Accounting period & Accounting cycle

Accounting period & Accounting cycle

by Thu Nga

​Definition

Accounting period or fiscal period is each segment of time, usually a year, in which statements are prepared in order to know the results of the business operation during that particular period of time​

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​•Accounting period may be semi-annual, quarterly or monthly, but mostly annually.

•And different companies have different accounting period.

Multiple Choice

What does the length of the accounting period depend on?

• 12 months

• Depends on the nature or characteristic of the business

Multiple Choice

How many types of accounting periods are there?

• 1

• 2

• 3

• 4

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​The length of the accounting period depends on the nature or characteristics, the levels and requirements of management department

​Accounting cycle

​•In other words, the sole purpose of recording transactions and keeping track of expenses and revenues is turn this data into meaning financial information by presenting it in the form of a balance sheet, income statement, statement of owner’s equity, and statement of cash flows.

•The accounting cycle is a set of steps that are repeated in the same order every period

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​Steps of accounting cycle

​•Identify business events, analyze these transactions, and record them as journal entries

•Post journal entries to applicable T-accounts or ledger accounts

•Prepare an unadjusted trial balance from the general ledger

•Analyze the trial balance and make end of period adjusting entries

•Post adjusting journal entries and prepare the adjusted trial balance

•Use the adjusted trial balance to prepare financial statements

•Close all temporary income statement accounts with closing entries

•Prepare the post closing trial balance for the next accounting period

•Prepare reversing entries to cancel temporary adjusting entries if applicable

​Step1: Examine source documents

We will check the invoices, checks, or other related documents that occur​

​Source documents

​•What is source document?

•What is the importance of source documents?

•What are the types of source documents?

​Definition

​A source document is the original document that contains the details of a business transaction.

A source document captures the key information about a transaction, such as the names of the parties involved, amounts paid (if any), the date, and the substance of the transaction

​Examples of source documents:

• Checks.

• Invoices.

• Receipts.

• Credit memos.

• Employee time cards.

• Deposit slips/ packing slips

• Purchase orders.

• Bank statements​

​Step 2 - Analyze transactions

Analysis factors affect to the assets, liabilities, owner equity, income or expenses of company.

Example:

 On 25/1/2015 company A purchase a fix asset from firm B with cost 80 million and company A has pay by cash in bank.​

​Step 3 - Record transactions in a journal

All transactions occurring will reflect on journal.

They are also entered on the credit or debit amount for each account in the appropriate columns on the right sides of the journal.​

​Example

​•Depreciation is the process of computing expense from allocating the cost of plant and equipment over its expected useful lives.

​Process:

​These are the steps to make a trial balance

​Errors that trial balance can not point out:

Errors of principle​

Compensating errors

​​Errors of commission

​Errors of ommission

​Errors of Original entry

​Errors of Reversal

Multiple Choice

Sold goods to Mr.A for $1,000. It is either entered this transaction in sales account nor in Mr A account

• Error of commission

• Error of ommission

• Error of principle

• Error of original entry

Multiple Choice

Sales of goods of Mr.A were entered in Mr.B account

• Error of Commission

• Error of Ommission

• Error of Principle

• Error of Compensation

Multiple Choice

A purchase of $100 was entered as $200 in the books of account

• Error of Principle

• Error of Original entry

• Error of Reversal

• Error of compensation

Multiple Choice

We received cash $500 from Mr.A. We recored as Mr.A = Debit and Cash = Credit. The trial balance appears to be balance

• Error of Reversal

• Error of Principle

• Error of Commission

• Error of Compensation