Student Handout and Activities
Additional Activities will be Uploaded into Schoology
Timeframe: 6+3
Performance Indicators:
2.1 Discuss the nature of the accounting cycle
2.2 Distinguish among types of business transactions
2.3 Distinguish among types of business documentation
2.4 Demonstrate the effects of transactions on the accounting equation
2.5 Prepare a chart of accounts
Unit Project:
Introduction to the Accounting Cycle: Ready, Set, Go! & Answer Key
Resource utilized - DWM Beancounter
Objectives:
a. Define the following terms: transaction, journal entry, chart of accounts, general ledger, trial balance, closing process, and accounting cycle. b. Identify the steps in an accounting cycle. c. Discuss the relationship between the chart of accounts and general ledger. d. Discuss the relationship between the general ledger and trial balance. e. Discuss the relationship between the trial balance and financial statements. f. Describe common steps for identifying accounting errors (e.g., transaction journal review, journal entries review, trial balance review).g. Explain the importance of fixing accounting errors.h. Explain why understanding the accounting cycle is necessary for preparing financial statements and annual reports.Activity:
You have been divided into teams of three. Each team is responsible for creating a unique product of its choice (e.g., poster, skit, song, poem, etc.) that symbolizes the accounting cycle. The team’s product must identify the different steps in the accounting cycle and briefly explain what occurs at each step in the process. Upon completion of the work, you will present your teams’ creations to the class.
The Accounting Cycle—Discussion Guide
Slide #1 THINK ABOUT IT
The activities of many accountants are cyclical—their books are maintained across a specific amount of time and according to a repeated set of steps. When the steps are completed, and the books are “closed,” the accountant begins them again. These steps are collectively known as the accounting cycle.
KEY CONCEPTS
Slide #2 The accounting cycle is a six-step process that accountants use to collect, record, and report a business’s financial information.
Discussion #1: Ask students to discuss the respective pros and cons of selecting an accounting period that lasts a month, a quarter, or a year.
Slide #3 Bookkeepers begin the accounting cycle by collecting source documents relating to the business’s financial transactions including checks, receipts, invoices, purchase orders, etc.
Slide #4 Once the appropriate information is gathered from the source documents, the information from these transactions is recorded into journals in the order in which they occurred.
Discussion #2: Ask students to consider why a description should be a part of the journal entry.
Slide #5 After the information has been recorded in the appropriate journal(s), it must also be recorded into the appropriate accounts in the general ledger.
Slide #6 Now that all of the bookkeeping activities have been completed, the accountant will prepare a trial balance.
Slide #7 Next, accountants summarize the business’s financial information into reports that can easily be understood.
Slide #8 Finally, a post-closing trial balance is prepared to reflect a business’s adjusted financial information at the end of an accounting cycle.
Objectives:
a. Define the following term: transaction.b. Identify characteristics of valid business transactions.c. Distinguish among cash, non-cash, and credit transactions.d. Differentiate between internal and external transactions.Activity:
Instruct students to complete the Cash, Credit, or Non-Cash worksheet in the student handout.
Business Transactions—Discussion Guide
Slide #9 THINK ABOUT IT
The entire accounting cycle is founded on the need to accurately record and report the occurrence of business transactions. The term business transaction covers a wide range of activities and interactions; but no matter the form or type, each has an impact on a business’s financial condition. In many ways, business transactions are the reasons that businesses exist. From the largest multinational corporations to the smallest of companies, these exchanges are the fuel that keeps any business moving.
KEY CONCEPTS
Slide #10 A transaction is an event or activity involving the exchange of economic considerations such as a sale or purchase.
Slide #11A cash transaction is a transaction in which a cash form of money is exchanged at the exact time of the transaction.
Discussion #1: Ask students to think of other examples of non-cash transactions.
Slide #12 An external transaction (sometimes called an exchange transaction) involves an exchange between an organization and an outside individual or organization.
Discussion #2: Ask students to think of other examples of internal transactions.
Objectives:
a. Define the following terms: source document, cash memo, invoices, purchase orders.b. Discuss the purpose of source documents in accounting.c. Identify information that source documents typically contain (e.g., description, date, dollar amount, authorizing signature).d. Explain reasons for retaining source documents.e. Descibe common types of source documents (e.g., cash memos, invoices, bills, receipts, deposit slips, checks, time cards, purchase orders).Activity:
Find examples online of each of the following source documents: bill, receipt, deposit slip, check, pay stub, time card, invoice, and purchase order. Copy and paste the documents into a document and share it with your instructor.
The instructor will display various documents and ask students to show their understanding of the documents.
Business Documentation—Discussion Guide
Slide #13 THINK ABOUT IT
Accountants and bookkeepers enter a lot of information into their journals and ledgers—so much, in fact, that mistakes are inevitable. Mistakes are an important reason why accountants keep a record of the sources of the information that they enter. If a mistake is uncovered in the books, sometimes the only way to double-check the error is to locate the document that was used to enter the information in the first place.
KEY CONCEPTS
Slide #14 Accountants don’t invent the numbers that they enter into a company’s financial records. Every entry that goes into the books has to come from somewhere. In almost all cases, that somewhere is a source document.
Slide #15 Depending on the nature of the business or industry, most accountants regularly encounter the same basic types of source documents.
Discussion #1: Ask students if they can think of more examples of source documents that might contain information important for accountants.
