Get a better understanding of the accounting cycle
2.) To simplify the recording process, special journals are often used for transactions that recur frequently such as sales, purchases, cash receipts, and cash disbursements.
3.)After the posting all transactions to the ledger, the balances of each account can now be determined.
4.)When errors are discovered, correcting entries are made to rectify them or reverse their effect.
5.)Adjusting entries are prepared to update the accounts before they are summarized in the financial statements.
6.)An adjusted trail balance may be prepared after adjusting entries are made and before the financial statements are prepared.This is to test if the debits are equal to credits after adjusting entries are made.
7.)When the accounts are already up-to-date and equality between the debits and credits have been tested, the financial statements can now be prepared.
8.)The accounts are closed to a summary account (usually, Income Summary) and then closed further to the appropriate capital account.
9.)It is prepared to test the equality of debits and credits after closing entries are made. Since temporary accounts are already closed at this point, the post-closing trial balance contains real accounts only.