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Accounting Cycle


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A brief Introduction about Accounting Cycle

Published in: Business, Economy & Finance

Accounting Cycle

  2. 2. ACCOUNTING CYCLE <ul><li>The Accounting Cycle is a series of steps. </li></ul><ul><li>Starts with making accounting entries for each transaction and goes through closing the books. </li></ul>
  3. 3. DEFINITION <ul><li>The accounting cycle refers to nine steps, repeated in each reporting period, to verify transactions and prepare financial statements for internal and external users. </li></ul>
  4. 4. <ul><li>These 9 steps are- </li></ul><ul><li>Analyze </li></ul><ul><li>Journalize </li></ul><ul><li>Post A Business Transaction </li></ul><ul><li>Unadjusted Trial Balance </li></ul><ul><li>Adjusting </li></ul><ul><li>Preparing </li></ul><ul><li>Preparing Financial Statements </li></ul><ul><li>Closing the account </li></ul><ul><li>Post-Closing Trial Balance </li></ul>
  5. 5. 9-Post closing Trial Balance 1-Analyze 2-Journalize 3-Post A Transaction 4- Unadjusted Trial Balance 5-Adjusting 6-Preparing 7-Preparing Financial Statement 8-Closing Account Accounting Cycle
  6. 6. <ul><li>1-Analyze- </li></ul><ul><li>The first step of accounting cycle. </li></ul><ul><li>First analyze a transaction and its source documents. </li></ul><ul><li>Apply double-entry accounting to recognize its effect on account balances . </li></ul>
  7. 7. <ul><li>2- Journalize- </li></ul><ul><li>Transactions are recorded in a General Journal. </li></ul><ul><li>Journalizing leaves a record of all transactions in one document. </li></ul><ul><li>Helping to prevent mistakes and linking the debits and credits for each transaction. </li></ul>
  8. 8. <ul><li>3-Post A Business Transaction- </li></ul><ul><li>The third step in the accounting cycle is posting. </li></ul><ul><li>Also known as LEDGER Account. </li></ul><ul><li>After recording in the journal, transaction are transferred and posted to the ledger. </li></ul><ul><li>All transactions for the same account are collected and summarized. </li></ul><ul><li>It is important to leave this paper trail to verify accuracy and troubleshoot later in the process if accounts are not adding up. </li></ul>
  9. 9. 4-Prepare An Unadjusted Trial Balance <ul><li>Preparing an unadjusted trial balance tests the equality of debits and credits as recorded in the general ledger. </li></ul><ul><li>Additionally, this provides the balances of all the accounts that may require adjustment in the next step. </li></ul>
  10. 10. <ul><li>Debit and credit merely signify position— left and right, respectively . </li></ul><ul><li>Both sided recorded amount must be equal. </li></ul>
  11. 11. 5-Adjusting of Trial Balance- <ul><li>The fifth step, adjusting, accounts for internal transactions, like the use of prepaid rent or unearned revenue. </li></ul><ul><li>Adjustment may be required to record an expense that may have been incurred but not yet recorded. </li></ul>
  12. 12. 6-Prepare an adjusted trial balance- <ul><li>The sixth step is the preparation of the adjusted trial balance. </li></ul><ul><li>Again tests the equality of debits and credits, encompassing all internal and external transactions for the reporting period. </li></ul>
  13. 13. 7-Preparing Financial Statements- <ul><li>Financial statements are prepared. </li></ul><ul><li>The Income Statement and Statement of Owner's Equity are prepared first, followed by the Balance Sheet, which pulls information from the Statement of Owner's Equity. </li></ul><ul><li>These are one of the primary outputs of the financial accounting system. </li></ul>
  14. 14. 8-Closing the account <ul><li>The eighth step in the accounting cycle is to close accounts in preparation for the next accounting period. </li></ul><ul><li>Temporary or nominal accounts are closed, while permanent or real accounts carry their balances into the next period. </li></ul><ul><li>Once completed, all revenue, expense, withdrawal and Income Summary balances should be zero. </li></ul>
  15. 15. 9-Post-Closing Trial Balance- <ul><li>Finally, the post-closing trial balance lists the balances of the accounts that were not closed, such as assets, liabilities, and owner's equity. </li></ul><ul><li>This trial balance helps verify that permanent accounts balance, with equal debit and credit sums, and that all temporary accounts were closed properly. </li></ul>
  16. 16. <ul><li>DEFINITION- </li></ul><ul><li>Series of steps in recording an accounting event from the time a transaction occurs to its reflection in the financial statements; also called bookkeeping cycle , The order of the steps in the accounting cycle are: recording in the journal, posting to the ledger, preparing a trial balance, and preparing the financial statements. </li></ul>
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