Some source documents that are less common outside of accounting are:
Cash memo—a “proof of purchase” document provided by a seller to a buyer that provides detailed information about a transaction for which a cash payment was completed
Invoice—a document provided to an organization or individual that provides detailed information about a transaction for which payment has not yet been completed
Purchase order—a legally binding document provided by a buyer to a seller that authorizes the seller to provide goods or services at an agreed-upon date, time, and price
Objectives:
a. Define the following terms: assets, liabilities, credit, debit, accounts receivable, accounts payable, owners’ equity, revenue, expense, transaction, double-entry accounting.b. Identify examples of business assets.c. Identify examples of business liabilities.d. Distinguish between revenue (i.e., result from sales to customers) and expenses (i.e., costs of doing business).e. Cite the accounting equation (i.e., Assets = Liabilities + Owners’ Equity).f. Explain why the two sides of the accounting equation must balance.g. Discuss the impact of debits and credits on different account types (e.g., asset accounts, liability accounts, expense accounts, revenue accounts).h. Demonstrate how changes to the accounting equation affect two accounts.Activity:
Read and complete the introduction and lessons one and two of the short online tutorial So, you want to learn bookkeeping (http://www.dwmbeancounter.com/tutorial/Tutorial.html) to become familiar with assets, liabilities, equity, and the accounting equation.
Select and take one of the quick an introductory bookkeeping concepts quick response quiz of your choice.
Quick Response Quizzes
Introductory Bookkeeping Concepts - 1
Introductory Bookkeeping Concepts - 2
Introductory Bookkeeping Concepts - 3
Introductory Bookkeeping Concepts - 4
Decide on the answer and report how many you got correct. Do not hover over the answer it will tell you. Decide on your answer, then check it.
How many did you get right?
The Accounting Equation—Discussion Guide
Slide #16 THINK ABOUT IT
The accounting equation is one of the most important and fundamental concepts in all of accounting. Without a full understanding of the basic accounting equation, double-entry accounting won’t make much sense.
KEY CONCEPTS
Slide #17 Before diving into the accounting equation itself, you need a thorough understanding of the basic parts of the equation. Some key definitions are:
Slide #18 The purpose of the accounting equation is to ensure that the period-ending totals on a business’s balance sheet are balanced (they equal each other).
Slide #19 Double-entry accounting is an accounting system in which every transaction is recorded as a separate entry into at least two accounts.
Discussion #1: Ask students what it would mean if the accounting equation did not balance out. What would they do if they found that their assets did not match their listed liabilities?
Slide #20 How these transactions are entered into the separate accounts depends on the type of account that is impacted.
Slide #21 Transactions are recorded into accounts as either debits or credits.
Objectives:
a. Explain the purpose of a chart of accounts.b. Discuss the major types of accounts included in a chart of accounts (i.e., assets, liabilities, equity, revenue, expenses).c. Describe the order in which accounts typically appear in a chart of accounts (e.g., balance sheet accounts followed by income statement accounts, etc.).d. Explain different coding systems commonly used to organize a chart of accounts (e.g., numeric, alpha, alphanumeric, sequential, blocks, hierarchical, mnemonic, faceted, etc.).e. Discuss considerations in building a chart of accounts (e.g., level of detail required, type of business, accrual vs. cash basis, complexity of business structure, financial reporting requirements, computerized vs. manual system, etc.).f. Demonstrate techniques for preparing a chart of accounts.Activity:
You are keeping the books for an ice cream shop at the mall. Prepare a chart of accounts for the accounts you will likely need, including appropriate account types and coding. Then choose whether to structure your chart of accounts for cash or accrual accounting.
IMPORTANTANT INFORMATION:
The ice cream store has four employees, two cash registers that accept credit/debit cards, three ice cream makers, two serving freezers to serve customers from, and four freezers in the back for storing inventory. The shop makes its own ice cream with milk, sugar, heavy cream, eggs, salt, and other items that are delivered once per week from a grocery supply store. The shop also has a checking account and pays for electricity, rent, and internet access (for debit and credit card transactions) every month. You should assume that you are the owner of the store and have invested your own money in it.
Chart of Accounts—Discussion Guide
Slide #22 THINK ABOUT IT
In every accounting system, a detailed listing of a company’s accounts and account codes is crucial for maintaining and organizing the company’s financial records.
KEY CONCEPTS
Slide #23 A chart of accounts is a complete list of the accounts contained in a company’s general ledger and the codes assigned to them.
Discussion #1: Ask students to discuss why they think it would be important to have a chart of accounts that remains largely the same over multiple years. What might happen if the chart changes too often? What might happen if the chart never changes?
Slide #24 In a chart of accounts, the accounts are typically listed by their account type.
In the following order:
Asset Accounts
Liability Accounts
Equity Accounts
Revenue Accounts
Expense Accounts
Within each account group, individual accounts are listed. For example, the company’s cash account is often listed first, followed by the other asset accounts.
This order is based on the financial statement in which the account balance is reported.
Asset, liability, and equity accounts appear on the company’s balance sheet and the remaining accounts are included on the company’s income statements.
The use of additional account types or the splitting of basic types into more specific ones is sometimes needed in larger or more complex business structures.
Slide #25 Each account in the chart is listed with a code that is specific to it.
Discussion #2: Ask students to discuss the importance of having a coding system. Why do they think each account needs a code? Would it matter if the accounts were just listed by their name?
Slide #26 While all chart of accounts will list account codes and title, each company can choose what additional information to include on its chart of accounts.
Slide #27 Here is a sample chart of accounts.