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1
Volume – I
YEAR 2015
WRITTEN BY: SYED AQEEL RAZA
2
3
TABLE OF CONTENTS
< ACCOUNTING CYCLE>
Accounting Cycle…………………………………………………………….72-73
1- Source Documents…………………………………………………74-76
I -Cash Memo………………………………………………………………..77-79
Ii - Invoice………………………………………………………… ………….80-82
Iii - Instruments of Banks……..………………………… ……………83
a) Cheque Book……………………………………………… …………..83-85
b) Deposit Slip………………………………………………………………….86
c) Funds Transfer Form…………….………………… ……………..87-89
4-Vouchers………………………………………………………… ………90
a) Cash Payment voucher………………………… ……………….91
b) Cash Receipt Voucher………………………… ………………..92
c) Bank Payment Voucher……………………… ………………..93
d) Bank Receipt Voucher…..…………………… ……………….94
e) Petty Cash Voucher…..……………………… ………………..95
2- JOURNAL……………..……………………………… ……………..96
Kinds of Journals………………………………… ……………………..97
4
1-General Journal………………………… ………………………98-100
2-Cash Book……………………………………………………………..101-102
3-Petty Cash Book……………………………………………………….103-105
4-Cash Receipt Journal………………………………………………..106-107
5-Cash Payment Journal………………………………………………108-109
6-Purchase Journal……………………………………………………..110-111
7-Purchase Returns & Allowances Journal………… ……..112-114
8-Sales Journal……………………………………………… ………. 115-116
9-Sales Returns and Allowances Journal………… ……..117-119
Debit & Credit Memorandum………………………… ……..120-123
3-General Ledger……………………………………… …………..124-128
4-Trial Balance (Unadjusted)……………………… ………..129-135
5-Adjustment……………………………………………………………136-137
6-Trial Balance (Adjusted)………………………… ……………138-142
7-Closing Entries…………………………………… ……………..143-144
8-Worksheet……………………………………… ……………….145-148
9-Final Statements……………………………… ……………..149-153
10-Post Closing Trial Balance………………… ……………154-156
5
ACCOUNTING CYCLE
ACCOUNTING CYCLE
Accounting cycle means the collective processing of
accounting events of a firm repeated in the same order
in each accounting period. The business accounting cycle
is for one year in length. The steps begin when a
transaction occurs and end with its inclusion in financial
statements.
Here are following steps in accounting cycle:-
1- Source Document
2- Journal 3- Leger
4- Trial Balance unadjusted
5- Adjustments 6- Trial Balance Adjusted
7- Closing Entries
8- Worksheet 9- Finance Statement
10- Post Closing Trial Balance
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
1- Source Document
The source document which describes the transactions
and events moves accounting cycle. The Cash Memo,
Invoice, Bill, Statement, Bank Instrument or any other
paper in black and white enables accountant to support
and proof the transaction incurred are source
documents. The accounting cycle involves sale,
purchase, inventory or any other system adopted by
company creating source documents manually or
electronically under trading, servicing and
manufacturing businesses.
The accounting cycle cannot move without source
document.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
Some source documents with their specimen using in
accounting are narrated below:-
1- CASH MEMO
2- INVOICE/BILL
3- INSTRUMENTS OF BANK
a) Cheque
b)Deposit Slip c) Funds Transfer Form
4) VOUCHERS
a) Cash Payment Voucher
b) Petty Cash Voucher
c) Bank Payment Voucher
d) Cash Receipt Voucher
e) Bank Receipt Voucher
f) Journal Voucher
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
1- CASH MEMO
Cash Memo is the document of source when sale,
purchase or service is made in cash on the spot for
business, the seller have to give written instrument like
Cash Memo to the person purchased goods or acquired
services. The cash memo is made in duplicate or
triplicate according to the requirement of business.
Generally the Cash Memo contains:
Name, address and deals in of supplier or rubber
stamp, name and address of the purchaser, serial
number, date, quantity, description, rates of goods,
amount
Goods once sold will not be back. E. &.O.E. means
if there is any mistake in cash memo that is subject
to correction.
The cash memo must be signed by the duly
authorized person.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
In case of trade discount or cash discount, sales tax and
anything is shown separately or designed according to
nature of business of firm.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
CASH MEMO S.No.
Date
M/S.
Qty. Particulars Rate Amount
Total
Goods once sold will not be back.
E.&.O.E.
