chapter 2

Accounting vs Bookkeeping

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The Accounting Cycle

obtain information

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Examples of TransactionsExchanging of goods and/or services with individuals and businesses, such as suppliers, shareholders, government agencies, employees, etc. Examples of Source Documentspaper/electronic documentspurchase orders, remittance advice, invoices, etc.

analyze transactions

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record transactions in a journal

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post from journal to general ledger

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prepare unadjusted trial balance

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record adjust entries/post to general ledger

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adjusting entries

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Types General Format of AdjustingAccrued revenue - debit an asset; credit a revenueAccrued expenses - debit an expense; credit a liabilityDeffered revenues - debit a liability; credit a revenuePrepaid expenses - debit an expense; credit an assetUncollectible accounts - debit an expense; credit a contra-accountDepreciation - debit an expense; credit a contra-account

prepare adjusted trial balance

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prepare financial statements

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Financial StatementsIncome StatementBalance SheetStatement of Owner's EquityStatement of Cash Flows

close temporary accounts to retained earnings

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prepare post-closing trail balance (year end only)

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Internal Controls

numbering documents

physical security

equality of debits and credits

trial balances

audits

Coding Chart of Accounts

sequential

block

hierarchical

mnemonic

Human Judgement and InformationTechnology

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