Accounting Process

1
Accounting Process

• Basic Terminology
• Event, transaction, account, real and nominal
  accounts, ledger, journal, posting, trial
  balance, adjusting entries, financial statements,
  closing entries (p.83)
• Basic Equation
• Assets Liabilities Owners Equity

2
Double-Entry Accounting

• Debits increase assets and expenses while credits
  increase liabilities, owners equity and revenues
• The normal balance of accounts is the same as the
  increase side
• Real accounts are balance sheet accounts, nominal
  accounts are income statement accounts

3
Accounting Cycle

• Journalization of transaction
• Posting each journal entry and amount to the
  ledger accounts
• Trial balance preparation lists accounts with
  debit or credit balance at a point in time to
  test equality after postings

4
Accounting Cycle

• Adjusting Entries are of five types
• Prepaid expenses (assets)
• Unearned revenues (liabilities)
• Accrued liabilities (expenses)
• Accrued assets (revenues)
• Estimated Items--Bad debt expense, Depreciation,
  Warranty expense

5
Accounting Cycle

• Year-End Procedures for Inventory and related
  accounts
• Perpetual Inventory System--Inventory and Cost of
  Goods Sold balances are current
• Periodic Inventory System--Beginning Inventory
  plus Net Purchase less Ending Inventory equals
  Cost of Goods Sold

6
Accounting Cycle

• Preparation of financial statements
• Income Statement, Statement of Retained Earnings,
  Balance Sheet, Cash Flow Statement
• Closing of nominal or temporary accounts (income
  statement accounts for Revenues, Expenses, Income
  Summary, Dividends)
• Work Sheet
• Reversing Entries are optional