Signature
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
2- INVOICE:
Invoice is the commercial document that controls the
sale of a product, inventory and taxes. It may be on cash
or credit. In case of credit, the amount will be receivable
by the purchaser or payable to the seller for a certain
period. The Invoice is made in duplicate or triplicate
according to the requirement of business manually or
electronically.
The Invoice is also known as bill, statement, sales invoice
or sales tax invoice.
It may usually contain as per specimen or design
according to nature of business of firm.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
COMPANY LOGO
Invoice No.
Date
COMPANY NAME
P.Order No.
(Company Slogan)
(Address )
No., Street, City, code
Phone, Fax
SALES TAX NO.
To
Name
Company Name
Address
Phone No.
SALES TAX NO.
S.NO. QUANTITY DESCRIPTION RATE AMOUNT
SUB TOTAL
SALES TAX
TOTAL
THANK YOU FOR YOUR BUSINESS
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
3- INSTRUMENTS OF BANK
a) Cheque Book
A small book containing 25, 50, and 100 leaves preprinted instruments issued by
bank to enable account holder to withdraw or transfer an amount from his
account.
The cheque book contains two portion of each leave one the large portion or
main portion called cheque which is presented into bank for payment the
amount written and another small portion called counter folio remains with the
account holder for record of withdrawals.
A cheque is an order, signed by account holder (drawer) to place an order to
bank (drawee) to pay a certain sum of money to the person’s name written on
the cheque (payee).
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
b) Deposit Slip
The bank deposit slip or pay-in-slip is a small
preprinted form used to transfer funds by way of cash
or cheque into account to fill the information in the
required fields.
The pay-in-slip contains either two portion or in
duplicate. The small portion or duplicate copy of the
deposit slip is returned by bank to account holder
after acknowledge the amount in cash or cheque and
affixing the seal and officer’s signature.
Today computerized electronic machines are making
the same job.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
c) FUNDS TRANSFER FORM
The Bank issues preprinted form for making demand draft, pay order, funds transfer to other account of out station and other countries electronically.
The account holder has to fill the form and deposit the cash or cheque for the purpose. The bank or financial institution returns the small portion of form to
depositor after acknowledging the amount in cash and cheque with seal and signature. The charges for rendering services are deducted by bank.
Internet Banking is also useful for transfer funds from one account to another
account throughout country or worldwide.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
4) VOUCHERS
A written record of payment and receipt by way of cash
and bank is called voucher supported by evidence or
events that a transaction has taken place. To record
liabilities and adjustment journal voucher is used.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
a)-Cash Payment Voucher
CASH PAYMENT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
DEBIT A/c
PAID TO
On account of Amount
Rs. Ps.
TOTAL
RUPEES
Prepared by: Checked by: Authorized by: Received By:
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
b)-Cash Receipt Voucher
CASH RECEIPT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
CREDIT A/c
Received from
On account of Amount
Rs. Ps.
TOTAL
RUPEES
Prepared by: Checked by: Authorized by: Received By:
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
c)-Bank Payment Voucher
BANK PAYMENT VOUCHER
Name of Company
Date
Voucher No.
C.B. Folio
DEBIT A/c
PAID TO
On account of Amount
Rs. Ps.
TOTAL
RUPEES
Prepared by: Checked by: Authorized by: Received By:
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
d) -Bank Receipt Voucher
BANK RECEIPT VOUCHER
Name of Company
Date
BP.V NO.
C.B. Folio
CREDIT A/c
Received from
On account of Amount
Rs. Ps.
TOTAL
RUPEES
Prepared by: Checked by: Authorized by: Received By:
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
e- Petty Cash Voucher
Name of Company
PETTY CASH VOUCHER No.
Paid to
Rupees Rs.
on account of
Prepared by: Checked by: Authorized by: Received By:
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
2- Journal
A journal is a book or computer file in which monetary
transactions systematically are entered the first time
they are processed in chronological sequence to control
large number of transactions of a day.
A daily record of events or business is referred to diary as
private journal.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
KINDS OF JOURNALS
1- GENERAL JOURNAL
2- CASH BOOK 3- PETTY CASH BOOK
4- CASH RECEIPT JOURNAL
5- CASH PAYMENT JOURNAL 6- PURCHASE JOURNAL
7- PURCHASE RETURN AND ALLOWANCES
JOURNAL 8- SALES JOURNAL
9- SALES RETURN AND ALLOWANCES
JOURNAL
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
1-GENERAL JOURNAL
In accounting, a first step for recording of financial
transactions is General Journal where double entry
book keeping entries are recorded by debiting one or
more account and crediting another one or more
accounts with the same total amount under accounting
equation.
