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The Accounting Cycle
The accounting period of a business is separated into activities that help the business keep its accounting records in order.
These activities are called the Accounting Cycle.
1Collect
and verifysource
documents
2Analyze
eachtransaction
3Journalize
eachtransaction
4Post to the
ledger
5Prepare a
trialbalance
6Prepare aworksheet
7Preparefinancial
statements
8Journalizeand postclosingentries
9Prepare a
post-closingtrial
balance
1Collect
and verifysource
documents
2Analyze
eachtransaction
3Journalize
eachtransaction
Source DocumentsA Source Document provides evidence that a transaction has taken place.
There are 4 basic types of Source Documents that we will be using.
InvoiceIndicates that money is owed.
from your company to your company
AccountsReceivable
AccountsPayable
Receipt Indicates that money has been paid.
from your company to your company
DebitCash
CreditCash
Check Stub Indicates that a check has been issued.
CreditCash
Memorandum (memo)
Written message describing a transaction
Various
Source Document Examples
(1) Name of company providing service
(1)
(2) Name of company receiving service
(2)
(3) Date of invoice
(3)
(4) Invoice number
(4)
(5) Item sold/bought
(5)
(5) Price of item
(6)
(1) Name of company providing service
(1)
(2) Name of company receiving service
(2)
(3) Date of receipt
(3)
(4) Receipt number
(4)
(5) Service provided
(5)
(5) Amount received
(6)
(1) Memo number
(1)
(2) Date of memo
(2)
(3) Description of transaction
(3)(1) Amount of check
(1)
(2) Check number
(2)
(3) Date check was written
(3)
(4) Name of company being paid
(4)(5)
(5) Purpose of check
Invoice
Receipt
Memo
CheckStub
Homework
Textbook Page: 125 Workbook Page: 66
Problem 6-1
Recording Transactions in a General Journal
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DATE DEBI T CREDI T
Let’s take a look at a sample General Journal and the steps to journalizing a transaction.
Year
1) Date of Transaction
Month Day
2) Name of Account Debited
Debited Account Name
3) Amount of the Debit
3 0 0
4) Name of Account Credited
Credited Account Name
5) Amount of the Credit
3 0 0
6) Source Document Reference
Source Document
Investments by the OwnerBusiness Transaction 1
On October 1 Maria Sanchez took $25,000 from her personal savings and deposited that amount to open a business account in the name of Roadrunner Delivery Service, Memo 1.
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1
2014Oct 1 Cash in Bank 25 0 0 0
M. Sanchez, Capital 25 0 0 0Memo 1
Business Transaction 2
On October 2 Maria Sanchez, took two telephones valued at $200 each (total $400) from her home and transferred them to the business as Office Equipment, Memo 2.
2 Office Equipment 4 0 0M. Sanchez, Capital 4 0 0
Memo 2
Purchase TransactionsBusiness Transaction 3
On October 4 Roadrunner issued check 101 for $3,000 to buy a computer system.
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4 Computer Equipment 3 0 0 0Cash in Bank 3 0 0 0
Check 101
Business Transaction 4
On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12,000, Invoice 200.
9 Delivery Equipment 12 0 0 0Accts Payable – North Shore
Auto12 0 0 0
Invoice 200
Miscellaneous TransactionsBusiness Transaction 5
On October 11 Roadrunner sold one telephone to Green Company for $200 on account, Memo 3
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11 Accts Rec – Green Company 2 0 0Office Equipment 2 0 0
Memo 3
Business Transaction 6
On October 12 Roadrunner mailed check 102 for $350 as the first installment payment on the truck purchased from North Shore Auto on October 9.
12 Accts Payable – North Shore Auto 3 5 0Cash in Bank 3 5 0
Check 102
Business Transaction 7
On October 14 Roadrunner received and deposited a check for $200 from Green Company. The check was full payment for the telephone sold, Receipt 1
14 Cash in BankAccts Rec – Green Company
Receipt 1
2 0 02 0 0
Revenue & Expense Transactions
Business Transaction 8
On October 15 Roadrunner provided delivery services for the Sims Corporation. A check for $1,200 was received in full payment, Receipt 2.
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1
15
Cash in Bank 1 2 0 0Delivery Revenue 1 2 0
0Receipt 2
Business Transaction 9
On October 16 Roadrunner mailed check 103 for $700 to pay the rent for the month .
16
Rent Expense 7 0 0Cash in Bank 7 0 0
Check 103
More Revenue & Expense TransactionsBusiness Transaction 10
On October 18 Beacon Advertising prepared an advertisement for Roadrunner. Roadrunner will pay Beacon’s $75 fee later, Invoice 129.
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1
18
Advertising Expense 7 5Accts Pay – Beacon Advertising 7
5Invoice 129
Business Transaction 11
On October 20 Roadrunner provided delivery services to City News. Roadrunner billed City News $1,450, Sales Invoice 1.
20 Accts Receivable – City News 1 4 5 0Delivery Revenue 1 4 5 0
Sales Invoice 1
I only have 2 lines left, but I need 3 lines to record a transaction.
