Textbook Notes (280,000)
CA (160,000)
UTSC (20,000)
MGA (400)
MGAB01H3 (100)
Chapter

Summary of the Accounting Cycle


Department
Financial Accounting
Course Code
MGAB01H3
Professor
Liang Chen

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Summary of the Accounting Cycle
1. Analyse business transactions
2. Journalize the transactions
3. Post to ledger accounts
4. Prepare a trial balance
5. Journalize and post adjusting entries: Prepayments/Accruals/Estimates
6. Prepare an adjusted trial balance
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sheet
8. Journalize and post closing entries
9. Prepare a post-closing trial balance
Beginning of a new accounting period
Reversing Entries
¾ A reversing entry is made at the beginning of the next accounting period. It is the
exact opposite of the adjusting entry made in the previous period.
¾ The preparation of reversing entries is an optional bookkeeping procedure that is not
a required step in the accounting cycle.
Correcting Entries
¾ Entries to correct errors made in recording transactions.
¾ Adjustments are journalized and posted only at the end of an accounting period. In
contrast, correcting entries are made whenever an error is discovered.
¾ Ex. A $50 cash collection was journalized as:
DR ± Cash - $50, CR ± Service Revenue - $50. The correcting entry would be:
DR ± Service Revenue $50, CR ± Accounts Receivable - $50
¾ Instead of a correcting entry, many simple reverse the incorrect entry and then record
the correct entry.
¾ Ex. DR ± Cash - $50, CR ± Service Revenue - $50
CR ± Service Revenue - $50, DR ± Cash - $50
DR ± Cash - $50, CR ± Accounts Receivable - $50
Classified Financial Statements
¾ Financial statements are more useful to management, creditors, and potential
investors when the elements are classified into significant subgroups.
Assets
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Current assets
Current liabilities
Long-term investments
Long-term liabilities
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