1. Transaction 2. Journal entries
1.Financial transactions start the process. Transactions can include the sale or return of a product, the purchase of supplies for business activities, or any other financial activity.
2.The transaction is listed in the appropriate journal, maintaining the journal’s chronological order of transactions.
3. Posting 4. Trial balance
3. The transactions are posted to the account that it impacts. These accounts are part of the General Ledger, where you can find a summary of all the business’s accounts.
4. At the end of the accounting period (which may be a month, quarter, or year depending on a business’s practices), you calculate a trial balance.
5. Worksheet 6. Adjusting journal entries
5. many times your first calculation of the trial balance shows that the books aren’t in balance. If that’s the case, you look for errors and make corrections called adjustments, which are tracked on a worksheet.
6. You post any corrections needed to the affected accounts once your trial balance shows the accounts will be balanced once the adjustments needed are made to the accounts.
7.Financial statements 8.Closing the books
7. You prepare the balance sheet and income statement using the corrected account balances.
8. You close the books for the revenue and expense accounts and begin the entire cycle again with zero balances in those accounts.