The Acounting Cycle
Lets take a trip around the Accounting Cycle
"The Big 8"
1. Analyzing Transactions
This being the first step in the cycle means this is crucial to set yourself up for a successful trip around the cycle. In this step, source documents are checked for accuracy and transactions are analyzed into debits and credits.
After you have analyzed your transactions, you are now ready to start the journalizing process. Every time there is a transaction, it is recorded as a journal entry. When journalizing it is important to keep the transactions in chronological order. In journalizing you want to analyze the situation and decide what 2 accounts are being either debited or credited and put them in your journal.
As we move on through the cycle we now come across the next step which is posting. In this step you transfer transactions from the general journal to the ledger. The general ledger itself can be looked at as a collection of accounts. So basically at this step you are taking the individual transactions and putting them all on to one sheet (general ledger)
4. Prepare Worksheet
After posting to the general ledger, you are ready for the next step which is the worksheet. You are ready for this step when a business reaches the end of a cycle, weather it be a month, quarter, or year all depending on the businesses stand point. In this step all we have to do is list the balances of the ledger accounts of a business.
5. Prepare Financial Statements
Continuing through the cycle, it is time to prepare the financial statement. The purpose of the financial statement is to show both, insiders and outsiders of a business, the current financial position of the business.
6. Journalize Adjusting and closing entries
The next step is to journalize adjustments that were made in the worksheet. What you are doing is transferring adjustments from the worksheet to the general journal. The main purpose of this step is to close temporary accounts back to zero in the income summary account.
7. post adjusting and closing entries
Now that you have journalized, It is time to post these entries. In this step you are taking all your transactions that you did in your previous step and now posting them all. When you post in this step you are posting them in order of account number.
8. Prepare post closing trial balance
As we come to an end in our accounting cycle the final step is post closing trial balance. In this step you are just taking the accounts tat still have amounts remaining and record them on the form. After that you total the debits and credits, making sure they equal, then you are done and you are ready to start the next fiscal period