A general journal entry includes the date of the
transaction, the titles of the accounts debited and
credited, and an explanation of the transaction also
known as narration.
There are some other journals used for special purposes
called Special Journals same as General Journal or book
of original entry.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
ACCOUNTING CYCLE
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PAGE NO.
GENERAL JOURNAL
DATE DESCRIPTION REF. DEBIT CREDIT
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
2-CASH BOOK
The Cash Book is usually maintained all cash receipts and
cash major payments including bank deposits and
withdrawals.
The cash book is periodically reconciled with the bank
statement as an internal auditing.
Large business organizations that have a number of
transactions of cash payments and cash receipts use cash
receipt and cash payment journals.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
3-PETTY CASH BOOK
Petty cash is a small amount of discretionary funds in the
form of cash used for payment of expenses. Because of
the inconvenience, cost of writing, signing, saving time
and energy of cashier, petty cash book is written where
cashier issues a cheque or cash from main cash book as
petty cash funds to petty cashier. The book keeping entry
for this initial fund would be to debit Petty Cash Funds
and credit bank account or main cash account
automatically.
Petty Cash Book contains five normally columns namely
(1) Receipt (2) Date (3) Description (4) Voucher Number
(5) Payments link to separate head of account.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
4-CASH RECEIPT JOURNAL
The Cash Receipt Journal is used to record cash receipt
only designed by the requirements of business and
below is commonly used;-
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
CASH RECEIPT JOURNAL
DATE DESCRIPTION
OTHER ACCOUNTS: Cr. SALES
A/C RECEIVABLE: Cr. SALES CASH RECEIPT
Ref. Amount Cr. Ref. Amount DISCOUNT DR.
Dr.
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ACCOUNTING CYCLE
5-CASH PAYMENT JOURNAL
The Cash Payment Journal known as “Multi Columns
Cash Payment Journal” is used to record major cash and
bank payments in various ways designed according to the
requirement of the business.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
ACCOUNTING CYCLE
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CASH PAYMENTS JOURNAL
DATE DESCRIPTION
Voucher OTHER ACCOUNTS Purchases Trnas- A/C PAYABLE Purchase CASH PAYMENTS
No. Ref. Amount portation Ref. Amount Discount
Dr. Dr. Dr.
Dr. Cr. Cr.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
6- PURCHASE JOURNAL
The Purchase Journal is used for recording transactions
relating to credit purchases of merchandise and not for
cash purchases as cash purchases of merchandise are
recorded in Cash Book or Cash Payment Journal.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
PURCHSASE JOURNAL
Page No.
DATE NOVICE NO. NAME OF SUPPLIER POST
AMOUNT Ref.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
7-PURCHASE RETURN AND ALLOWANCES JOURNAL
Purchase Return and Allowances Journal is a Book known
as Purchase Return outwards book and purchase return
day book, wherein purchaser records all the debit
memorandum of parties of Purchase returns to seller for
certain reasons. Buyer sends a debit note to the seller
contains the quantity of goods returned and reasons for
return of goods.
The Purchase return and allowances journal is the
summary of parties whom goods has returned and the
claim of returns has been adjusted making General
Journal Entry by debiting Account Payable and crediting
Purchase Return and Allowances under reference.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
PURCHASE RETURN AND ALLOWANCES JOURNAL
Page No.
DATE CREDIT MEMO NO. NAME OF SUPPLIER POST
AMOUNT Ref.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
8-SALES JOURNAL
The Sales journal is used to record credit sales of
merchandise and not for cash sales.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
SALES JOURNAL
Page No.
DATE ACCOUNT DEBITED INVOICE NO. POST
AMOUNT Ref.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
9-SALES RETURNS AND ALLOWANCES JOURNAL
Sales Return and Allowances Journal is a book, known
as Sales Return Inwards Book or Sales Return Day Book,
wherein seller records only all the credit memorandum
of Parties of sales returns to him by his customers for
sold reasons.
The sale return and allowances journal is the summary
of parties who returned the goods and the claim of
returns has been adjusted making General Journal
Entry by debiting Sales Return and Allowances and
crediting Account receivable under reference.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
SALES RETURNS AND ALLOWANCES JOURNAL
Page No.
