ACCOUNTING CYCLE

ACCOUNTING CYCLE

The sequence of activities that is performed for the accounting of a business transaction after it has occurred is commonly known as Accounting Cycle and the following processes are carried out for its completion.

To better understand the Accounting Cycle, it should be considered with reference to an accounting period, normally a month or a year.

Identify the transaction:
Identify the event as a transaction and generate the source document.

Analyze the transaction:
Determine the transaction amount, the Accounts affected and their Debits and Credits.

Journal Entries:
Record the transaction in a Journal, as a Debit and a Credit.

Posting to Ledger:
Transfer of Journal entries to appropriate accounts in the Ledger with cross reference.

Trial Balance:
Preparation of Trial Balance (Summary of Ledger Accounts) to verify the sum of Debits equals the sum of Credits.

Adjusting Entries:
Make adjusting entries for Accrued and Deferred items, record them in Journal and Post them to Accounts in the Ledger.

Adjusted Trial Balance:
Prepare another Trial Balance after recording the Adjusting entries.

Financial Statements:
Prepare all the Financial Statements.

Closing Entries:
Transfer the balances of Revenue and Expense Accounts to Owner’s Equity.

After-Closing Trial Balance:
A final trial balance is prepared after the Closing Entries.
(This will include only Balance Sheet Accounts)