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Accounting Cycle

The accounting cycle involves 10 steps: 1) Identifying and analyzing transactions, 2) Journalizing transactions, 3) Posting to ledger accounts, 4) Preparing an unadjusted trial balance, 5) Optionally preparing a worksheet, 6) Journalizing and posting adjusting entries, 7) Preparing an adjusted trial balance, 8) Preparing financial statements, 9) Journalizing and posting closing entries, and 10) Preparing a post-closing trial balance. Errors should be corrected through journal entries as soon as they are discovered. Correcting entries are made to fix errors, while adjusting entries are an integral part of the accounting cycle made at the end of each period.

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Mara Lacsamana
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40 views

Accounting Cycle

The accounting cycle involves 10 steps: 1) Identifying and analyzing transactions, 2) Journalizing transactions, 3) Posting to ledger accounts, 4) Preparing an unadjusted trial balance, 5) Optionally preparing a worksheet, 6) Journalizing and posting adjusting entries, 7) Preparing an adjusted trial balance, 8) Preparing financial statements, 9) Journalizing and posting closing entries, and 10) Preparing a post-closing trial balance. Errors should be corrected through journal entries as soon as they are discovered. Correcting entries are made to fix errors, while adjusting entries are an integral part of the accounting cycle made at the end of each period.

Uploaded by

Mara Lacsamana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Accounting Cycle

Ms. Mara Lacsamana, CPA

1.
Identification and analysis of transactions
2.
Journalize the transactions
3.
Post journal entries to ledger (T-Accounts)
4.
Prepare unadjusted trial balance
5.
Worksheet is prepared (Optional)
6.
Journalize and Post adjusting entries
7.
Prepare adjusted trial balance.
8.
Prepare financial statements
9.
Journalize and post closing entries
10. Prepare post-closing trial balance.
---Beginning of next period:
Journalize and post reversal entries

Correcting Entries
Unfortunately, errors may occur in the
recording process. Errors should be
corrected as soon as they are discovered by
journalising and posting correcting entries.
If the accounting records are free of errors,
no correcting entries are necessary.

Adjusting Entries VS Correcting


Entries
Correcting Entry
Adjusting Entry
not an integral
part. May or may
not exist.
made whenever
an error is
discovered.
May be any
combination of
accounts
Must be posted
before closing
entries

integral part of
accounting cycle
Done at the END
of accounting
period
Atleast 1 BS and
atleast 1 IS
account

Case 1
On May 10, a P50 cash collection
on account from a customer is
journalised and posted as a debit
to cash P50 and a credit to
Service Revenue P50. The error is
discovered on May 20, when the
customer pays the remaining
balance in full.

Requirement

Incorrect
entry
(done)

Correct
entry
(should be)

Correcting Entry

Case 2

On May 18, office equipment costing


P450 is purchased on account. The
transaction is journalised and posted
as debit to Delivery Equipment P45
and a credit to Accounts Payable
P45. The error is discovered in June
3, when the monthly statement for
May is received from the creditor.

Requirement

Incorrect
entry
(done)

Correct
entry
(should be)

Correcting Entry

12/1Cash
15,000
12/14
Salaries Exp.
600
Capital
15,000
Cash
600

12/2
Rent Exp. 800
12/20
Cash
2,000
C. Revenue
Cash
800
2,000
12/2
Supplies 720
12/28
Salaries Exp. 600
A/P

720

Cash

600

12/3
O. Equipment
7,500
12/30A/R
4,800
C. Revenue
Cash
3,700
4,800
A/P
3,80012/31
Drawings1,200
12/8A/P
Cash

720

Cash
720

1,200

Seatwork

Assume the following errors in reference to


Activity set.
12/1 P1,500 was amount recorded instead of
P15,000
12/2 Prepaid Rent was debited instead of
Rent
Expense
12/3 The transaction was omitted.
12/8 Amount recorded was P8,400 instead of
P4,800
12/31 Double entry of transaction

Requirement:
1. Prepare for the
incorrect, correct
and correcting
entries.

Requirement:
2. Prepare
unadjusted trial
balance with the
incorrect entries
included

12/1 Sliding error


12/2 Wrong account with same
normal balance
12/3 Omission of entry
12/8 Transposition Error
12/31 Double entry of transaction

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