Even More Revenue & Expense Transactions
Business Transaction 12
On October 28 Roadrunner paid a $125 telephone bill with check 104 .
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2
28 Utilities Expense 1 2 5Cash in Bank 1 2 5
Check 104
Business Transaction 13
On October 29 Roadrunner wrote check 105 for $600 to have the office repainted .
29 Maintenance Expense 6 0 0Cash in Bank 6 0 0
Check 105
Business Transaction 14
On October 31 Maria Sanchez wrote check 106 to withdraw $500 cash for personal use .
31 M. Sanchez, WithdrawalsCash in Bank
Check 106
5 0 05 0 0
2014Oct
Homework
Textbook Page: 140 Do on lose-leaf paper
Problem 6-2 & Problem 6-3
Trans Account Classifi cation I ncrease Decrease Debit Credit
Problem 6-4
T – P. 145W – P. 67
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Wilderness RentalsChart of Accounts
101 Cash in Bank105 A/R – Helen Katz110 A/R – Polk & Co.120 Office Equipment125 Camping Equipment
201 A/P – Adventure Equipment Inc.203 A/P – Digital Tech Computers205 A/P – Greg Mollaro
301 Ronald Hicks, Capital305 Ronald Hicks, Withdrawals310 Income Summary
401 Equipment Rental Income
501 Advertising Expense505 Maintenance Expense515 Rent Expense520 Salaries Expense525 Utilities Expense
Wrote Check 310 for the part-time secretary’s salary, $270.
Jan 1
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1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI T
Bought $2,000 of camping equipment on account from Adventure Equipment Inc., Invoice 320
3
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
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DATE DESCRI PTI ON DEBI T CREDI T
Received $500 from a client for equipment rental, Receipt 150.
5
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
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DATE DESCRI PTI ON DEBI T CREDI T
Wrote Check 311 to pay the electricity bill of $110.
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
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DATE DESCRI PTI ON DEBI T CREDI T
Billed a client, Polk and Co., $1,700 for rental equipment, Sales Invoice 262
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
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DATE DESCRI PTI ON DEBI T CREDI T
Ronald Hicks withdrew $800 for personal use, Check 312
12
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
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DATE DESCRI PTI ON DEBI T CREDI T
Bought a $300 scanner for the office computer from Digital Tech Computers, on account, Invoice 270.
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
20 14 Offi ce Equipment 3 0 0
21 Atts Payable - Digital Tech Computers 3 0 0
22 I nvoice 270
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI T
Page: ___1___
POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
20 14 Offi ce Equipment 3 0 0
21 Atts Payable - Digital Tech Computers 3 0 0
22 I nvoice 270
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI TWrote Check 313 for $1,000 as an installment payment toward the amount owed to Adventure Equipment Inc.
16
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
20 14 Offi ce Equipment 3 0 0
21 Atts Payable - Digital Tech Computers 3 0 0
22 I nvoice 270
23 16 Accts Payable - Adventure Equipment 1 0 0 0
24 Cash in Bank 1 0 0 0
25 Check 313
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI T
Received $1,700 from Polk and Co. in payment on their account, Receipt 151.
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
20 14 Offi ce Equipment 3 0 0
21 Atts Payable - Digital Tech Computers 3 0 0
22 I nvoice 270
23 16 Accts Payable - Adventure Equipment 1 0 0 0
24 Cash in Bank 1 0 0 0
25 Check 313
26 25 Cash in Bank 1 7 0 0
27 Accts Receivable - Polk & Co. 1 7 0 0
28 Receipt 151
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI T
Paid Digital Tech Computers $300 for the amount owed, check 314.
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POST REF
1 2014
2 J AN 1 Salaries Expense 2 7 0
3 Cash in Bank 2 7 0
4 Check 310
5 3 Camping Equipment 2 0 0 0
6 Accts Payable - Adventure Equipment 2 0 0 0
7 I nvoice 320
8 5 Cash in Bank 5 0 0
9 Equipment Rental Revenue 5 0 0
10 Receipt 150
11 7 Utilities Expense 1 1 0
12 Cash in Bank 1 1 0
13 Check 311
14 11 Accounts Receivable - Polk & Co. 1 7 0 0
15 Equipment Rental Revenue 1 7 0 0
16 Sales I nvoice 262
17 12 Ronald Hicks, Withdrawals 8 0 0
18 Cash in Bank 8 0 0
19 Check 312
20 14 Offi ce Equipment 3 0 0
21 Atts Payable - Digital Tech Computers 3 0 0
22 I nvoice 270
23 16 Accts Payable - Adventure Equipment 1 0 0 0
24 Cash in Bank 1 0 0 0
25 Check 313
26 25 Cash in Bank 1 7 0 0
27 Accts Receivable - Polk & Co. 1 7 0 0
28 Receipt 151
29 30 Accts Payable - Digital Tech Computers 3 0 0
30 Cash in Bank 3 0 0
31 Check 314
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GENERAL J OURNAL
DATE DESCRI PTI ON DEBI T CREDI T
That was easy
Homework
Textbook Page: 146 Workbook Page: 68
Problem 6-5
