The Accounting Cycle
By: Jonathan Robinson
In this step you will decide which accounts are being affected by a transaction, whether an account is increasing or decreasing, and whether to put the transaction on the left (debit) side of an account or the right (credit) side.
Once you have analyzed a transaction, you are ready to put the transaction in the journal. The journal is called the "book of original entry" because this is the first place a transaction shows up in the accounting system. The journal is kept in date order and all of the debits and credits associated with the transaction are recorded together
From the journal, each part of the transaction is moved from the journal to the individual accounts so that all similar transactions can be summarized. This collection of accounts is known as the general ledger.
Create a Trial Balance
At the end of each accounting period, the totals from each general ledger account is placed on the trial balance so that the accountant can check to make sure that the total of all debits equal the total of all credits.
Gather Adjusting Entries
Not all information about a business comes from the source documents. For instance, you may need to know how much you used in supplies. Once you have accounted physically for how much you had used up, you will need to enter that into accounting records through the adjusting entries
Prepare Financial Statements
- Beginning with the income statement, you will use the trial balance to prepare the financial statements mentioned in the previous lesson.
Journalize and Post the Adjusting Entries and the Closing Entries
Closing entries serve to close the income statement accounts so that they will be ready for the new accounting period.
Prepare a Post-Closing Trial Balance
This serves to make sure that debits = credits and that you have balances to bring forward to the next accounting period on your permanent (balance sheet) accounts.