Chapter 6 to assign revenues to the period in

Accounting Cycle which they are earned and

- is a series of procedures that expenses to the period in which
involves specific steps in they are incurred.
recording, classifying, 6. Preparing the Adjusted Trial
summarizing, and interpreting Balance (Worksheet) - the
transactions and events for a equality of debits and credits are
business entity. This is commonly rechecked after adjustments are
called as accounting process. It is made. This will serve as basis for
the process of keeping track of the preparation of financial
business transactions by recording statements.
and reporting them. Reporting
7. Preparing Financial Statements -
Steps in Accounting Cycle These financial statements provide
useful information to interested
Recording parties for their decision-making.
1. Identifying and analyzing 8. Closing the Books - The
business transactions. - temporary nominal accounts are
Business transactions or events eliminated from the accounts by
are analyzed and identified recording and posting the closing
whether they are accountable or entries. This will prepare the
not. accounting records for the next
2. Journalizing - transactions are accounting period.
recorded in the book of original 9. Post- Closing Trial balance -
entry known as the journal. The After the closing entries are
transactions are recorded posted, the post-closing trial
chronologically with the balance is prepared to check that
appropriate accounts and the debit and credit balances of the
amounts. remaining accounts are correct.
3. Posting - transactions from the Optional
journal are classified in the book of 10. Recording of Reversing Entries -
final entry known as the ledger. s. At the beginning of the next
The ledger classifies the accounting period, selected
transactions effecting the adjusting journal entries made at
increases and decreases for each the previous accounting period are
account. reversed to “normalize” the
Summarizing recording of the related actual
4. Preparing the Unadjusted Trial transactions.
balance - The summary of 1st step: Identifying and Analyzing
accounts balances from the ledger Business transactions
is prepared in the list of accounts - Business transactions or events
known as the trial balance. This is analyzed whether they are
the proof that the ledger debit accountable or not.
balance and credit balances are - Only transactions which are
equal and is in balance. identified to be accountable
5. Preparing the Adjusting Entries - transactions are recorded in the
Adjusting journal entries are made accounting records.
at the end of the accounting period
A transaction or event is accountable 5. Check - The business documents
when it meets the following criteria: forms serve as evidence to support
a. Affects the business entity; the accountable transactions or
b. Can be measured in terms of events. These documents provide
money. the data concerning the parties
c. Occurred on a specific date or for a involved, the exchange made, the
specific period. date and the money value of the
d. Affects the assets, liabilities, or exchange made.
equity of a business. 6. Statement of Account - document
e. Supported by a document. listing the unpaid invoices of a
customer. Oftentimes, it lists
Business Documents (Source chronologically the invoices,
Documents) payments and adjustments to the
- The business documents forms account of the company.
serve as evidence to support the 7. Official Receipt - document listing
accountable transactions or the unpaid invoices of a customer.
events. These documents provide Oftentimes, it lists chronologically
the data concerning the parties the invoices, payments and
involved, the exchange made, the adjustments to the account of the
date and the money value of the company.
exchange made. 2nd Step: Journalizing
Examples: - Means recording chronologically
1. Sales Invoice - The business the transactions in the journal.
documents forms serve as General Journal
evidence to support the - Known as the “Books of Original
accountable transactions or Entry.”
events. These documents provide Journal entry
the data concerning the parties - shows the record of the effects of a
involved, the exchange made, the transaction or an event expressed
date and the money value of the in terms of debit and credit.
exchange made. Kinds of Journal Entry
2. Purchase Order - The business a. Simple Journal Entry
documents forms serve as - An entry with one debit and one
evidence to support the credit
accountable transactions or b. Compound Journal Entry
events. These documents provide - an entry with one or more debits
the data concerning the parties and credits
involved, the exchange made, the A journal entry has the following
date and the money value of the elements:
exchange made. 1. Date - journal entries are recorded
3. Bank Deposit Slip - evidences a in the journal chronologically.
deposit to a bank account. 2. Accounts debited and credited -
4. Bank Statement - shows the 3. Monetary values of the accounts
deposits and withdrawals during and credited
the period and the cumulative 4. Posting reference code of the
balance of a depositor’s bank destination ledger account.
account. 5. Brief and clear explanation of the
transactions.
Under the Double Entry Accounting > Each journal entry is posted into the
System - at least two accounts will be related ledger account indicating the
recorded for each accountable following:
transaction. ● Date
- The amount in every transaction ● Description
must be entered in one account. ● Posting Reference - serves as the
a. Debit - left side of the cross-reference between the
account journal entry and the ledger
b. Credit - right side of the account posting.
account ● Debit and Credit amount
Note: . Because of the two-fold effect of ● Running Balance of the account
transactions, the total effect on the left
(Debit) will always be equal to total the 4th Step: Preparing Unadjusted Trial
effect on the right (Credit). balance
Trial Balance
Normal balance of Accounts - is a listing of all the balances of
- On the side where an increase in the different accounts as of a given
the account is recorded. date.
- account names are listed as
arranged in the ledger and the
Type of Normal
Account Balance balances are placed either on the
debit or credit column.
Assets Debit - The total of all accounts with debit
balances must equal to the total of
Liabilities Credit
all accounts with credit balances
Equity Credit after the posting process. This trial
balance is called an unadjusted
Income Credit trial balance (no adjustments yet).
Types of trial balance
Expenses Debit
a. Unadjusted trial balance -
prepared before adjusting entries
Third Step: Posting to the Ledger are made.
Posting b. Adjusted Trial Balance - prepared
- process of transferring entries in after adjusting entries but before
the journal entries into the FS.
accounts in the ledger, c. Post-Closing Trial Balance -
Ledger closing trial balance - prepared
- a collection of all of the accounts after closing entries.
of the company, the debits and Purpose of trial Balance
credits under each account, and a. check the accuracy of posting in
the resulting balances. the ledger by testing the equality of
General ledger the debits and credits
- Books of Final Entry b. aids in locating errors in posting.
c. serves as the basis in the
> Each account has an assigned account preparation of the financial
number and the individual accounts are statements.
properly arranged.
Errors in the Accounting Process

When the total debits and total credits are

not equal, this automatically signifies that
there is an error in the recording or posting
of entries. Some of the errors that could
occur are the following:
● Journal entry with unequal debit
and credit.
● Posting to the incorrect debit or
credit of an account.
● Incorrectly footing the account
balance, or trial balance.
● Forwarding the wrong amount from
the ledger to the trial balance.
● Listing the account balance to the
wrong side of the trial balance.

The trial balance does not guarantee that

the records are accurate even if the total
of debits and total of credits are equal.
The following errors will not be detected
by the preparation of a trial balance:
● Failing to record a transaction or
event. • Multiple recording and
posting of a transaction or event. •
Entries or posting to the wrong
account. • Recording and posting
of amounts with transposition and
trans-placement errors.