Permanent Accounts
Assets
Liabilities
Owners’ Equity
Temporary accounts
Revenues
Expenses
Gains and losses
dividends
D.E.A.D
Debit increases Expenses, Assets, and Dividends
Accounting Cycle
- Transactions
- Journalization
3.Posting - Trial balance
- Adjustments
- Adjusted trial balance
- Statement preparation
- Closing
- Post-closing trial balance
- Reversing entries
repeat
Steps DURING the accounting period
- Economic event
- Prepare journal entry
- Post entry to GL
4 steps of transaction analysis
I: Identify the accounts affected
C: Classify each as an asset, liability, SHE, revenue, or expense account
D: Determine the effect (increase or decrease) on each account and apply the DR/CR rules
V: Verify that the accounting equation remains in balance
6 steps at the END of the accounting period
- Prepare unadjusted trial balance
- Prepare and post adjusting entries
- Prepare adjusted trial balance
- Prepare and post closing entries
- Prepare final (post-closing) trial balance
- Prepare Financial Statements
Deferrals
Cash flows that occur before expense and revenue recognition
Types of deferrals
Prepaid expenses (Asset)
Unearned revenues (liability
Prepaid expenses
(asset) expenses paid in cash before they are used or consumed
Unearned revenues
(liability) cash received before services are performed
Accruals
Cash flows that occur after expense and revenue recognition
Types of accruals
Accrued revenues
Accrued expenses
Accrued revenues
Revenues for services performed but not yet received in cash or recorded
Accrued expenses
Expenses incurred but not yet paid cash or recorded
Purpose of Closing journal entries
Transfer the balances in the temporary accounts into Retained earnings
