The 8 Step Accounting Cycle
1: Analyze Transactions. Observe the change in financial position of the business.
2: Journalize. A journal details all the financial transactions of a business and which accounts these transactions affect.
3:The process of transferring entries from a journal of original entry to a ledger book.
4:Prepare Work Sheet. Accounting worksheets are most often used in the accounting cycle process to draft an unadjusted trial balance, adjusting journal entries, adjusted trial balance, and Financial Statements.
5:Prepare financial Statements Preparing general purpose financial Statements including the balance sheet, income statement, statement of retained earnings, and statement of cash flows; is the most important step in the accounting cycle.
6:Journalize adjusting and closing entries. An entry in financial reporting that occurs at the end of a reporting period to record any unrecognized income or expenses for the period. When a transaction is started in one accounting period and finished in a later period, an adjusting journal entry is required to properly account for the transaction.
7:Post adjusting and closing entries. These journal entries are made after the financial statements have been prepared at the end of the accounting year. Most of the closing entries involve the income statement accounts (revenues, expenses, gains, losses, and summary/clearing accounts) whose balances will be transferred to the owner's capital account or the corporation's retained earnings account.
8:Prepare post-closing trial balance. A post-closing trial balance is a list of balances of ledger accounts prepared after closing entries have been passed and posted to the ledger accounts Since the closing entries transfer the balances of temporary accounts (i.e. expense, revenue, gain, dividend and withdrawal accounts) to the retained earnings account, the new balances of temporary accounts are zero and therefore they are not listed on a post-closing trial balance.