DATE ACCOUNT CREDITED CREDIT POST
AMOUNT MEMO Ref.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
DEBIT AND CREDIT MOMORANDUM
If any defect in commodities found, the purchaser will
inform the supplier for deduction of amount payable by
debit memorandum. If the supplier accepts the request,
he will issue a credit memorandum for deduction of
amount receivable.
The debit memorandum reduces the liability to vendor
and credit memorandum reduces accounts receivable to
vendor.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
ACCOUNTING CYCLE 122
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ISSUED BY PURCHASER
SPECIMEN OF DEBIT MEMORANDUM
KARACHI TRADING COMPANY
P.O. BOX 990,
KARACHI- PAKISTAN
Debit Memorandum NO. 001
To:
Date: January 10,2015
M/s. Azad Traders
S.I.T.E., Karachi
We are debiting your account with the value of under mentioned goods
returned;
Qty. Particulars
Amount(Rs.)
5 Radio sets @ Rs.100 as per invoice.
500.00
No. 002 dated 12.1.2015
Less
Returned goods being of inferior quality
via Malik Transport Co.
E.&O.E.
Signature
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
ISSUED BY SELLER
SPECIMEN OF CREDIT MEMORANDUM
AZAD TRADERS
S.I.T.E.,
KARACHI-PAKISTAN
To:
Credit Memorandum No. 10
Karachi Trading Co.,
Date: January 15,2015
P.O. BOX 990,
KARACHI- PAKISTAN
We are crediting your account with the value of under mentioned goods
Received from you for the reason stated in your Debit Note.
Qty. Particulars
Amount(Rs.)
5 Radio sets @ Rs.100 as per Debit Note No.
500.00
No. 0012 dated 10.1.2015
Less
Returned (goods being of inferior quality)
E.&O.E.
Signature
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
3-GENERAL LEDGER
General journal shows debit and credit the accounts
head but the actual increase or decrease is ascertained in
an individual account and the group of accounts is known
as LEDGER or as book of final entry.
There are three types of accounts in ledger;
1- Standard Form
2- Skeleton Form “T” Shape.
3- Self Balancing Form
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
GENERAL LEDGER COMPANY NAME LEDGER Account of
DEBIT CREDIT Dr. BALANCE
DATE PARTICULARS FOLIO Rs. Rs. or Rs.
Cr.
Standard Form of Ledger Account
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ACCOUNTING CYCLE
GENERAL LEDGER COMPANY NAME LEDGER Account of
DATE PARTICULARS FOLIO DEBIT DATE PARTICUALRS FOLIO CREDIT
Standard Form of Ledger Account
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ACCOUNTING CYCLE
Cash Acc: No.
Specimen of Skeleton Form or "T" Shape Form
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ACCOUNTING CYCLE
GENERAL LEDGER COMPANY NAME LEDGER Account of
DATE PARTICULARS FOLIO DEBIT PARTICUALRS FOLIO CREDIT
Specimen of self balancing form
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ACCOUNTING CYCLE
4-TRIAL BALANCE (UNADJUSTED)
All the ledger accounts are summarized into a statement
at the end of a period such as month, quarter or year
known as TRIAL Balance. An unadjusted trial balance is
the one which is summarized before any adjustments
made in ledger accounts.
The debit and credit result of account balance is taken or
kept in its proper place account related to;
Debit Balance Credit Balance
Assets Contra Assets
Expenses Liabilities
Prepaid expenses Capital
Drawing Revenue
The Trial balance is formed in two as to Standard Form
and Skeleton Form specified below;
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ACCOUNTING CYCLE
TRIAL BALNACE
AT THE END OF THE YEAR JUNE,30 2014
TITLE OF ACCOUNT Account DEBIT CREDIT
No. Rs. Rs.
Specimen of trial Balance standard form
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
COMPANY NAME TRIAL BALNACE
AT THE END OF THE YEAR JUNE,30 2014
ASS
ETS
CO
NTR
A A
SSET
LIA
BIL
ITIE
S
PR
OP
RIE
TOR
SHIP
INC
OM
E
EXP
ENSE
S
Specimen of trial Balance Skeleton form
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ACCOUNTING CYCLE
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ACCOUNTING CYCLE
5-ADJUSTMENT
In order to present a true and fair view of the financial
position, an entry is made in accounts which does not
record a transaction but made to rectify errors, missed
recording, not recorded properly or wrong amounts were
recorded previously or some transactions are recorded
only at the end of the year. These transactions or entries
are related with the adjustment, reversing, correction of
errors.
