In Chapter 4, the Accounting cycle is defined as recording and processing all financial transactions of a company, from when the transaction occurs, to its representation on the financial statements, to closing the accounts. The following steps are included in the accounting cycle.
Analyze business transactions- It would not be necessary to continue with the accounting cycle in the first step of the process without this. A debt payout, purchases or purchases of property, sales revenues, or any incurred expenses may be included in the financial transaction.
Journalize the transactions -The next step in executing the transactions is to register these entries in the company newspaper chronologically. Debt and credit for one or more accounts should always balance debits and credits.
Post to ledger accounts- The journal entries are then posted to the general ledger, which summarizes all individual accounts transactions.
Prepare a trial balance- At the end of the accounting period (which may be quarterly, monthly, or yearly, depending on the company), a total balance is calculated for the accounts.
Journalize and post adjusting entries- When the debits and credits on the trial balance don’t match, the bookkeeper must look for errors and make corrective adjustments tracked on a worksheet.
Prepare an adjusted trial balance- At the end of the company’s accounting period, adjusting entries must be posted to accounts for accruals and deferrals.
Prepare financial statements-The balance sheet, income statement, and cash flow statement can be prepared using the correct balances.
Journalize and post-closing entries- Entry closing is a journal entry that is passed after completing the financial statements, i.e., all adjusting entries are transferred from the temporary accounts to the permanent accounts after the accounting period.
Prepare a post-closing trial balance- The income and costs account for the next accounts cycle are closed down and zeroed out. The fact is that income and expense accounts are income statement accounts that reflect performance for a certain period.
From the start to the end, an accountant’s main task is to monitor the entire accounting cycle. Every fiscal year, the round is repeated as long as a business continues. The accounts cycle includes all accounts, log entries, T accounts, debits, and loans and adjusts over a whole cycle.
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