The Accounting Cycle

A Introduction on the Steps of..

The Cycle

In the accounting cycle, there are 8 major steps

1. analyze transactions

The first step in the accounting cycle is to analyze transactions of a business. These transactions will come from your source documents. You need to analyze your transactions into Debit and Credit parts using T-charts. Remember that debits always equal credits!

2. Journalize

The second step in the accounting cycle is to journalize transactions from your source documents, and record these entries into the general journal. Make sure to record the source document in the doc. no. as well. By doing so, it will be easier to refer back to if a mistake has been made in the process.

3. Post

In this step, you post from a general journal, from the step above, to a general ledger. A ledger contains all accounts needed to prepare a financial statement. This is also where you will assign each account with a number. Transferring information from a journal entry to a ledger account is called posting. Don't forget the five steps of posting listed below:

  1. Record the date in the ledger
  2. Record the journal page number in the post reference column of the ledger
  3. Record the debit or credit in the ledger
  4. Calculate the new balance in the ledger
  5. Record the ledger account number in the post reference column of the journal

4. Prepare work sheets

A work sheet is a form used to summarize the general ledger information needed to prepare financial statements. A worksheet is also prepared to summarize a fiscal period or year, to see how they performed. From your general ledger accounts, you will record the balance to the work sheet in the trial balance section. At the end, the credits and debits should be equal. In the next column, you should record adjustments made to accounts during that fiscal period. This step will help you determine how much you have used during that cycle, your operating expenses. The adjustments column should also be equal at the end. The other columns include the balance sheet and the income statement. The income statement should include any revenue accounts and expenses, to determine a net loss or profit. The last column is the balance sheet, this will list all your accounts after your adjustments have been made. the net profit or loss should be equal to the one in the income statement, if they are not the same, then you have made a mistake somewhere.

5. Prepare financial statements

One financial statement is the income statement. The income statement shows the revenues and expenses for the fiscal period to see how the company is performing. All you have to do is copy over the information from the income statement column of the worksheet. Then you will determine the percent of sales of expenses and revenue. The other financial statement, is the balance sheet. Balance sheets reports assets, liabilities, and owners equity on a specific date. The Assets should be equal to the liabilities and owners equity combined.

6. Journalize adjusting and closing entries

In this step, you should record the accounts that were affected by making those adjustments into the general journal. But this time, you will list the expense account as a debit, and the other account affected as a credit. You also need to close the entries, these steps are done at the end of the fiscal period, and will affect all temporary accounts. temporary accounts include drawing, expenses, and income summary and also sales.

7. Post adjusting and closing entries

The second to last thing, is to post your adjustments in the general ledger accounts, and close the entries. This step is pretty easy if you journalized the previous step correctly. All you have to do is transfer the information from the journal to the ledger accounts. At the end of the fiscal period the new balance should be zero if you did all the steps correctly.

8. Prepare post-closing trial balance

Before closing entries, the balances should be recorded. you should already have it from the balance sheet column of the worksheet. All you have to do is copy that information down. That column already has the adjustments made to it.


For a more detailed description of the accounting cycle visit: