FA_Chapter4 - ACTG 1P11 CHAPTER 4 THE ACCOUNTING SYSTEM The...

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ACTG 1P11: CHAPTER 4 THE ACCOUNTING SYSTEM The General Ledger (G/L) System - The traditional way that accounting transactions are recorded and summarized - Overall system: from Journal to G/L to Trial Balance to Financial statements - The overall system: o As transactions occur, they are recorded chronologically in a journal o Transactions recorded in the journal are transferred (grouped together) in another book called the general ledger, through a process called posting o (Posting simply means updating the appropriate accounts with the debits & credits) o Posting is done periodically – daily, weekly, or monthly (depending on the size of the business) - The general ledger is the primary record of financial information of the business o It is organized by financial statement item, or account o Each account can be thought of as a page in the general ledger o Each account has its own page in the G/L, showing the debits and credits to that account and its current balance - Subsidiary ledgers (“sub ledgers”)are detailed records that support the balances in the GL o Accounts receivable o Accounts payable o Inventory o Property, plant, and equipment - A trial balance is a list of all of the accounts in the GL, with their respective balances - Before the financial statements can be prepared, adjustments must be made. Common adjustments: o Accruals – e.g. accrued wages payable o Deferrals – e.g. prepaid insurance Debits and Credits I. Debit means the left side; credit means the right side II. T-accounts are often used to represent a page in a GL a. The left side of the T-account is the debit side b. The right side of the T-account is the credit side c. Numbers put on the left side are called debits, and putting a number on the left side is called debiting d. Numbers put on the right side are called credits, and putting a number on the right side is called crediting
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The accounting cycle I. The accounting cycle is the process that starts with recording individual transactions, produces the four basic financial statements, and gets the GL ready for the next accounting period II. The accounting cycle is made up of eight steps that occur during an accounting period a. Record journal entries b. Post journal entries to the GL c. Prepare an unadjusted trial balance d. Adjust the accounts e. Prepare an adjusted trial balance f. Prepare the financial statements g. Close the temporary accounts h. Prepare a post closing trial balance III. Record journal entries a. As events and transactions occur, the effect of these are recorded in the journal b.
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