Below is the most common adjustment;
ACCRUED EXPENSES/UNRECRODED EXPENSES
PREPAID EXPENSES
DEPRESCIATION EXPENSES
BAD DEBITS/UNCOLLECTIBLE
UNUSED SUUPLIES OR MERCHANDISE
ACCRUED INCOME/UNRECORD EXPNESES.
UNEARNED REVENUE <THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
6-TRIAL BALANCE (ADJUSTED)
After adjusting and positing the entries into ledger
accounts, re-trial balance is prepared called adjusted trial
balance.
Like the unadjusted trial balance, the adjusted trial
balance accounts are listed usually in or order as “assets,
liabilities, and equity, income and expenses accounts.”
An adjusted trial balance is formatted exactly like an
unadjusted trial balance.
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ACCOUNTING CYCLE
7- CLOSING ENTRIES
Revenue, expense and capital withdrawal (dividend) accounts are temporary
accounts need to rest at the end of the accounting period through Income
Summary or Expense and revenue summary. Closing entries are the journal
entries used to transfer the balances of these temporary accounts to permanent
accounts. The closing journal entries may be in the form of a compound journal
entry if there are several accounts to close.
The sequence of closing process is as under:
1. Close the revenue accounts to Income Summary
2. Close the expense account to Income Summary 3. Close Income Summary to Retained Earnings
4. Close Dividends to Retained Earnings
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ACCOUNTING CYCLE
EXAMPLES
1. Close the revenue accounts to Income Summary
DATE ACCOUNTS DEBIT CREDIT
mm/dd Revenue XXXX.XX
Income Summary XXXX.XX
2. Close the expense account to Income Summary
DATE ACCOUNTS DEBIT
mm/dd Income Summary XXXX.XX
Expenses
3. Close Income Summary to Retained Earnings
DATE ACCOUNTS DEBIT CREDIT
mm/dd Income Summary XXXX.XX
Retained Earnings XXXX.XX
4. Close Dividends to Retained Earnings
DATE ACCOUNTS DEBIT CREDIT
mm/dd Retained Earnings XXXX.XX
Dividends XXXX.XX
4. Unrecorded expenses or accrued expenses
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
DATE ACCOUNTS DEBIT CREDIT
mm/dd Expense Account XXXX.XX
Accrued Expense XXXX.XX
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ACCOUNTING CYCLE
8- WORKSHEET
The worksheet means working paper containing different types of information
or accounting data prepared to minimize errors in the permanent record of
accounting, simplify work and for testing of ledger accounts, adjusting entries
and financial accounts.
The worksheet or working paper specimen below is very useful providing
information for;
Financial statement
Owner’s equity
Posting of adjusting entries in the accounting records
Recording of closing entries
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ACCOUNTING CYCLE
9-FINANCIAL STATEMENTS
At the end of the accounting period, financial statements
as income statement and Balance sheets are prepared to
close up all the financial activities during the year.
All the expenses and revenue accounts are closed by
Income Statement or Expense and Revenue Summary
showing Net Income or Net Loss for the period.
All the Assets, Liabilities and Proprietorship accounts are
presented in Balance Sheet.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
COST OF MERCHANDISE
The rule of cost of merchandise in profit and loss
summary is important to find out the net income or loss.
The amount of cost of merchandise sold is obtained by
the process of the following;
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
COST OF MERCHANDISE SOLD STATEMENT
AT THE END OF THE YEAR 201..
