the accounting cycle:capturing economic events
TRANSCRIPT
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McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
The Accounting Cycle:The Accounting Cycle:Capturing Economic EventsCapturing Economic Eventsotaleem.blogspot.comotaleem.blogspot.comfor more presentation(follow me)for more presentation(follow me)
Chapter 3
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Accounting CycleAccounting Cycle
The Sequence of accounting procedures used to record, classify, and summarize accounting information in financial reports at regular intervals is often termed the accounting cycle.
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Accounting Cycle StepsAccounting Cycle Steps
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The LedgerThe Ledger
The entire group of accounts is kept
together in an accounting record
called a ledger.
Cash
Accounts Payable
Capital Stock
Accounts are individual records showing increases
and decreases.
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The Use of AccountsThe Use of Accounts
Increases are recorded on one
side of the T account, and decreases are
recorded on the other side.
Left or
Debit Side
Right or
Credit Side
Title of Account
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Cash5/1 8,000 5/2 2,500
5/25 75 5/8 2,0005/29 750 5/28 150
5/31 50 5/31 4,125Bal.
Receipts are on the debit
side.
Payments are on the credit
side.
The balance is the difference between the debit and credit entries
in the account.
Debit and Credit EntriesDebit and Credit Entries
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Balance of T AccountBalance of T AccountDebit BalanceCredit BalanceAny Asset AccountAny Liabilities and owner’s Equity
AccountsDouble Entry Accounting- the
equality of debits and credits
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AA = LL + OEOEASSETSASSETS
Debit for
Increase
Credit for
Decrease
EQUITIESEQUITIES
Debit for
Decrease
Credit for
Increase
LIABILITIESLIABILITIES
Debit for
Decrease
Credit for
Increase
Debits and credits affect accounts as follows:
Debit and Credit EntriesDebit and Credit Entries
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In an actual accounting system, transactions are initially recorded in the
journal.
GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009May 1 Cash 8,000
Capital Stock 8,000Owners invest cash in the business.
The JournalThe Journal
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Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
Posting simply means updating the ledger accounts for
the effects of the transactions
recorded in the journal.
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GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009May 1 Cash 8,000
Capital Stock 8,000Owners invest cash in the business.General Ledger
CashDate Debit Credit Balance2009
May 1 8,000 8,000
Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
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GENERAL JOURNAL
Date Account Titles and ExplanationPR Debit Credit
2009May 1 Cash 8,000
Capital Stock 8,000Owners invest cash in the business.General Ledger
Capital StockDate Debit Credit Balance2009
May 1 8,000 8,000
Posting Journal Entries to Posting Journal Entries to the Ledger Accountsthe Ledger Accounts
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General LedgerCash
Date Debit Credit Balance2009
May 1 8,000 8,000 2 2,500 5,500
T accounts are simplified versions of the ledger account that only show the
debit and credit columns.
Ledger Accounts After Ledger Accounts After PostingPosting
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RECORDING BALANCE RECORDING BALANCE SHEET SHEET TRANSACTION:TRANSACTION:
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Net income is not an asset it’s an increase in owners’ equity from profits of the
business.
AA = LL + OEOEIncrease Decrease
As income is earned, either an asset is
increased or a liability is decreased.
Increase
Net income always results in the increase of Owners’ Equity
What is Net Income?What is Net Income?
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Revenue and ExpensesRevenue and ExpensesThe price for goods sold and services rendered during a given accounting period.
Increases owners’ equity.
The costs of goods and services used up in the process of earning revenue.
Decreases owner’s equity.
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Debit and Credit Rules for Debit and Credit Rules for Revenue and ExpensesRevenue and Expenses
EQUITIES
Debit for
Decrease
Credit for
Increase
Expenses decrease owners’ equity.
Revenues increase owners’ equity.
EXPENSES
Credit for
Decrease
Debit for
Increase
REVENUES
Debit for
Decrease
Credit for
Increase
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EQUITIES
Debit for
Decrease
Credit for
Increase
Payments to owners
decrease owners’ equity.
Owners’ investments
increase owners’ equity.
DIVIDENDS
Credit for
Decrease
Debit for
Increase
DividendsDividends
CAPITAL STOCK
Debit for
Decrease
Credit for
Increase
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RECORDING INCOME RECORDING INCOME STATEMENT STATEMENT TRANSACTIONS:TRANSACTIONS:
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End of Chapter 3End of Chapter 3