1. Chapter 6 & 7 Lecture Notes
The Steps of the Accounting Cycle
The accounting period of a business is separated into activities that help the business keep its accounting records in an orderly fashion.

2. $ $ $ $ The Accounting Period
Accounting records are summarized for a certain period of time, called an accounting period or fiscal period.
An accounting/fiscal period can be:
Monthly, Quarterly, Yearly
If yearly, it can cover a
Calendar year
January 1 - December 31
Any period of twelve months
Example: July 1 – June 30 $ $ $ $

3. Chapter 6 & 7 Lecture Notes
Section 1 The Accounting Cycle (cont'd.)
Chapter 6 $
The Second Step in the Accounting Cycle: Analyzing Business Transactions $ $
Analyzing business transactions to determine
the accounts effected
the account(s) to debit and the amount
the account(s) to credit and the amount
When you work, you won’t get a description of the transaction, instead, you will examine a source document to determine what occurred during a business transaction. $

4. BUSINESS TRANSACTION ANALYSIS
ANALYSIS Identify 1. Identify the accounts affected.
Classify 2. Classify the accounts affected.
+ / – 3. Determine the amount of the increase or decrease for each account affected.
4. Which account is debited? For what amount?
5. Which account is credited?
For what amount?
6. What is the complete entry in T- account form?
7. What is the complete entry in general journal form?

5. The Third Step in the Accounting Cycle: Recording Business Transactions in a Journal$
What do you record?
the debit and credit parts of each business transaction in a journal.
A journal is
a chronological record of all of the transactions of a business – the book of original entry.
Journalizing is
the process of recording business transactions in a journal is called journalizing. $ $ $

6. Chapter 6 & 7 Lecture Notes
What is a General Journal ?
It is an all purpose journal in which all the transactions of a business may be recorded.

7. The parts of the general journal entry
Chapter 6 & 7 Lecture Notes
The parts of the general journal entry
Not written in until entry is posted. It will contain the general ledger account # the entry is posted to.
Name of the account debited
Year & Month - At the top of each page and when the month changes
Day – for each and every transaction
Page #
Amount of the debit
Name of the
account credited
Source document
reference or an
explanation
Amount of the
credit 7

8. Recording a General Journal Entry
The debit part of the entry is at the left margin in the description column
The credit part of the entry is indented approximately ½”
The explanation is indented an additional ½”
This allows for easier reading of the journal.

9. Chapter 6 & 7 Lecture Notes
Business Transaction 1
Recording a General Journal Entry
On October 1, Maria Sanchez took $25,000 from personal savings and deposited that amount to open a business checking account in the name of Roadrunner Delivery Service, Memorandum 1.
Maria Sanchez,
Cash in Bank Capital
Debit
25,000
Credit + –

10. Chapter 6 & 7 Lecture Notes
Business Transaction 2
Recording a General Journal Entry
On October 9, Roadrunner bought a used truck on
account from North Shore Auto for $12,000, Invoice 200.
Delivery Accounts Payable—
Equipment North Shore Auto
Credit +
12,000
Debit –

11. Chapter 6 & 7 Lecture Notes
Correcting Errors in General Journal Entries $
An error should never be erased.
To correct an error in your general journal
Draw a horizontal line through the entire incorrect item and write the correct information above the crossed-out error. $ $ $

12. Chapter 6 & 7 Lecture Notes
The Fourth Step in the Accounting Cycle: Posting
Posting is transferring the information from the journal to the proper accounts in the general ledger
Provide a clear picture of how each account is affected by a business transaction.
Posting brings the records of the business up-to-date
Posting leaves an audit trail to easily trace a transaction to its original book of entry!!
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13. Chapter 6 & 7 Lecture Notes
General Journal
Asset Accounts
Expense Accounts
Owner Equity Accounts
Liability Accounts
Revenue Accounts
General Ledger
What is the General Ledger?
a book or file that contains the accounts used by a business on separate pages or cards.
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14. Chapter 6 & 7 Lecture Notes$
The Four-Column Ledger Account Form $ $ $

15. Chapter 6 & 7 Lecture Notes$
Opening an Account with a Zero Balance
(1) Write the account name at the top of the ledger account form. $
Write the account number on the ledger account form.
Write nothing else. $ 1 2 $

16. Chapter 6 & 7 Lecture Notes$
Opening an Account with a Balance
(1) Write the account name at the top of the ledger account form. $
(2) Write the account number on the ledger account form. $ $

17. Chapter 6 & 7 Lecture Notes$ $
(3) Enter the complete date (year, month, and day) in the date column.
(4) Write the word “Balance” in the Description column. $ $

18. Chapter 6 & 7 Lecture Notes$
(5) Place a check mark () in the Posting Reference column to show the amount entered on this line is not being posted from a journal. $ $
(6) Enter the balance in the appropriate balance column of the ledger account form. $