COST OF MERCHANDISE SOLD
Merchandise Inventory (Opening) xxxx.xx
Purchases xxxx.xx
Less: Purchase Returns & Allows. xxx.xx
Less: Purchase Discount (+)xxx.xx (-)xxxx.xx
NET PURCHASES xxxx.xx
Add: Transportation in;
Cartage xxx.xx
Import Duties xxx.xx
Custom Duties xxx.xx
Clearing & forwarding Exp. xxx.xx
Freight Charges xxx.xx (+)xxx.xx
COST OF MERCHANDISE AVAILABLE FOR SALE xxxx.xx
LESS: MERCHANDISE INVENTORY (ENDING) (-)xxxx.xx
COST OF MERCHANDISE SOLD xxxx.xx
(Transferred to Profit & Loss Account)
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
87
ACCOUNTING CYCLE
INCOME STATEMNET
PROFIT AND LOSS STATEMENT
AT THE END OF THE YEAR 201
SALES REVNUE:
Sales
Less: Sales Return & Allowances xxxx.xx
Less: Sales discounts xxxx.xx
(-)xxxx.xx
NET SALE xxxx.xx
LESS : COST OF MERCHANDISE SOLD (-)xxxx.xx
GROSS PROFIT OR LOSS (+/-)xxxx.xx
LESS EXPENSES
Operating Expenses xxxx.xx
General Expenses xxxx.xx
Financial Expenses
xxxx.xx (-)xxxx.xx
NET PROFIT OR LOSS (+/-)xxxx.xx
(Transferred to Capital Account)
If net sales exceed the cost of merchandise sold, it means
that there is gross income and if it is less to cost of
merchandise sold, there is gross loss. And for this,
expenses increase or decrease the gain or loss.
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
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ACCOUNTING CYCLE
BALANCE SHEETS
COMPANY NAME
BALANCE SHEET AS AT 30.06.2015
ASSETS Amount EQUITIES Amount
CURRENT ASSETS CURRENT LIABILITIES
Cash in hand xxxx.xx Accounts Payable xxxx.xx
Cash at Bank xxxx.xx Bank Over draft xxxx.xx
Accounts Receivable xxxx.xx Salaries Payable xxxx.xx
Stock xxxx.xx Wages Payable xxxx.xx
Unexpired Insurance xxxx.xx Utilities Payable xxxx.xx
Unexpired Rent xxxx.xx
XXXX.XX XXXX.XX
NON-CURRENT ASSETS LONG TERM LIABILITIES
Land xxxx.xx Mark-up xxxx.xx
Building xxxx.xx Loan xxxx.xx
Furniture & Fixtures xxxx.xx XXXX.XX
Office Equipment xxxx.xx OWNER'S EQUITY
Less : Accumulated Depreciation (F&F) (-)xxxx.xx Capital xxxx.xx
Less : Accumulated Depreciation (OE) (-)xxxx.xx Less: Drawing (-)xxxx.xx
TOTAL XXXX.XX TOTAL XXXX.XX
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
89
ACCOUNTING CYCLE
10-POST CLOSING TRIAL BALANCE
A post closing trial balance contains only the balance
sheet accounts and their amounts i.e. assets, liabilities,
owner equities. It is prepared after closing the expenses
and revenue accounts.
The preparation of post-closing trial balance is the last
step of the accounting cycle and gives the assurance that
sum of debits equal the sum of credits before the start of
new accounting period. It provides the opening balances
for the next ledger accounts of the new accounting
period.
This is the end of the accounting cycle and in the next
accounting period; the accounting cycle will be repeated
again as before.
The following is the example of closing trial balance;
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
91
ACCOUNTING CYCLE
COMPANY NAME
POST CLOSING TRIAL BALANCE
AT THE END OF THE YEAR JUNE, 30 201…
TITLE OF ACCOUNT DEBIT CREDIT
Rs. Rs.
Cash xxxx.xx
Accounts receivable xxxx.xx
Stock xxxx.xx
Prepaid Insurance xxxx.xx
Prepaid Rent xxxx.xx
Land xxxx.xx
Building xxxx.xx
Furniture & Fixtures xxxx.xx
Office Equipments xxxx.xx
Accounts Payable xxxx.xx
Bank overdraft xxxx.xx
Salaries Payable xxxx.xx
Wages payable xxxx.xx
Utilities Payable xxxx.xx
Mark up xxxx.xx
Loan xxxx.xx
Capital xxxx.xx
TOTAL XXXX.XX XXXX.XX
<THE SYSTEM OF ACCOUNTING < VOLUME 1< SYED AQEEL RAZA<[email protected]>
92
ENDING WORDS
ON
ACCOUNTING CYCLE
Accounting covers all the department of life, the life
cannot move or survive without food and food comes
from money, money comes from doing business,
business needs accountancy and accountancy has
process like cycle revolves all finances resulting in
financial statements showing the true and fair financial
position enables businessman to take further decisions
on business movement.
The Accounting cycle which starts once has no break
either to carry on or wind up the business activities.
I tried a little to describe the subject concisely to follow
the concept within no time.
Your comments and support is assurance of writing
further.
Author