Business Accounting Chapter 6 The Accounting Cycle keep

Business Accounting Chapter 6

The Accounting Cycle keep accounting records in order 1. Collect & verify source documents 2. Analyze each transaction 3. Journalize each transaction

Source Documents evidence transaction occurred used by accounting clerks to keep accounting records

Verify accuracy and completeness: does it foot (add up) correctly is it a valid document did transaction take place is all necessary info present

Source Documents: invoice buying item on account sales slip selling item on account receipt record of cash received check stub record of cash payment

More Source Documents: memorandum used if no other source document exists internal transactions other bills identifies expenses incurred payroll register cash register tape

Analyzing Business Transactions Review source document to determine which accounts to debit and credit and for what amount

Recording Transactions in a Journal chronological record of transactions Journalizing process of recording transactions in journal is only place where complete details of transaction are recorded

Accounting Period (fiscal period) period of time for which accounting information is presented day, week, month (internal reporting); quarter, year (internal and external)

most businesses report to the public on an annual (yearly)basis

a fiscal year is an accounting period of twelve months st if that year begins on January 1 it is called a calendar year

corporations are required to report quarterly to the government (SEC)

The General Journal => most common journal many different types of transactions can be recorded here

Information included in a journal entry: date of transaction title of the debit account amount of the debit title of the credit account amount of the credit reference to the source document and/or an explanation A B D F C E

Journalizing Business Transactions Use T accounts and the six-step method to analyze business transactions and determine the debit and credit parts of each journal entry.

Six-Step Method Which accounts are affected? What is the classification of each account? Is each account increases or decreased? Which account is debited and for what amount? Which account is credited and for what amount? What is the complete entry?

Source Documents used as clues: check or check stub = credit to cash in bank receipt = debit to cash in bank sales slip = credit to fees or sales and debit to A/R invoice = credit to A/P

Example: -Juanita Ortiz invested $25, 000 to start business on October 1, 2009. -Business issued check # 1001 for $2, 000 to buy office furniture from Wicks on October 2.

Pen or Pencil in business all official accounting records must be recorded in ink in class we will always use pencil (you are expected to make lots of mistakes and learn from them, therefore plan on using your eraser frequently).

Correcting Errors in business: if discover error in journal before posting, then cross out mistake and write in the correction never erase or cover up a mistake with whiteout ; this will look suspicious in class: we will erase and correct our mistakes in order to keep things looking neat and legible