1. Complete Steps 1-3 in Accounting Cycle © Dale R. Geiger 20111

2. What is the Accounting Cycle? The Accounting Cycle is the systematic process by which accounting information is recorded, compiled, and reported to users. © Dale R. Geiger 20112

3. Terminal Learning Objective Task: Complete Steps 1-3 In Accounting Cycle (Journalize, Post, Trial Balance) Condition: You are a cost advisor technician with access to all regulations/course handouts, and awareness of Operational Environment (OE)/Contemporary Operational Environment (COE) variables and actors. Standard with at least 80% accuracy: List steps in the Accounting Cycle Describe terminology (journal, ledger, debit, credit) Record transactions in tabular format under the accrual basis © Dale R. Geiger 20113

4. The Accounting Cycle Post to Ledger Prepare Trial Balance Adjust Accounts Adjusted Trial Balance Prepare Statements Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20114

5. The Accounting Cycle Record Transactions Prepare Trial Balance Adjust Accounts Adjusted Trial Balance Prepare Statements Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20115

6. The Accounting Cycle Record Transactions Post to Ledger Adjust Accounts Adjusted Trial Balance Prepare Statements Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20116

7. The Accounting Cycle Record Transactions Post to Ledger Prepare Trial Balance Adjusted Trial Balance Prepare Statements Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20117

8. The Accounting Cycle Record Transactions Post to Ledger Prepare Trial Balance Adjust Accounts Prepare Statements Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20118

9. The Accounting Cycle Record Transactions Post to Ledger Prepare Trial Balance Adjust Accounts Adjusted Trial Balance Close Accounts Post-Closing Trial Balance © Dale R. Geiger 20119

10. The Accounting Cycle Record Transactions Post to Ledger Prepare Trial Balance Adjust Accounts Adjusted Trial Balance Prepare Statements Post-Closing Trial Balance © Dale R. Geiger 201110

11. The Accounting Cycle Record Transactions Post to Ledger Prepare Trial Balance Adjust Accounts Adjusted Trial Balance Prepare Statements Close Accounts © Dale R. Geiger 201111

12. Check on Learning What is the first step in the Accounting Cycle? What is the purpose of the Trial Balance? © Dale R. Geiger 201112

13. The Journal Accounting events are recorded in the JOURNAL The Journal is a chronological record of all transactions Each transaction requires a journal entry Each journal entry consists of at least one Debit and one Credit: “Double Entry” Accounting Debit amounts must equal Credit amounts Debit: an entry on the left-hand side of the account Credit: an entry on the right-hand side of the account © Dale R. Geiger 201113

14. Regarding Debits and Credits Debits and credits are neutral Debit ≠ decrease Credit ≠ increase It depends on the type of account Some accounts types record increases with a debit, some record increases with a credit. The side of the account which records an increase is the account’s NORMAL BALANCE. © Dale R. Geiger 201114

15. “Normal” Account Balances Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so: Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense (Add Expense to both sides) Assets + Expense = Liab + FinPosition + Rev Everything on the LEFT side of the equation increases with an entry to the LEFT side of the account © Dale R. Geiger 201115

16. “Normal” Account Balances Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so: Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense (Add Expense to both sides) Assets + Expense = Liab + FinPosition + Rev Everything on the LEFT side of the equation increases with an entry to the LEFT side of the account © Dale R. Geiger 201116

17. “Normal” Account Balances Assets = Liab + FinPosition ± Net Change Net Change = Revenue – Expense, so: Assets = Liab + FinPosition + Rev – Expense + Expense = + Expense (Add Expense to both sides) Assets + Expense = Liab + FinPosition + Rev Everything on the LEFT side of the equation increases with an entry to the LEFT side of the account © Dale R. Geiger 201117

18. “Normal” Account Balances © Dale R. Geiger 201118

19. “Normal” Account Balances © Dale R. Geiger 201119

20. “Normal” Account Balances Assets + Expense = Liab + FinPosition+ Rev debitcredit © Dale R. Geiger 201120

21. Check on Learning What does “credit” mean? An increase to an expense is reflected with an entry on which side of the account? © Dale R. Geiger 201121

22. Anatomy of a Journal Entry Date of Transaction © Dale R. Geiger 201122

23. Anatomy of a Journal Entry Account Debited © Dale R. Geiger 201123

24. Anatomy of a Journal Entry Amount Debited © Dale R. Geiger 201124

25. Anatomy of a Journal Entry Account Credited © Dale R. Geiger 201125

26. Anatomy of a Journal Entry Amount Credited © Dale R. Geiger 201126

27. Anatomy of a Journal Entry Explanation of Transaction © Dale R. Geiger 201127

28. Anatomy of a Journal Entry Posting Reference (Leave Blank) © Dale R. Geiger 201128

29. Anatomy of a Journal Entry Becoming fluent in Debits and Credits takes practice beyond the scope of this course. We will demonstrate a few journal entries to give you the flavor, and then proceed to Step 2. © Dale R. Geiger 201129

