Accounting Cycle

Accounting Cycle - Learning Objectives Intermediate...

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1 Intermediate Accounting I A Review of Accounting Cycle HKU/FBE/BUSI0019 Dr. Min WU 2 Learning Objectives 1. Identify and explain the basic steps in the accounting process (accounting cycle). 2. Analyze transactions and make and post journal entries. 3. Make adjusting entries produce financial statements, and close nominal accounts. 4. Distinguish between accrual and cash basis accounting. 5. Discuss the importance and expanding role of computers to the accounting process. 3 Overview of the Accounting Process Step 1 Business documents analyzed Step 2 Transactions recorded in journals Step 3 Transactions posted to ledgers Recording Phase Step 5 Adjustments Work sheet (optional) Step 4 Trial balance Steps in the Reporting Phase Step 6 Financial statements Step 7 Closing entries Step 8 Post-closing trial balance (optional) 4 Double Entry Accounting z The accepted system for recording accounting data. z Each transaction/ business event is recorded to maintain the equality of: The basic accounting equation Assets = Liabilities Owners’ Equity +
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5 Journalizing Transactions z Transactions are events that have an economic impact on a business. z Business documents are records that are evidence of transactions. z A journal is an accounting record in which business transactions are entered in chronological order. 6 Journal Entry Process Every journal entry involves a 3-step process: 1. Identify the accounts involved with an event or transaction. 2. Determine whether each account increased or decreased. 3. Determine the amount by which each account was affected. 7 Debits and Credits z A debit is an entry on the left side of an account. z A credit is an entry on the right side. General Journal Entry Format Date Debit Entry. ................................. xx Credit Entry. ............................ xx Explanation z Debits and credits affect accounts differently. 8 Debit & Credit Effects Assets DR CR + - Liabilities DR CR -+ Owners’ Equity DR CR Dividends DR CR + - Capital Stock DR CR Retained Earnings DR CR Expenses DR CR Revenues DR CR + - - + =+
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9 Types of Journals z The general journal is used to record all transactions. z A special journal is used to record a particular type of frequently recurring transaction. z Sales, Purchases, Cash Disbursements, Cash Receipts 10 Example 1) On July 1 st , 2008, Walt Disney Co. announced semi- annual cash dividends of $25,000 2) On July 10 th , California Disneyland purchased a high definition camera for $7,500 on account to substitute the broken one on Splash Mountain. 3) On July 31 st , it recorded payroll tax for the month. 11 Date Description Post Ref. Debits Credits General Journal Page 24 2008 July 1 Dividends 330 25,000 Dividends Payable 260 25,000 Declared semi-annual cash dividend on CS 10 Equipment-camera 180 7,500 Notes Payable 220 7,500 Issued note for new equipment .
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This note was uploaded on 02/22/2010 for the course FBE BUSI1002 taught by Professor Maochunlin during the Winter '08 term at HKU.

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Accounting Cycle - Learning Objectives Intermediate...

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