The accounting cycle is the cumulative process of recording and organizing the accounting events of a company. Broken into nine steps, the accounting cycle begins with the collection of data and verification of source documents. Step two covers the analyzation of each transaction. In step three each transaction is journalized. When the transaction has been both analyzed and journalized, we then post these to the ledger, in step four. Step five deals with the preparation of a trail balance. In step six, a worksheet is produced. Once we have gathered all of this data, we will prepare the appropriate financial statements in step seven. Step eight brings all of our work together as we journalize and post the closing entries. Finally, in step nine
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This step is the beginning of the debits and credits system. Using the source documents from the first step, a t-chart with debit and credit information is created. Once all necessary documents are organized and accounted for, we are then ready to journalize. When journalizing transactions, we must create and sort different journals and fill them with the corresponding transactions. Also known as the “book of original entry”, a journal is a chronological documentation of a business’s transactions. These journal entries are useful in later steps, so it’s imperative to record them accurately. Once all transactions have been journalized, we will then post them to a ledger. A ledger account is used to sort and store both balance sheet and income statement transactions (Accounting Coach, 2016). The ledger sheet is important because it readies us for one of the most important steps, preparing a trial balance. By definition, a trial balance is a list of all accounts for a business and their balances in balance sheet order (Book). The trial balance will have two columns in which ledger entries will be sorted. The two columns are organized as debit and credit. Trial balances, like the entries in the next few steps, are always posted at the end of the accounting …show more content…
Four main statements are prepared at this stage: a balance sheet, income statement, statement of owner’s equity, and a statement of cash flows. This step is important because it gives the business owner a clear outline of how money is moving around. The closing process is an important step that links the end of one accounting period (after financial statements have been completed) with the start of the new accounting period (Rio Salado, 2016). Before we can begin a new accounting cycle, we must first close the existing cycle by journalizing and posting the closing entries. After the previous eight steps in the accounting cycle are completed, we will perform one last trial balance to make sure the ledger is accurate and up-to-date. At this point all temporary accounts should be closed as to not create clutter for the next cycle. This final step of the accounting cycle acts as an eraser of sorts. Keeping all relevant information while wiping the circumstantial bits
This step is the beginning of the debits and credits system. Using the source documents from the first step, a t-chart with debit and credit information is created. Once all necessary documents are organized and accounted for, we are then ready to journalize. When journalizing transactions, we must create and sort different journals and fill them with the corresponding transactions. Also known as the “book of original entry”, a journal is a chronological documentation of a business’s transactions. These journal entries are useful in later steps, so it’s imperative to record them accurately. Once all transactions have been journalized, we will then post them to a ledger. A ledger account is used to sort and store both balance sheet and income statement transactions (Accounting Coach, 2016). The ledger sheet is important because it readies us for one of the most important steps, preparing a trial balance. By definition, a trial balance is a list of all accounts for a business and their balances in balance sheet order (Book). The trial balance will have two columns in which ledger entries will be sorted. The two columns are organized as debit and credit. Trial balances, like the entries in the next few steps, are always posted at the end of the accounting …show more content…
Four main statements are prepared at this stage: a balance sheet, income statement, statement of owner’s equity, and a statement of cash flows. This step is important because it gives the business owner a clear outline of how money is moving around. The closing process is an important step that links the end of one accounting period (after financial statements have been completed) with the start of the new accounting period (Rio Salado, 2016). Before we can begin a new accounting cycle, we must first close the existing cycle by journalizing and posting the closing entries. After the previous eight steps in the accounting cycle are completed, we will perform one last trial balance to make sure the ledger is accurate and up-to-date. At this point all temporary accounts should be closed as to not create clutter for the next cycle. This final step of the accounting cycle acts as an eraser of sorts. Keeping all relevant information while wiping the circumstantial bits