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Accounting Cycle:
• There are (10) steps in “Accounting Cycle”.
• “Accounting Cycle” refers to the steps in preparing
financial statements.
• It is called a cycle because the steps are repeated each
reporting period.
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Accounting Cycle:
Steps in the Accounting Cycle (Start with transaction documents
= source documents = invoices), then:
)1( )2( )3( )4(
Analyze Posting to
transactions Journalize General Ledger Trial Balance
)10( )5(
Reverse
)Optional( Adjust
)9( )8( )7( )6(
Post-closing Adjusted
Trial balance Close Statements Trial Balance
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:Journalizing & Posting Transactions
Journalizing Transactions = (Double-Entry
Accounting) = (Debits & Credits):
* A journal gives a complete record of each transaction in
one place. It also shows debits & credits for each
transaction. The process of recording transactions in a
journal is called journalizing.
* General Journal can be used to record any transaction &
includes the following information about each transaction:
(a) date of transaction.
(b) titles of affected accounts.
(c) dollar amount of each debit & credit.
(d) explanation of the transaction.
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How to know debit side (left side) & credit
:side (right side)
There are two rules:
Rule (1):
• If accounts of Assets increase it will be debit (put in the left side).
• But if they decrease it will be credit (put in the right side).
• Note: Expenses & Withdrawals will treat by this rule.
Rule (2):
• If accounts of Liabilities & Owner’s Equity increase it will be
credit (put in the right side).
• But if they decrease it will be debit (put in the left side).
• Note: Revenues will treat by this rule.
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Example: Jasmine Worthy started a haircutting business called
Expressions. The following events occurred during its first month:
1- On August 1, Worthy invested 3,000 cash & 15,000 of
equipment in Expressions.
2- On August 2, Expressions paid 600 cash for furniture
for the shop.
3- On August 3, Expressions paid 500 cash rent space in a
strip mall for August.
4- On August 4, it purchased 1,200 of equipment on credit
for the shop (using long-term N/P).
5- On August 5, Expressions opened for business. Cash
received from haircutting services in the first week
and a half (ended August 15) was 825.
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6- On August 15, it provided 100 of haircutting services
on account.
7- On August 17, it received a 100 check for services
previously rendered on account.
8- On August 17, it paid 125 to an assistant for hours
worked during the grand opening.
9- On August 31, Cash received from services provided
during the second half of August was 930.
10- On August 31, it paid a 400 installment toward
principal on the N/P entered into on August 4.
11- On August 31, Worthy withdrew 900 cash for
personal use.
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:General journal entries
Credit Debit Explanation Date
3000 Cash Aug. 1
15000 Equipment
18000 Capital
J.Worthy, Capital
600 Furniture 2
600 Cash
Purchased furniture for cash
500 Rent Expense 3
500 Cash
Paid rent for August
1200 Equipment 4
1200 Note Payable
Purchase equipment on credit
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Credit Debit Explanation Date
825 Cash 15
825 Services Revenue
cash receipt from first half of August
100 Accounts Receivable 15
100 Services Revenue
to record revenue for services provided on account
100 Cash 17
100 Accounts Receivable
to record cash received as payment on account
125 Wages Expense 17
125 Cash
paid wages to assistant
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Credit Debit Explanation Date
930 Cash 31
930 Services Revenue
Cash receipts from second half of August
400 Note payable 31
400 Cash
Paid on installment on the note payable
900 J.Worthy, Withdrawals 31
900 Cash
Cash Withdrawal by owner
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Post journal entries to the Ledger accounts
:(General Ledger)
Debit Cash Credit
3000 600
825 500
100 125
930 400
900
Balance 2330
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Notes:
(1) The difference between total debits and total credits
for an account is the account balance.
(2) When the sum of debits exceeds the sum of credits,
the account has a debit balance.
(3) When the sum of credits exceeds the sum of debits,
the account has a credit balance.
(4) When the sum of debits equals the sum of credits, the
account has a zero balance.
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Equipment Note Payable
15000 400 1200
Balance 800
1200
Balance 16200 Services Revenue
825
Capital
100
18000 930
Balance 1855
Furniture
600 Accounts Receivable
100 100
Balance 0
Rent Expense
500
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Wages Expense
125
Withdrawals
900
Notes: Normal balance:
(1) The left side is the normal balance side for assets.
(1) The right side is the normal balance side for liabilities & equity.
(1) This matches their layout in the accounting equation (or in the
balance sheet), where assets are on the left side of this equation
(balance sheet), and liabilities & equity are on the right.
(1) If the account balance is positive it means normal balance, but
if it is negative it means the opposite.
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Expressions
Trial Balance
August 31
Credit Debit Account Name
2330 Cash
16200 Equipment
18000 Capital
600 Furniture
500 Rent Expense
800 Note Payable
1855 Services Revenue
0 Accounts Receivable
125 Wages Expense
900 Withdrawals
20655 20655 Totals
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