19. Chapter 6 & 7 Lecture Notes

20. Posting from the General Journal to Ledger Accounts

21. Chapter 6 & 7 Lecture Notes
Posting entries in the general ledger from the general journal.
Left blank unless a correcting, closing or adjusting entry.
The debit amount of the journal entry
The new balance in the account; always on the normal balance side
The date of the journal entry
The journal and journal page number posting from $

22. Posting entries in the general ledger from the general journal.
Chapter 6 & 7 Notes
Posting entries in the general ledger from the general journal.
Posting is done from left to right.
The general ledger account number is then recorded in the general journal post reference column
Then repeat the posting process for the credit part of the entry in the general journal.
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23. Chapter 6 & 7 Lecture Notes
Business Transaction 1 after posted to general ledger
Chapter 6 & 7 Lecture Notes
101
301

24. Chapter 6 & 7 Lecture Notes
Computing a New Account Balance
Accounts with normal debit balances use the debit balance columns:
Debit amounts are added to debit balances
Credit amounts are subtracted from debit balances
Accounts with normal credit balances use the credit balance columns:
Credit amounts are added to credit balances
Debit amounts are subtracted from credit balances.
The new balance (calculated after each posting) should be recorded on the normal balance side.
If the new balance is zero, a line should be drawn across the center of the balance column on the side of the normal balance.

25. Chapter 6 & 7 Lecture Notes
Posting Date rules when posting to the general ledger:
Year & Month
At the top of each account
And when the month changes
Day – for each and every transaction posted
The frequency of posting depends on:
The size of the business
The number of transactions being processed
If a manual or computer system is being used
Most business post DAILY
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26. Chapter 7 6

27. $ $ $ $ The Fifth Step in the Accounting Cycle: The Trial Balance
Chapter 7
Section 3 Preparing a Trial Balance $
The Fifth Step in the Accounting Cycle: The Trial Balance
A formal way to prove that debits equal credits is to prepare a trial balance.
Prepared on two-column accounting stationery.
Three line heading:
Who – the name of the business
What – the name of the accounting form
When – the fiscal period covered.
Prepared
Normally at the end of the fiscal period
Can be prepared at any time during the fiscal period
Accounts included
All accounts - even zero balance accounts $ $ $

28. Chapter 6 & 7 Lecture Notes
Finding Trial Balance Errors
Add the debit and credit columns again.
Determine the amount you are out of balance
If the difference is 10, 100, 1000, possibly an addition error – Re-add columns again
If the difference is evenly divisible by 9, you may have a
transposition error – two numbers have been accidentally reversed. Check balances against general ledger
slide error – decimal point moved. Check balances against general ledger
Check general ledger for a balance that matches the difference; one account may have been omitted
If the difference is divisible by 2, possibly one of the balances has been recorded in the wrong column. Check balance types against general ledger.
Recompute the balances in the general ledger.
Check postings from general journal to general ledger.
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29. Chapter 6 & 7 Lecture Notes
The First Step in the Accounting Cycle: Collecting and Verifying Source Documents $
The accounting cycle starts by
collecting and verifying the accuracy of source documents.
A source document is
a paper prepared as evidence of a transaction.
Examples:
Invoice
Receipt
Memorandum
Check Stub $ $ $

30. $ $ $ $ Source Documents - Invoice Chapter 6
Invoice (2 kinds – Buy and Selling):
Invoices for items your business is buying are issued by your creditors.
Invoices you issue for services/items your business is selling are issued to your customers.
The invoice lists the date of the transaction, the terms, along with the quantity, description, and cost of each item. $

31. $ $ $ $ Source Documents - Receipt Chapter 6 Receipt:
A record of cash received by a business.
It indicates the date the payment was received, the
name of the person or business from whom the payment was received, and the amount of the payment. $

32. $ $ $ $ Source Documents - Memorandum Chapter 6 Memorandum:
A brief written message that describes a transaction
that takes place within a business.
Often used if no other source document exists for the business transaction.

33. $ $ $ $ Source Documents - Check Stub Chapter 6 Check Stub:
The check stub lists the same information that appears on a check: the date written, the person or business to
whom the check was written, and the amount of the check.
The check stub also shows the balance in the checking account before and after each check is written. $

34. Chapter 6 & 7 Lecture Notes
Correcting errors
Error in a journal entry that is not posted
Correction: Draw a single line through the incorrect item in the journal and write the correction directly above.
Error in posting to the ledger when the journal entry is correct
Correction: Draw a single line through the incorrect item in the ledger and write the correction directly above
Error in a journal entry that is posted.
Correction: Make a correcting entry in the journal and post to the ledger
When posting to the ledger, include the words “Correcting Entry” in the description column
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