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CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The Accounting Cycle As we have learned, accounting is a systematic process of recording the.

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Presentation on theme: "CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The Accounting Cycle As we have learned, accounting is a systematic process of recording the."— Presentation transcript:

1 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The Accounting Cycle As we have learned, accounting is a systematic process of recording the financial transactions of a business and arranging the subsequent data in a usable format. The above mentioned process is known as the Accounting Cycle. 1 LESSON 6-1

2 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 2 LESSON 8-3 THE ACCOUNTING CYCLE Prepare post-closing trial balance 7.Post adjusting and closing entries 6.Journalize adjusting and closing entries 5.Prepare financial statements 4.Prepare work sheet 3.Post 2.Journalize 1.Analyzes transactions

3 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning The Accounting Cycle So far we have learned how to analyze business transactions, journalize the transactions in the general journal, and post the journal entries to the general ledger. Now we will begin to explore the next step of the accounting cycle, which is preparing an Accounting Work Sheet. 3 LESSON 6-1

4 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 4 LESSON 6-2

5 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning Accounting Work Sheets An Accounting Work Sheet is a columnar accounting form used to summarize the General Ledger information needed to prepare Financial Statements. The Work Sheet is used for four reasons: 1.Summarize general ledger account balances to prove debits equal credits 2.Plan needed changes to the general ledger accounts to bring account balances up to date 3.Separate general ledger account balances according to the financial statements to be prepared 4.Calculate the amount of net income or net loss 5 LESSON 6-1

6 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 6 LESSON 6-2

7 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 7 LESSON 6-1 PREPARING THE HEADING OF A WORK SHEET page 153 Name of Company 1 Name of Report 2 Date of Report 3

8 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 8 LESSON Write the general ledger account titles. 2.Write the general ledger debit account balances. Write the general ledger credit account balances. 4.Add both the Trial Balance Debit and Credit columns. 3.Rule a single line across the two Trial Balance columns. 5.Write each column’s total below the single line. 6.Rule double lines across both Trial Balance columns. PREPARING A TRIAL BALANCE ON A WORK SHEET page

9 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ACCOUNTING WORK SHEETS Planning Adjusting Entries

10 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ADJUSTING ENTRIES We Journalize transactions in the General Journal on a daily basis. We Post journal entries to the General Ledger at least monthly or when called for in the Accounting Cycle. We create Work Sheets to summarize and report financial information periodically during the Fiscal Period. 10 LESSON 6-1

11 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ADJUSTING ENTRIES So why do we need adjusting entries? In order to provide accurate financial information, some General Ledger Accounts must be brought up to date. Why must these accounts be brought up to date? The accounting concept of Matching Revenues with Expenses. Sometimes a business will pay cash for an expense in one period, but the expense is not used until a latter period. Example: Supplies and Insurance 11 LESSON 6-1

12 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning ADJUSTING ENTRIES However, the accounting concept of Matching Revenues with Expenses - states that we must record expenses in the period that they are used to produce revenue. 12 LESSON 6-1

13 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 13 LESSON 6-2 SUPPLIES ADJUSTMENT ON A WORK SHEET 1 2 page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

14 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 14 LESSON 6-2 PREPAID INSURANCE ADJUSTMENT ON A WORK SHEET page Write the debit amount. 2.Write the credit amount. 3.Label the two parts of this adjustment.

15 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 15 LESSON 6-2 PROVING THE ADJUSTMENTS COLUMNS OF A WORK SHEET page Rule double lines. 2.Add both the Adjustments Debit and Credit columns. Write each column’s total. 1.Rule a single line

16 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning TIME CHECK 16 LESSON 6-1

17 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning PREPARING A WORK SHEET Please turn to page 160 in your text book. 17 LESSON 6-1

18 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 18 LESSON 6-2 PREPARING A WORK SHEET page 160 C 1.Write the heading. 2.Record the trial balance. 3.Record the supplies adjustment. 4.Record the prepaid insurance adjustment. 5.Prove the Adjustments columns. 6.Extend all balance sheet account balances. 7.Extend all income statement account balances. 8.Calculate and record the net income (or net loss). 9.Total and rule the Income Statement and Balance Sheet columns.

19 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 19 LESSON 6-2

20 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 20 LESSON 6-2 1

21 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 21 LESSON 6-2 (b) (a) Net Income

22 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-3 Extending Financial Statement Information on a Work Sheet

23 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 23 LESSON 6-3 EXTENDING BALANCE SHEET ACCOUNT BALANCES ON A WORK SHEET page Debit balances without adjustments 2.Debit balances with adjustments 3.Credit balances without adjustments 3 2 1

24 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 24 LESSON 6-3 EXTENDING INCOME STATEMENT ACCOUNT BALANCES ON A WORK SHEET page Sales balance 2.Expense balances without adjustments 3.Expense balances with adjustments 1 3 2

25 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 25 LESSON Single rule 2.Totals 3.Net income RECORDING NET INCOME, AND TOTALING AND RULING A WORK SHEET page Extend net income6.Totals Single rule7.Double rule

26 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 26 LESSON 6-3 CALCULATING AND RECORDING A NET LOSS ON A WORK SHEET page Totals 3.Net loss 4.Extend net loss 1.Single rule

27 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 27 LESSON 6-3 TERMS REVIEW balance sheet income statement net income net loss page 166

28 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning LESSON 6-4 Finding and Correcting Errors on the Work Sheet

29 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning CORRECTING ACCOUNTING ERRORS ON THE WORK SHEET Some errors in accounting records are not discovered until a work sheet is prepared. Example errors in posting to the General Ledger. The error may not be found until the Trial Balance does not balance. Information can also be incorrectly transferred from the General Ledger to the work sheet’s Trial Balance. Other errors may include incorrectly recording Adjusting Entries. The Work Sheet is your first check for errors! 29 LESSON 6-1

30 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning CHECKING FOR TYPICAL CALCULATION ERRORS When two column totals are not in balance, subtract the smaller total from the lager total to find the difference. Check the difference between the two amounts against the following guidelines: The difference is 1, such as $.01, $.10, $1.00, or $10.00 – the error is most likely addition. The difference can be divided evenly by 2 – look for the result. The difference can be divided evenly by 9 – look for a transposed number. The difference is an omitted amount – look for an amount equal to the difference. 30 LESSON 6-1

31 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 31 LESSON 6-4 CORRECTING AN ERROR IN POSTING TO THE WRONG ACCOUNT page Draw a line through the entire incorrect entry. Recalculate the account balance and correct the work sheet. 2 Correct entry 1 Incorrect entry 2.Record the posting in the correct account. Recalculate the account balance, and correct the work sheet.

32 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 32 LESSON 6-4 CORRECTING AN INCORRECT AMOUNT page Draw a line through the incorrect amount. 2.Write the correct amount just above the correction in the same space. 3.Recalculate the account balance, and correct the account balance on the work sheet.

33 CENTURY 21 ACCOUNTING © 2009 South-Western, Cengage Learning 33 LESSON 6-4 CORRECTING AN AMOUNT POSTED TO THE WRONG COLUMN 46 page Recalculate the account balance, and correct the work sheet. 5.Record the posting in the correct amount column. 4.Draw a line through the incorrect item in the account


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