The document discusses the key steps in the accounting cycle: 1) Financial transactions are recorded by debiting and crediting the appropriate accounts; 2) The transactions are posted to accounts in the general ledger; 3) At the end of the period a trial balance is prepared to ensure debits equal credits; 4) Adjusting entries are made if needed and an adjusted trial balance is prepared; 5) Financial statements are created using the adjusted account balances; 6) Revenue and expense accounts are closed out to begin the next accounting period.

1. Student of BS (IT) at Shaheed Benazir Bhutto University
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3. • Financial transactions start the process. Transactions can
include the sale or return of a product, the purchase of
supplies for business activities, or any other financial
activity that involves the exchange of the company’s assets,
the establishment or payoff of a debt, or the deposit from or
payout of money to the company’s owners.

4. • The transactions are posted to the account that it impacts.
These accounts are part of the General Ledger, where you
can find a summary of all the business’s accounts.

6. ABC Company
GENERAL JOURNAL
Date Account title & explanation Debit Credit
2015
Jun.2 Cash …………………………………………….
80,000 -
Capital……………………………………………
- 80,000
Owners invest cash in the business.

8. • Increases in owners’ equity are recorded by credits.
• Decreases in owners’ equity are recorded by debits.
This rule is now extended to cover revenue and expense
accounts:
• Revenue increases owners’ equity; therefore, revenue is
recorded by credits.
• Expenses decrease owners’ equity; therefore, expenses are
recorded by debits.

10. Trial balance
• At the end of the accounting period (which may be a mon
th, quarter, or year depending on a business’s practices), y
ou calculate a trial balance

11. Company A
Trial Balance
January 31, 2010
Debit Credit
Cash $20,430
Accounts Receivable 5,900
Office Supplies 22,800
Prepaid Rent 36,000
Equipment 80,000
Accounts Payable $5,200
Notes Payable 20,000
Utilities Payable 3,964
Unearned Revenue 4,000
Common Stock 100,000
Service Revenue 82,600
Wages Expense 38,200
Miscellaneous Expense 3,470
Electricity Expense 2,470
Telephone Expense 1,494
Dividend 5,000
Total $215,764 $215,764

12. Adjusted Trail Balance
• You post any corrections needed to the affected accounts
once your trial balance shows the accounts will be balanc
ed once the adjustments needed are made to the accounts.
You don’t need to make adjusting
entries until the trial balance process is
completed and all needed corrections and adjustments ha
ve been identified.

13. Financial statements.
• You prepare the balance sheet and income statement
using the corrected account balances.

14. Closing The Books.
• You close the books for the revenue and expense accounts and
begin the entire cycle again with zero balances in those accounts.