The Accounting Process The accounting equation Assets = Liabilities + Owners’ equity Assets—the resources that a business owns (e.g., cash, inventory, equipment, and real estate) Liabilities—the firm’s debts Owners’ equity—the difference between assets and liabilities (what would be left for the owners if the firm’s assets were sold and the money used to pay off its liabilities) Double-entry bookkeeping system: Each financial transaction is recorded as two separate accounting entries to maintain the balance of the accounting equation Copyright © Cengage Learning. All rights reserved

The Accounting Process (cont’d) The accounting cycle Done on a regular basis Analyzing source documents Recording transactions as they occur in the general journal Posting transactions to accounts in the general ledger Done at the end of the period Preparing the trial balance of all general ledger accounts Preparing financial statements and closing the books Copyright © Cengage Learning. All rights reserved

The Accounting Cycle 1. Analyzing source documents 2. Recording transactions 4. Preparing the trial balance 3. Posting transactions 5. Preparing financial statements Copyright © Cengage Learning. All rights reserved