The accounting process STEPS IN THE ACCOUNTING CYCLE

● The accounting process comprises the activities of identifying measuri 1. Identifying and analyzing business documents or transactions. The
ng, and communicating economic information that is useful for decisio accountant gathers information from source documents and determines
n making purposes. the impact of the transactions on the financial position as represented b
● The accounting process is effected through an entity's accounting infor y the basic equation "Assets equals Liabilities plus Equity.“
mation system and culminates to the preparation of the financial state 2. Journalizing - the accountable events identified are recorded in the jo
ments. urnals.
3. Posting - information from the journal are transferred to the ledger. Th
ACCOUNTING INFORMATION SYSTEM e ledger is a device that stores the accounts.
Accounting Information System – (Accounting System) is the system of col 4. Preparing the unadjusted trial balance (this is the start of the wor
lecting and processing transaction data and disseminating financial information ksheet preparation) - balances of the general ledger accounts are pro
to interested parties. It is a subsystem of Management Information System (MI ved as to the equality of debits and credits and serve as basis for adjust
S). ing entries.
5. Preparing the adjusted entries – Adjusting entries are needed to upd
Management Information System is a set of data gathering, analyzing, and re ate accounts on an accrual basis of accounting by recording accruals of
porting functions designed to provide management with the information it nee income and expenses, expiration of deferrals, estimations, and other ev
ds to carry out its functions. ents often not signaled by new source documents.
The major components of an MIS include the following: 6. Preparing the adjusted trial balance – After posting the adjusting en
1. Financial Information System or Accounting Information System tries, the monetary totals of debits and credits are again checked for eq
2. Personnel Information System uality. The adjusted trial balance facilitates the preparation of the finan
3. Logistics Information System cial statements.
7. Preparing the financial statements - The financial statements are the
COMPONENTS OF ACCOUNTING INFORMATION SYSTEM means by which the information processed is communicated to the use
1. Personnel directly involved in accounting work. rs.
2. Accounting policies and standards. 8. Closing the books - involves journalizing and posting closing entries
3. Procedures or set of interrelated activities involving the originating, p and ruling the ledger. Temporary accounts (or nominal accounts) are cl
rocessing and reporting of financial and related data. osed and the resulting profit or loss is transferred.
4. Equipment and devices used in the system to expedite work, to provi 9. Preparing the post-closing trial balance - After posting the closing e
de controls, and prevent fraud and errors. ntries, the monetary totals of debits and credits are again checked for e
5. Records and reports necessary to gather, process, store and transmit f quality. The post-closing trial balance provides the balances that will b
inancial and other information. e extended to the next accounting period.
10. Preparing the reversing entries - Reversing entries are usually entrie
ACCOUNTING CYCLE s facilitate the recording of certain transactions in the next made at the
Accounting Cycle represents the steps or accounting procedures normally use beginning of the next accounting period. Reversing accounting period.
d by entities to record transactions and prepare financial statements. The accou
nting cycle implements the accounting process. Identifying and Analyzing Transactions and Events is the process of selecti
ng a transaction or event and analyzing its impact on the financial position.
 Books used under the single-entry system include: Cash books and subsidiar
ACCOUNTING RECORDS OF A BUSINESS ENTITY y ledgers (personal accounts).
1. Business or source documents - these are the original source material
s evidencing a transaction. Examples are purchase invoice, official rec ABOUT JOURNALS:
eipts, vouchers, debit or credit memoranda, and miscellaneous bills for Journalizing is the process of recording transactions in the journal by means o
expenses. f journal entries.
2. Books of original entry - these refer to the journals such as the Gener
al Journal and the Special Journals. Journal (also called the book of original entry) is a formal record where transa
3. Books of final entry - these refer to the ledgers such as the General Le ctions are initially recorded chronologically through journal entries.
dger and the Subsidiary Ledgers.
TYPES OF JOURNAL
SYSTEMS OF RECORDING TRANSACTION 1. General Journal - a book of original entry used to record transactions
1. Double-Entry System - Under this system, each transaction is recorde other than those which are recorded in the special journals. If special j
d in two parts - debit and credit. The double-entry system makes use of ournals are not utilized, all transactions arerecorded in the general jour
the following concepts: nal.
a. Duality- this concept views each transaction as having a two-fold effect on 2. Special Journal - a book of original entry used to recordtransactions o
values - a value received and a value parted with, and each transaction is recor f a similar nature.EXAMPLES OF SPECIAL JOURNAL
ded using at least two accounts. a.Sales journal - a journal used to record sales on account
b. Equilibrium -this concept requires each transaction to be recorded in terms b. Purchases journal - a journal used to record purchases of inventory on acco
of equal debits and credits. unt.
c. Cash receipts journal - a journal used to record all transactions involving r
Accounts recognized under the double-entry system include: Assets, Liabilitie eceipts of cash.
s, Equity, Income and Expenses. d. Cash disbursement journal - a journal used to record all transactions invol
ving payments of cash.
Books used under the double-entry system include: Journal, Special Journal,
Ledger, Subsidiary Ledger and other important books.

2. Single-Entry System - Under this system, each transaction is recorded

Accounts recognized under the single-entry system include: Cash, Accounts