Define the accounting cycle.
The accounting cycle can be defined as process that includes a revolving series of steps to include: recording journal entries, posting those entries into ledger accounts, adjusting journal entries, preparing an adjusted trial balance and financial statements, recording closing entries, preparing post-closing trial balances and record reversing entries.
Define and differentiate between the purpose of a journal entry, an adjusting entry, and a closing entry.
The purpose of a journal entry is to express the results of a transaction on accounts written in a debits-equal-credits format.
An adjusted entry is made at the end of the accounting period to ensure that revenues are recorded when earned, expenses are recorded when incurred to generate revenue, assets and liabilities are reported to represent probable future benefits/services owed at the end of the accounting period.
A closing entry transfers balances from temporary accounts to Retained Earnings and gives a zero balance in the temporary accounts.
Define the difference between a trial balance and a post-closing trial balance.
A trial balance lists all of the accounts that provides a check on the equality of the debits and credits. Businesses create a trial balance spreadsheet for internal purposes before preparing statements for external users. This lists the names of the T-accounts in one column along with their debit/credit balances in the next columns.
The post-closing trial balance is an additional step to the accounting cycle to check that debits equal credits and that all temporary accounts have been closed.
Libby, R., Libby, P. A., & Short, D. G. (2014). Financial accounting (8th ed.) [Custom text bundle]. New York, NY: McGraw-Hill. ISBN: 9781259329029
Student 2
Interviewing my candidate I will ask:
1. Define the accounting cycle.
The accounting cycle is the name given to the collective process of recording and processing the accounting events of a company. The series of steps begin when a transaction occurs and end with its inclusion in the financial statements.
2. Define the difference between a trial balance and a post-closing trial balance. Trial balance is a statement of all debits and credits in a double-entry account book, with any disagreement indicating an error. The post closing trial balance is a list of all accounts and their balances after the closing entries have been journalized and posted to the ledger. In other words, the post closing trial balance is a list of accounts or permanent accounts that still have balances after the closing entries have been made. 3. Explain the revenue principle and its implication on the financial statements.
The revenue recognition principle is an accounting principle that requires revenue to be recorded only when it is earned. It means that revenues or income should be recognized when the services or products are provided to customers regardless of when the payment takes place. In other words, companies don’t have to wait until they receive cash from their customers in order to record income from the sales. This is consistent with the accrual basis of accounting.