30. Lacy’s Journal Transaction Description Cash+ Other Assets =Liab+ Financial Position +Rev–Exp Receives $200 Equity Transfer +=++200+– Debit to Cash (left side) reflects an increase in the cash account. © Dale R. Geiger 201130

31. Lacy’s Journal Transaction Description Cash+ Other Assets =Liab+ Financial Position +Rev–Exp Receives $200 Equity Transfer +200+=++– Credit to Financial Position (right side) reflects an increase in the financial position account. © Dale R. Geiger 2011 31

32. Lacy’s Journal Transaction Description Cash+ Other Assets =Liab+ Financial Position +Rev–Exp Purchased Supplies -65+=++– Debit to Other Assets (left side) reflects an increase in the Other Assets account. © Dale R. Geiger 2011 32

33. Lacy’s Journal Transaction Description Cash+ Other Assets =Liab+ Financial Position +Rev–Exp Purchased Supplies ++65=++– Credit to Cash reflects a decrease in the Cash account. © Dale R. Geiger 201133

34. The Ledger The LEDGER is a Summary of all Transactions By Account We will represent each Ledger Account with a T-Account A debit entry from the Journal is posted on the left side of the T-Account A credit entry from the Journal is posted on the right side of the T-Account The balance of an account is its excess of debits over credits (or vice versa) © Dale R. Geiger 201134

35. Lacy’s Ledger CashOther AssetsLiabilities Financial Position RevenuesExpenses (+) (-) (+)(-) (+) (-) (+)(-)(+) © Dale R. Geiger 201135

36. Lacy’s Ledger CashOther AssetsLiabilities Financial Position RevenuesExpenses (-) (+) 20 65 20 40 -------------- 140 (-) 5 --------------- (-) 40 ---------------- (+) 40 --------------- (+)(-) (+)(-)(+) © Dale R. Geiger 201136

37. Lacy’s Ledger CashOther AssetsLiabilities Financial Position RevenuesExpenses (+) 200 (-) (+) 20 65 20 40 -------------- 140 (-) 5 --------------- (-) 40 ---------------- (+) 40 --------------- (+)(-) (+)(-) © Dale R. Geiger 201137

38. Lacy’s Ledger CashOther AssetsLiabilities Financial Position RevenuesExpenses (-) 20 10 5 65 40 ---------------- (-) 5 --------------- (-) 40 ---------------- (+) 40 --------------- (-) Transaction DescriptionCash+Other Assets=Liabilities+ Financial Position +Revenues–Expenses Ending Balance+=0++- After all transactions are posted, the Ledger Balances agree with our equation © Dale R. Geiger 2011 38

39. The Trial Balance Lists all accounts and their balances in two- column format Proves that Debits equal Credits Forces accountant to find errors before preparing statements Provides a starting point for adjustments, statements and closing entries © Dale R. Geiger 201139

40. Lacy‘s Trial Balance Account Titledr.cr. Cash$130 Other Assets140 Liabilities $ --- Financial Position 200 Revenues 85 Expenses 15 Totals $285 Our equation essentially show the same information as the Trial Balance: Transaction DescriptionCash+Other Assets=Liabilities+ Financial Position +Revenues–Expenses Ending Balance130+140=0+200+85-15 © Dale R. Geiger 2011 40

41. Check on Learning A decrease to Cash is recorded on which side of the Cash account? The summary of transactions by account is called the…? © Dale R. Geiger 201141

42. Conclusion Debits and credits are used in accounting systems to reflect changes in accounts It’s not necessary to memorize debits and credits to understand the effects of transactions We will rely on the equation and T-Accounts to illustrate transactions © Dale R. Geiger 201142

43. Practical Exercise © Dale R. Geiger 201143

44. Accounting Cycle Spreadsheet Journal entries may be entered by hand (this step is optional) Journal entries may be entered by hand (this step is optional) © Dale R. Geiger 201144

45. Accounting Cycle Spreadsheet Post transactions to T-Accounts Balances calculate automatically Post transactions to T-Accounts Balances calculate automatically © Dale R. Geiger 2011 45

46. Accounting Cycle Spreadsheet The Trial Balance is generated automatically from the T-Accounts. Note that debits = credits The Trial Balance is generated automatically from the T-Accounts. Note that debits = credits © Dale R. Geiger 201146

47. Practical Exercise © Dale R. Geiger 201147