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1、1,Chapter 3 The Accounting Cycle,1.Explain what accounting cycle is. 2.Describe the steps in the accounting cycle. 3.Describe a ledger account and a ledger. 4.Post journal entries to ledgers. 5.Explain the purpose of a journal and its relationship to the ledger. 6.Prepare a trial balance. 7.Make adj
2、usting entries and explain the nature of adjusting entries.,2,8.Prepare adjusted trial balance. 9.State the rules of debit and credit for balance sheet accounts. 10.Explain the doubleentry system of accounting. 11.Prepare financial statements. 12.Explain the purposes of closing entries; prepare thes
3、e entries. 13.Prepare postclosing trial balance.,3,The accounting procedures in the accounting cycle may be summarized as follows: （1）Analyzing transactions is the first step in the accounting cycle. （2）Journalize (record) transactions， thus creating a chronological record of events. （3）Post journal
4、 entries to the ledger, thus creating a record classified by accounts. （4）Prepare a trial balance, thus proving the equality of debits and credits in the ledger account.,4,（5）Make endofperiod adjusting entries. （6）Prepare an adjusted trial balance, proving again the equality of debits and credits in
5、 the ledger account. （7）Prepare financial statements. （8）Journalize and post closing entries. （9）Prepare an afterclosing trial balance.,5,An accounting system includes a separate record for each item that appears in the financial statements. For example, a separate record is kept for the asset cash,
6、 showing all increases and decreases in cash resulting from the many transactions in which cash is received or paid. A similar record is kept for every other asset, for every liability, for owners equity, and for every revenue and expense account appearing in the income statement.,3.1 The Ledger,6,T
7、he ledger is an accounting record that includes all the ledger accountsthat is, a separate account for each item included in the companys financial statements.,7,A ledger account is a means of accumulating in one place all the information about changes in specific financial statement items, such as
8、a particular asset or liability. For example, the Cash account provides a companys current cash balance, a record of its cash receipts, and a record of its cash disbursements.,3.1.1 The Use of the Ledger Accounts,8,In its simplest form, an account has only three elements: a title; a left side, which
9、 is called the debit side; and a right side, which is called the credit side. This form of an account, illustrated below is called a T account because of its resemblance to the letter “T”. In a computerized system, of course, the elements of each account are stored and formatted electronically. ,9,A
10、n amount recorded on the left side of an account is called a debit, or a debit entry. Likewise, any amount entered on the right side is called a credit, or a credit entry. In simple terms, debits refer to the left side of an account, and credits refer to the right side of an account.,3.1.2 Debit and
11、 Credit Entries,10,Each debit and credit entry in the Cash account represents a cash receipt or a cash payment. The amount of cash owned by the business at a given date is equal to the balance of the amount on the date. 1)Determining the Balance of T Account 2)Debit Balance in Asset Accounts ,11,3)C
12、redit Balances in Liability and owrers Equity Accounts Increases in liability and owners equity accounts are recorded by credit entries and decreases in these accounts are recorded by debits. The relationship between entries in these accounts and their position on the balance sheet may be summed up
13、as follows:,12,(1)liabilities and owners equity belong on the right side of the balance sheet, (2)an increase in a liability or an owners equity account is recorded on the right (credit) side of the account, and (3)liability and owners equity accounts normally have credit (righthand) balances.,13,4)
14、Concise Statement of the Debit and Credit Rules The use of debits and credits to record changes in assets, liabilities, and owners equity may be summarized as follows: Asset Accounts Liability & Owners Equity Accounts,14,5)DoubleEntry AccountingThe Equality of Debits and Credits The rules for debits
15、 and credits are designed so that every transaction is recorded by equal dollar amounts of debits and credits. The reason for this equality lies in the relationship of the debit and credit rules to the accounting equation: Assets = Liabilities + Owners Equity Debit Balances = Credit balances,15,If t
16、he equation is to remain in balance, any change in the left side of the equation (assets) must be accompanied by an equal change in the right-hand (either liabilities or owners equity). According to the debit and credit rules that we have just described, increases in the left side of the equation (assets) are recorded by debits, while increases in the right side (liabilities and owners equity) are recorded by c
