Accounting
By Alex Rang
Accounting is the measurement, processing, and communication of financial entities. The equation is Assets = Liabilities + Owner's Equity. The accounting cycle includes the collecting of source documents, general journal, general ledger, work sheet, financial statements, closing of accounts, and post-closing trial balance. It included collecting, verifying, analyzing, recording, classifying, summarizing, and reporting.
Source Documents
The first step of the accounting cycle is the collection of source documents. Examples of source documents include checks, invoices, memorandums, and receipts. These are collected and verified as accurate and honest documents.
General Journal
The general journal is a document used to record all of the business transactions that occur over the course of a financial period. This journal shows the accounts that are debited and credited during each transaction.
General Ledger
The general ledger displays all of the temporary accounts and permanent accounts that a business possesses. Transactions listed in the general journal are transferred to individual accounts found on the chart of accounts. Expense and revenue accounts are created to determine net profit or loss for a business.
Work Sheet
The work sheet is the main summary document of the accounting cycle. It is the most important paper used, because it has all of the information necessary for a business to function. It includes a trial balance, income statement, and balance sheet. The trial balance shows the equality of all the assets and liabilities in the business. The income statement determines net profit or loss, and the balance sheet shows permanent account balances.
Income Statement
This financial statement displays net loss or profit for a company over a given fiscal cycle. It contains all the expense and revenue accounts over a period.
Statement of Changes in Owner's Equity
The statement of changes shows the changes in the capital account over a financial period. The net profit or loss, withdrawals, and investments all factor into the change in capital.
Balance Sheet
The balance sheet shows all of the permanent accounts found in a business. After the income statement and statement of changes are completed, the assets, liabilities, and Owner's Equity should follow the accounting equation.
Closing Entries
After the financial statements are completed, the temporary accounts must be closed before the fiscal cycle is complete. To do this, the Income Summary account must be used. Using compound entries, the expense and revenue balances are moved to the Income Summary, and then the final balance is moved to the capital account. Finally, the withdrawals account is closed.
Profit or Loss
Profit occurs when revenue exceeds a business's expenses. A loss happens when expenses are higher than revenue.
Microsoft
2015: 4.98 billion profit
AMD
2015: 660 million net loss
Apple
Q2 2015: 13.6 billion profit