ACCT5930 Chap.3 Record Keeping and the Accounting Cycle
Record Keeping and the Accounting Cycle
The accounting cycle turns evidence into reports. Source documents support the event, journals record balanced entries in time order, and posting moves each effect into the relevant general-ledger account. A trial balance lists ending balances to test whether total debits equal total credits.
Period-end adjustments update recognition and measurement, closing entries transfer temporary revenue and expense balances into retained profits, and permanent balance-sheet accounts carry forward. The process combines mechanical accuracy with judgement: posting can be routine, but deciding whether a balance belongs to the period and faithfully represents an asset or obligation requires analysis.
What this chapter covers
- 01
Source documents provide transaction evidence and support internal control
- 02
The journal records events chronologically as equal debits and credits
- 03
The general ledger groups posted effects by individual account
- 04
T-accounts display debit movements on the left and credits on the right
- 05
A trial balance tests debit-credit equality without proving complete accuracy
- 06
Adjustments bring period-end balances up to date
- 07
Temporary income statement accounts close to retained profits
- 08
Permanent balance sheet accounts become next period's opening balances
Worked example · free
Post inventory movements and calculate the closing ledger balance
- +1The opening inventory debit balance is $52,000.
- +1The credit purchase debits Inventory $23,000 and credits Accounts Payable $23,000.
- +1The sale credits Inventory $31,500 through the linked cost entry, and the return credits Inventory $3,500.
- +1Closing inventory is $52,000 + $23,000 minus $31,500 minus $3,500 = $40,000 debit.
Key terms
- Source Document
- Evidence such as an invoice, receipt or bank statement that supports identification and recording of an event.
- General Journal
- The chronological record of transactions expressed through balanced debit and credit entries.
- General Ledger
- The complete collection of accounts to which journal effects are posted and accumulated.
- Trial Balance
- A listing of ledger balances used to confirm that total debits equal total credits at a point in the cycle.
- Temporary Account
- An income statement account reset to zero at period end through the closing process.
- Permanent Account
- A balance sheet account whose closing balance carries forward as the next period's opening balance.
Record Keeping and the Accounting Cycle FAQ
Why do journals have to be posted to ledgers?
Journals organise events by date, which makes them useful for the audit trail but poor for finding an account balance. Ledgers regroup the same effects by account so cash, inventory, payables and every other balance can be accumulated and reviewed.
What errors can a trial balance miss?
It can miss a completely omitted balanced entry, a full reversal of debit and credit, equal amounts posted to the wrong accounts, and period errors. Those mistakes preserve column equality, so source evidence and account logic remain essential.
Why are revenue and expense accounts closed?
They measure performance for one reporting period and must begin the next period at zero. Their balances transfer through the closing process into retained profits, which is a permanent equity account that carries accumulated results forward.
Does posting create another transaction?
No. Posting reorganises the effects already recorded in the journal. The economic event occurs once. Treating posting as a second event would duplicate amounts and destroy the connection between evidence, journal and ledger.
Exam move
Draw the cycle from memory and attach one control question to each stage. Practise posting small journals into T-accounts, balancing each account and preparing a trial balance. Then introduce errors and predict whether the trial balance will expose them. Close a short adjusted trial balance by separating temporary from permanent accounts and confirm that the post-closing trial balance contains no revenue or expense balances.
Keep a traceable reference from source evidence to journal and ledger instead of treating each task as a separate calculation. Create one small transaction set and carry it through the entire chain without changing the numbers: source description, journal, ledger, unadjusted trial balance, adjustment, statements, closing entries and post-closing trial balance.
Mark cross-references so every ledger movement can be traced backward. On a second pass, seed one error at a time—an omitted balanced entry, a complete reversal, an unequal posting and an amount posted to the wrong account—and predict whether column equality will reveal it before checking. This distinguishes what a trial balance proves from what it cannot prove.
For closing practice, label every account temporary or permanent before writing entries and reconcile the profit transfer to the movement in retained profits. The post-closing trial balance should then contain only resources, obligations and equity balances that survive into the next period. Time one complete posting cycle and reserve the final minute for source-to-ledger cross-reference checks.
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