The Accounting Cycle

In 8 Steps

1) Analyzing Transactions

To start the cycle you must first get all of your source documents such as memorandums, checks, etc.

2) Journalize

This is taking all of the information from the source documents and putting it into a journal.

3) Post

While posting one takes the debit and credit amounts from the journal and puts them into their respective ledgers.

4) Prepare a Work Sheet

This step is where one records all adjustments before preparing a financial statement.

5) Prepare Financial Statements

There are three parts to preparing a financial statement

  • Balance Sheet- shows assets, liabilities, and net worth
  • Income Statement- shows the net income or loss for a period of time
  • Business Financials- shows the cash flow over a period of time

6) Journalize adjusting and closing entries

This is when in the journal one puts all of the adjustments that were shown in the balance sheet and closes all of the temporary accounts by resetting them to zero.

7) Post Adjusting and Closing entries

This is just like step 3 except instead of just debits and credits from transactions one posts the adjustments and closing entries to their ledgers.

8) Prepare post-closing trial balance

After all of the temporary accounts are reset one must make sure that their assets still equal their liabilities plus owner's equity. The assets go on one side and the remaining accounts go one the other.