The Accounting Cycle
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The accounting cycle involves recording business transactions in a journal throughout the month. At month-end, adjusting entries are made to properly allocate revenues and expenses to the correct period. Closing entries are then made to zero out temporary accounts and prepare the financial statements for the period, including the income statement and balance sheet. This process repeats at the start of each new accounting period.
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The Accounting Cycle
- 1. http://www.dcaccounting.org Washington, DC Accounting THE ACCOUNTING CYCLE
- 2. THE ACCOUNTING CYCLE OF A BUSINESS Let’s take a look at the entire accounting cycle of a business. Business transactions are recorded in a “Journal” during the month. At the end of the month “Adjusting Entries” are prepared, and placed in the “Journal”.
- 3. THE ACCOUNTING CYCLE OF A BUSINESS A final set of “Closing Entries “are then placed in the “Journal”, and the “Financial Statements” are prepared. The process begins again for the next accounting period.
- 4. THE ACCOUNTING CYCLE OF A BUSINESS Start: Transaction Analysis Journal Entries Balance Sheet Adjusting and Income Entries Statement Closing Entries
- 5. BASIC ACCOUNTING TERMINOLOGY Journal The book of original entry. All transaction are recorded here first. Adjusting Entries These are entries to assign revenue and expenses in the period incurred. These additional month-end entries match expired costs and unrecorded revenues to the period
- 6. BASIC ACCOUNTING TERMINOLOGY Closing Entries Entries made to zero balance all temporary accounts at the end of the accounting period. Income Statement The profit or loss of the business based on earnings less expense. This statement reflects a period of time (usually one month)
- 7. BASIC ACCOUNTING TERMINOLOGY Balance Sheet A “snapshot” of the business’ assets, liabilities and owner’s equity (also known as “net worth”). Assets are property. Liabilities are what is owed. Owner’s equity is the difference between the assets and liabilities. Transactions Business papers and source documents.