Accounting cycle

Accounting cycle;

The process of recording and processing  the accounting events  of  the a company.

There are various steps in the accounting cycle which are as follows.

1.Collecting and analyzing  the data from transactions.

2. Putting the transaction into the general journal.

3. Posting entries  to the general ledger.

4. Preparing an unadjusted trail balance.

5. Adjusting entries.

6. Preparing an adjusted trail balance.

7. Organizing the accounts into financial statement.

8. Closing the book of accounts.

9. Preparing the post closing trail balance to check the accounts

Collecting and analyzing the data from transaction;

As a transaction related to financial resources occur. The are analyzed with respect to their effect  on the financial position of the company. Which accounts are affected (increase or decrease).

Journalize the transaction;

After collecting and analyze the transaction obtained in the first step entry . Record the transaction in the journal as both a debit and credit .which is called the book of original entry. Transaction may be done continually. Journal may include  sale journal, purchase journal, cash receipt journal. And  cash payment journal.

3  post to general ledger;

The journal entries are posted to the general ledger. Which is organized by the accounts. all the transaction for  the same account are collected and summarized. Ledger account may be T-account form or include balances.

4 prepare an unadjusted trail balance;

At the end of the  period double accounting system  require that all debit and credit recorded in the general ledger be equal. Debit and credit merely signify position left and right respectively. Some accounts normally have debit balance( asset and expenses) and the other account have credit balance. (liabilities and owner equity and revenue)

5 prepare adjustments/adjusting entries;

In accrual accounting system revenue is recorded when it is earned and expenses which are incurred. Thus an entry may be required at the end of the period to record revenue that has been earned and yet not to be recorded. And  the expenses which are incurred but yet not have be recorded for making adjustments.

6.prepare an adjusted trail balance;

In this step it would make sure the debit will equal with credit after making adjustment. If there is unequal amounts of debit and credit or the account appear as a incorrect balances. than there should be an error or discrepancy which is investigated .

7. prepare financial statement.;

Financial statement are prepared by using the correct balances from adjusted trail balance. Which include income stamen shows(revenue minus expenses ) balance sheet which show  ( asset  liabilities and owner equity)  statement of retained earning  and statement of cash flow.

8.close the accounts./ closing entries;

revenue and expenses are accumulated and reported by the period, to prevent their  not being added to or comingled  with revenue and expenses of another period the  need to be closed. That’s give zero balance. at the each period the net balances . which represent the income or loss for the period are  transferred into owner equity. Once revenue and expense account are closed, the only accounts that have the balances are the  ASSEST, LAIBILITY.& OWNEREQUITY  accounts. their balances are carried forward  to the next accounting period.

9. prepare a post/after  closing  trail balance;

The purpose of this final step is to determine that all the revenue and expense accounts has been closed properly. And  make sure the balances of debit and credit should equal such as balance sheet that is asset. Liabilities. And the owner equity.