1. Unit 4
The Accounting Cycle
Orcutt Academy High School
Accounting & Finance

3. 
What are Source Documents?
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◦
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Invoice
Receipt
Deposit Slip
Check Counterfoil
Statement
Payment Confirmation
4-1 Source Documents

4. The first documents that exist relating to
a transaction.
 Serve as proof for a transaction

◦ Include date and time
Why Source Documents

5. Normally relate to
credit transactions
 List goods or services
provided and their
prices.
 Suppliers normally
send an invoice with
goods (or once
services have been
delivered)
 Indicate payment
terms (time, # of
payments, etc…)
 “Bills”

Invoices

6. Confirm that services or goods have been
received.
 Normally relate to cash transactions.

Receipts

7. 
Proof that cash, including currency and
checks, has been deposited in a bank
account.
Deposit Slip

8. 
This is the part of the check kept by the
drawer (writer) of the check as a record
of the transaction.
Check Counterfoil

9. 
A report showing
◦ the amount owed
by one business
to another
◦ details of
transactions
between the two
businesses
Statement

10. 
Proof of
Internet
transactions
Payment Confirmation

12. 4-2 Accounting
Journals

13. 
Debits and Credits in Chronological Order
What are Journals?

14. Used to be an actual book.
 Now accountants record journal entries
using an accounting program.

What are Journals?

15. 
To keep a day-to-day record of a business
and its transactions.
Purpose

16. 
Includes a brief explanation of the
transaction
◦ should accurately describe what took place, so
that anyone who glanced at it for the first time
could easily identify what occurred.
Explanations

17. 
Each journal can be matched to the
relevant supporting document
◦ Check stub
◦ Receipt
Supporting Documents

18. A cross-referencing code or folio number
is included.
 This code or folio number simply crossreferences between one document and
another.

Folio Numbers
for Source Documents

19. 
If the this transaction of $15,000 capital
was made by issuing check number 38,
then one could write “Ch-38” (for
example) under the folio number.
Folio Numbers
for Supporting Documents

20. To easily trace the recorded transaction
back to the source document
 To verify that the transaction actually took
place.

Why include folio numbers?

21. Each specific account, such as bank,
would have its own folio number
 Used to cross reference from the journal
entry involving “bank” to the bank’s
account in the ledger

◦ This will be covered in the next section.

Make it simple to trace information
through the steps in the accounting cycle.
Folio Numbers for Accounts

22. “Sal-1” is the individual code for the account
“salaries.” “J-1” is the code for “journal page 1.”
 One could follow information from the journal entry to
an account in the ledger, or from an account in the
ledger back to the journal entries.

Cross-Referencing Accounts

23. 1.
2.
3.
4.
5.
6.
7.
Cash Receipts Journal – for all cash
receipts.
Cash Payments Journal – for all cash
payments.
Sales Journal – all sales on credit.
Sales Returns Journal – all sales on credit
that have been returned.
Purchases Journal – all purchases on credit.
Purchases Returns Journal – all purchases
on credit that have been returned.
General Journal – for all transactions not
falling under any of the above journals.
The Different Journals

24. Where you record all cash that has been received.
Major categories of receipts, such as from income or
from debtors, receive their own
 column.
 The category called “sundry” is used to represent less
regular items, such as capital or receiving cash from
a loan.


◦ The word sundry means “various,” “miscellaneous” or
“general.”

The “bank” column is added up to show the total cash
received for the period concerned.
Cash Receipts Journals

25. 
Where you record all transactions where
cash has been paid out.
Cash Payments Journal

26. The cash receipts journal and cash
payments journal can be replaced by the
cash book, which is simply a combination
journal showing all receipts and all
payments together.
 Petty cash, which is simply a sum of cash
on hand kept to pay small expenses, can
also have its own separate journal.

Cash Book & Petty Cash

28. 4-3 Ledger
(T-Accounts)

29. A whole bunch of T-accounts grouped
together.
 The main ledger is called the general
ledger. Virtually all T-accounts in a
business fall under the general ledger.

What is a ledger?