The Accounting Cycle The accounting period of a

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. 1 Collect and verify source documents 9 Prepare a post-closing trial balance 2 Analyze each transaction 8 Journalize and post closing entries 3 Journalize each transaction 7 Prepare financial statements 6 Prepare a worksheet 4 Post to the ledger 5 Prepare a trial balance

Source Documents A Source Document provides evidence that a transaction has taken place. There are 4 basic types of Source Documents that we will be using. Invoice Indicates that money is owed. from your company Accounts Receivable Receipt to your company Accounts Payable Indicates that money has been paid. from your company Debit Cash to your company Credit Cash Check Stub Indicates that a check has been issued. Credit Cash Memorandum Written message (memo) describing a transaction Various

Recording Transactions in a General Journal Let’s take a look at a sample General Journal and the steps to journalizing a transaction. 1) Date of Transaction 2) Name of Account Debited 3) Amount of the Debit Year Month Day Debited Account Name Credited Account Name Source Document 4) Name of Account Credited 300 5) Amount of the Credit 6) Source Document Reference

Investments by the Owner Business 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. 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. 1 2006 Oct 1 Cash in Bank M. Sanchez, Capital Memo 1 2 Office Equipment M. Sanchez, Capital Memo 2 25000 400

Purchase Transactions Business Transaction 3 On October 4 Roadrunner issued check 101 for $3, 000 to buy a computer system. Business Transaction 4 On October 9 Roadrunner bought a used truck on account from North Shore Auto for $12, 000, Invoice 200. 1 4 Computer Equipment Cash in Bank Check 101 9 Delivery Equipment Accts Payable – North Shore Auto Invoice 200 3000 12000

Miscellaneous Transactions Business Transaction 5 On October 11 Roadrunner sold one telephone to Green Company for $200 on account, 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. 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 1 11 Accts Rec – Green Company Office Equipment Memo 3 12 Accts Payable – North Shore Auto Cash in Bank Check 102 14 Cash in Bank Accts Rec – Green Company Receipt 1 200 350 200

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. Business Transaction 9 On October 16 Roadrunner mailed check 103 for $700 to pay the rent for the month. 1 15 Cash in Bank Delivery Revenue Receipt 2 16 Rent Expense Cash in Bank Check 103 1200 700

More Revenue & Expense Transactions Business Transaction 10 On October 18 Beacon Advertising prepared an advertisement for Roadrunner will pay Beacon’s $75 fee later, Invoice 129. Business Transaction 11 On October 20 Roadrunner provided delivery services to City News. Roadrunner billed City News $1, 450, Sales Invoice 1. Business Transaction 12 On October 28 Roadrunner paid a $125 telephone bill with check 104. 2 Oct 18 Advertising Expense Accts Pay – Beacon Advertising Invoice 129 20 Accts Receivable – City News Delivery Revenue Sales Invoice 1 28 Utilities Expense Cash in Bank Check 104 75 1450 125

Even More Revenue & Expense Transactions Business Transaction 13 On October 29 Roadrunner wrote check 105 for $600 to have the office repainted. Business Transaction 14 On October 31 Maria Sanchez wrote check 106 to withdraw $500 cash for personal use. 2 29 31 Maintenance Expense Cash in Bank Check 105 M. Sanchez, Withdrawals Cash in Bank Check 106 600 500