description of the accounting cycle

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2. Accounting Cycle

3. A series of events that are regularly repeated in
the same order.
What is cycle?

4.  Accounting is the systematic and
comprehensive recording of financial
transactions pertaining to a business.
 Accounting also refers to the process of
summarizing, analyzing and reporting of
business transactions.
Accounting:

5.  The accounting cycle is the name given to be
collective process of recording and processing
the accounting events of a company
 We have nine steps in our accounting cycle
Accounting cycle

7.  Source Document – a paper that is prepared as
evidence of a business transaction.
 Invoice – lists specific information involving the
buying or selling of an item on account.
 Receipt – a record of cash received by the
business.
Step 1 – Collecting &
Verifying Source Documents

8.  Analyzing information from the source
documents to determine the debit and credit
parts of each transaction.
 You may not be given a description of the
transaction, but must find the information off
of the source document.
Step 2 – Analyzing Business
Transactions

10.  Ali sold good for Rs 10,000.
 Aslam purchases computer for Rs. 80,000.
 Pay salaries to employees Rs. 50,000.
Examples of Business
Transaction

11.  Journal – a record of the transactions of a
business.
 Kept in chronological order
 Journalizing – the process of recording business
transactions in a journal.
 AKA Record of Original Entry – it is where
transactions are first entered in the accounting
system.
Step 3 – Recording Business
Transactions in a Journal

15.  General Ledger – a permanent record
organized by account number.
 Shows changes in an account’s balance.
Step 4 – Posting to the Ledger

16.  Trial Balance – a list of all the account names
and their current balances.
 Proving the Ledger – comparing the total of
debits to the total of credits to see if they equal.
Step 5 – Prepare a Trial
Balance

18.  Worksheet – a working paper used to collect
information from the ledger accounts in one
place.
 Information is needed to prepare financial
Step 6 – Prepare a Worksheet

21.  Financial Statements – summarize the changes
resulting from business transactions that occur
during an accounting period.
 Income Statement – reports net income/loss for a
specific time period.
 Statement of Owner’s Equity – summarizes changes
in the owner’s capital account as a result of business
transactions that occur during the period.
 Balance Sheet – a report of the balances in the
permanent accounts at the end of the period.
 Statement of Cash Flows – summarizes the amount
of cash taken in, sources of cash, amount paid out,
uses of cash.
Step 7 – Prepare Financial
Statements

23.  Closing Entries – journal entries made to close,
or reduce to zero, the balances in the temporary
accounts and to transfer the net income/loss for
the period to the capital account.
Step 8 – Journalize &
Post Closing Entries

25.  Prepared to make sure total debits equal total
credits after the closing entries are posted.
Step 9 – Prepare a Post-
Closing Trial Balance