Chapter 4 Study Notes - Completing the Accounting Cycle

Chapter 4 Study Notes - Completing the Accounting Cycle -...

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CHAPTER 4 STUDYNOTES CH 4—COMPLETING THE ACCOUNTING CYCLE Accounting Steps Of A Typical Company: 1. Daily Accounting—recording on-going business transactions—e.g. sales, payment of wages, purchases of equipment & supplies, payment of rent, insurance, utilities, taxes These routine transactions are recorded on a regular basis. Their recording tends to be triggered by a physical action or document (i.e. some outside event) such as record revenue (& either cash or account receivable depending on whether cash sale or on account) Sell goods Record revenue (sales) & cash or account receivable Record cost of goods sold & reduce inventory account Purchase asset--take physical possession of asset record asset (with corresponding entry to either cash or accounts payable depending on whether pay for asset immediately or buy on account) Receive bill in mail for services or goods provided to your business (e.g. legal services, utilities) record account payable (& usually expense) Receive check in mail as payment for your services or goods record cash (& reduce accounts rec.) Write check to pay bill reduce cash & adjust appropriate other account (e.g. accounts payable) depending on circumstances Journal entries are prepared & posted to the relevant accounts in the general ledger—often via a computer program Sample journal entries: 1/30/XX Dr. Accounts Receivable $50,000 Cr. Sales 50,000 To record monthly sales 2/1/XX Dr. Cash $30,000 Cr. Accounts Receivable 30,000 To record customer payments 2/1/XX Dr. Wage Expense $100,000 Cr. Cash $100,000 To record January payroll 2/2/XX Dr. Utility Expense $8,000 Cr. Accounts Payable $8,000 To record utility expense 2/5/XX Dr. Accounts Payable $1,900 Cr. Cash $1,900 To record payment of supplies invoice
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CHAPTER 4 STUDYNOTES Note that typical entry includes date, debit (dr.) to an account, credit (cr.) of same amount to another account and a brief description. All of these entries are triggered by an event. These journal entries are written up in the journal & then posted to accounts maintained in the general ledger—both steps today are usually handled within a computer program. Most “books” today are computer programs. At any point, a printout can be run listing every account, along with the accounts’ current balances (& whether dr. or cr. balance) from the ledger. This printout or listing is known as the trial balance . (Note: In this class we often work with t- accounts as a substitute for the ledger, but Ts are used primarily in worksheets, not as part of official accounting systems.) It is called a “trial” because the numbers are not final. 2.
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Chapter 4 Study Notes - Completing the Accounting Cycle -...

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