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.
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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.

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.

Bank Reconciliation Form

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