FAR110 Financial Accounting Cycle.pdf

basic accounting

1. TOPIC 2
PART 1
ACCOUNTING
CYCLE
FAR110 - FINANCIAL
ACCOUNTING 1

2. Far110-hh 2
Learning
Outcomes
•Understand the accounting cycle from source
documents to the preparation of financial
statements

3. Far110-hh
3
Accounting Cycle
1.
Source
Docume
nts 2.
Journa
ls
3.
Ledger
s
4.
Trial
Balanc
e
5.
Adjustm
ents
6.
Adjust
ed
Trial
Balanc
e
7.
Financial
Statements

4. Far110-hh
4
ACCOUNTING
CYCLE
•The accounting cycle refers to the specific tasks in completing the
accounting process
•The length of accounting cycle can be monthly, quarterly, semi-
annually or yearly.

5. Far110-hh
5
SOURCE
DOCUMENTS
•All business transactions must be identified and analysed from
source documents.
•Source documents are very important as they provide:
-information for recording transactions
-evidence of transactions for auditing purposes

6. Far110-hh
6
Examples – source
documents
•Invoice
This document is prepared when goods are sold or purchased on
credit. The purpose is to inform buyer of the amount to pay for goods
and services supplied. The buyer will refer this document as
purchase invoice. The seller will refer this document as sales invoice.
•Cash Memo/Cash Bill
Cash memo/cash bill is prepared when goods are sold or purchased
for cash.

7. Far110-hh
7
Examples – source
documents
•Payment Voucher
It is an evidence of payment to a named party.
•Receipt
Receipt is issued to the customer after receiving cash
or cheque from customers as a proof of receiving
payment.
•Pay in Slip/ Deposit Slip/Bank-in slips
This is a form available from the bank for depositing
cash or cheque in a bank account.
• Cheque Counterfoil
A record of amount paid by cheque.

8. Far110-hh
8
Journals
•These are the first books where the business transactions are
recorded.
•Also known as the books of original entry, prime entry books.
•Types of journals:
•General Journal
•Sales Journal (to record sales on credit)
•Purchases Journal (to record purchases on credit)
•Sales Return Journal (Return Inward Journal) [to record goods return by credit
customers]
•Purchases Return Journal (Return Outward Journal) [to record goods return to
credit supplier]
•Cash Receipts Journal (to record all receipts; cash and cheques)
•Cash Payments Journal (to record all payments; cash and cheques)

9. Far110-hh
9
Ledgers
•A book that contains various accounts.
•Information in journals is transferred to ledgers. [This
process is called ‘posting’]

10. Far110-hh 10
Trial Balance
•A trial balance is a list of all ledger accounts with balances
at a particular date.

11. Far110-hh 11
Adjustments,
Adjusted Trial Balance
•Accounting adjustments are made at the end of the
accounting period
•Adjusted Trial Balance is prepared after adjustments
to accounts were made.

12. Far110-hh
12
Financial
Statements
•Consists of:
•Statement of profit or loss [show the expenses,
revenues, profit or loss]
•Statement of financial position [show the assets,
liabilities and equity at a particular date]

13. Thank You!
End of Part 1-
Accounting Cycle