The Accounting Cycle

The 8 Steps to the Accounting Cycle

Step 1) Analyze Transactions, The accounting equation (Assets = Liabilities + Owners Equity) must remain in balance after every transaction is recorded.

Step 2) Journalize, A form for recording transactions in chronological order is called a Journal. Recording transactions in a journal is called Journalizing.

Step 3) Posting, Posting in accounting is when the balances in sub ledgers and the general journal are shifted into the general ledger.

Step 4) Prepare Worksheet, An accounting worksheet is a spreadsheet used to prepare accounting information and reports. Accounting worksheets are most often used in the accounting cycle.

Step 5) Prepare financial statements, The income statement is the first financial statement you prepare at the end of the accounting cycle.

Step 6) Journalize adjusting and closing entries, A journal entry made at the end of the accounting period. The closing entry is used to transfer data in the temporary accounts to the permanent balence sheet or income statement accounts. The purpose of the closing entry is to bring the temporary journal account balences to zero for the next accounting period.

Step 7) Post 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

Step 8) Prepare post-closing trial balence, The last step in the accounting cycle is to prepare a post-closing trial balence. A post-closing trial balence is prepared after closing entires are made and posted to the ledger.

Accounting Cycle Step 8: Closing Entries to Income Summary (Corporation)