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Beginning the Accounting Cycle (Ch. 3)

Accounting Cycle
= for each accounting period, the process that begins w/ recording of business transactions or procedures into a journal & ends w/ completion of a post-closing trial balance
Accounting Period
= the period of time for which an income statement is prepared
Calendar Year
aka: fiscal year, natural business year
= the 12-month period a business chooses for its accounting year
– natural business year: when businesses end fiscal year at low point in inventory & business (e.g., after Christmas season)
Interim Reports
= financial statements that are prepared for a month, quarter, or some other portion of the fiscal year
aka: general journal
= a listing of business transactions in chronological order.
– links on 1 page the debit & credit parts of transactions
Journal Entry
= the transaction (debits & credits) that is recorded into a journal once it is analyzed
= the process of recording a transaction entry into the journal
Book of Original Entry
= book that records the 1st formal info about business transactions
– ex: a journal
Book of Final Entry
= book that receives info about business transactions from a book of original entry
– ex: a ledger
= the transferring, copying, or recording of info from a journal to a ledger
Four-Column Account
= a running balance account that records debits & credits & has a column for an ending balance (debit or credit)
– replaces the standard 2-column account used for learning
= adding to the posting reference (PR) column of the journal the account # of the ledger account that was updated from the journal
Posting Steps
1) In the ledger’s specified account under transaction, record date & amount of entry
2) Record page # of the journal in the PR column of the ledger’s specified account
3) Calculate new balance of the account.
4) Record the ledger’s page # in the journal’s PR column.
Common Mistakes (& Fixes) in Trial Balancing
– if the difference (the amount you’re off) is 10, 100, 1000, etc: probably a mathematical error in addition
– if the difference is equal to an individual account balance in the ledger: might have omitted the amount or not posted the figure from the general journal
– divide the difference by 2, then check whether a debit should have been a credit or vice versa
– if the difference is evenly divisible by 9, may be a slide or transposition
– compare the balances in the trial balance w/ the ledger accounts to check for copying errors
– recomputed balances in each ledger account
– trace all postings from journal to ledger
= the error that results in adding or deleting zeros in the writing of a # (e.g., 79,200 as 7,920)
= the accidental rearrangement of digits of a # (e.g., 152 as 125)
Making Corrections
– Before Posting: draw a line through the incorrect entry, write the correct info above the line, & write initials near the change
– After Posting: draw line through the error, write correct figure above it, & change running balance to reflect corrected posting by drawing line through the incorrect balance, writing corrected balance above it, and initialing both changes
– Of Entry Posted to Wrong Account: must include explanation with correction in general journal & post correct info to appropriate ledgers

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