making adjusting entries for items like accruals, prepaids, and inventory. An adjusted trial balance is then prepared. 4. Closing entries are made to zero out nominal accounts, and a post-closing trial balance is prepared. Reversing entries may also be used to reinstate accrual and prepaid accounts for the new period.

Uploaded by

Angel Rosales
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
305 views

Accounting Process

This document outlines the key steps in the accounting process: 1. Analyzing transactions and journalizing them in journals like the general journal or special journals. 2. Posting journal entries to ledger accounts to classify transactions. This includes a general ledger and subsidiary ledgers. 3. Preparing an unadjusted trial balance and making adjusting entries for items like accruals, prepaids, and inventory. An adjusted trial balance is then prepared. 4. Closing entries are made to zero out nominal accounts, and a post-closing trial balance is prepared. Reversing entries may also be used to reinstate accrual and prepaid accounts for the new period.

Uploaded by

Angel Rosales
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

Accounting Process

2.2 Illustrate the Accounting Process


2.2.1 The steps in the accounting process
2.2.2 The use of the special journals, general journal, subsidiary ledgers and general ledgers
2.2.3 Completing the accounting cycle, including use of worksheet, adjusting entries, closing entries and reversing
entries

Accounting process
1. ANALYZING DOCUMENTS AND TRANSACTIONS
Determining the impact of the transactions on financial position as represented by the equation “A=L+E”. The accounting
equation must remain in balance throughout the accounting cycle

2. JOURNALIZING
Initially recording the transactions in the journal (book of original entry)

Kinds of journal:
 General journal – chronologically list all transactions and other events expressed in terms of debit and credit
 Special journals (Sales, purchase, cash receipts, cash disbursements journal)

Kinds of entries:
 Simple entry – one debit and one credit
 Compound entry – two or more debits or credits

Factors that shape an accounting information system include nature of business, size of entity and volume of data
The use of computers in processing accounting data may result in elimination of document trails used to verify accounting
records

3. POSTING
Transferring the recorded transactions in the journal to the appropriate accounts in the ledger

Ledger – group of accounts consist of their respective balances, serves the classifying function in accounting
Chart of accounts – listing of the entity’s general ledger accounts

Kinds of ledger:
 General ledger – simply ledger
 Subsidiary ledger – a listing of the components of account balances

4. UNADJUSTED TRIAL BALANCE


Trial balance – list of general ledger accounts with their respective debit or credit balances. It provides evidence that the
total debits are equal to total credits

Common error in trial balance:


 Transposition – numbers or figures are interchanged
 Transplacement – error in placing the decimal point or comma
 Omission – transactions are not recorded
5. ADJUSTING ENTRIES & ADJUSTED TRIAL BALANCE
Adjusting entries – made at the end of the period to split the mixed accounts or update the account balance. It affects
both real and nominal accounts

Items that normally require adjusting entries:

Ending inventory Depreciation Doubtful accounts

Inventory Depreciation expense Doubtful Accts expense


Income Summary / COGS Accum. Dep’n Allowance

Deferred (Unearned) income Prepaid expenses


Already received but not yet earned, liability. Already paid but not yet incurred, asset.

Unearned / Deferred income (liability) Expense (Expense)


Income (income) Prepaid expenses (Asset)

* May be interchanged if income method is used * May be interchanged if expense method is used

Accrued income (receivable) Accrued expenses


Already earned but not yet received, asset. Already incurred but not yet paid, liability.

Accrued income (asset) Expense (expense)


Income (income) Accrued expense (liability)

Worksheet – multi-column sheet of paper used in compiling and summarizing informations necessary for the presentation
of financial statements

In income statement, In financial position,


 Total debit < Total credit = Net income  Total debit < Total credit = Net loss
 Total debit > Total credit = Net loss  Total debit > Total credit = Net income

6. PREPARING FINANCIAL STATEMENTS


*The preparation of financial statements are discussed in IAS1, separate lecture*

7. CLOSING ENTRIES
These are made at the end of the accounting period after the financial statements are made to close all the nominal
accounts, and are posted in the general ledger to reduce the balances to zero. Most of the nominal accounts are
transferred to the Income Summary account then to the capital account or retained earnings.

8. POST-CLOSING TRIAL BALANCE


Post closing trial balance is a listing of the real account and their respective balances

9. REVERSING ENTRIES (Optional)


These are made at the beginning of the accounting period to transfer all accrued and prepaid items established by the
adjusting entries to the nominal accounts that are to be used in recording transactions during the new period. They impact
the statement of financial position and the income statement
Reversing entries are desirable to exercise consistency and establish standardized procedures.

Reversing entries apply to all accruals and do not change the amounts reported in the statement of financial position for
the previous period

A reversing entry should never be made for an adjusting entry that adjusts expired costs from an asset account to an
expense account

Adjustments that normally require reversal:


 Accrued expenses  Accrued income
 Prepaid expenses (if expense method is used)  Deferred income (if income method is used)

You might also like