Accounting 101

The Accounting Cycle

Just 8 Steps

1. Analyzes Transactions

2. Journalize

3. Post

4. Prepare Work Sheet

5. Prepare Financial Statements

6. Journalize adjusting and closing entries

7. Post adjusting and closing entries

8. Prepare post-closing trial balance

Step 1: Analyzing Transactions

Analyzing Transactions starts the accounting cycle. Transactions involve any exchange of a company's assets, loans or debt, and the withdrawal of money to the company's owners.

Step 2: Journalize

Place the transactions into a general journal. Transactions are in chronological order, and this is the first place transactions are recorded.

Step 3: Post

Posting is the process of recording each transaction into the proper sub-ledger according to the account name. All the ledgers are in the general ledger which is a summary of all business accounts.

Step 4: Prepare a Worksheet

A worksheet records lots of information including the trial balance, adjusting entries, income statements, and balance sheet details. An accounting worksheet is used to close out the ledgers and entries.

Step 5: Prepare financial statements

The main financial statements include the balance sheet and income statement. Financial statements are key to making decisions for a business based on its worth and success. The balance sheet includes assets, and liabilities and net worth. The income statement, also known as the profit and loss statement, includes all income and expense accounts over a period of time.

Step 6: Journalize Adjusting and Closing Entries

This step includes transferring adjustments into the journal from the worksheet as well as transferring balances from temporary accounts to the income summary. The temporary accounts include the revenue, expenses, and drawing. Then the income summary account is transferred to the capital.

Step 7: Post Adjusting and Closing Entries

Posting adjusting and closing entries is the process of taking the transactions and copying the changes into the sub-ledgers. This also includes closing out the temporary accounts by making the totals equals zero.

Step 8: Prepare Post-Closing Trial Balance

The last step is to create a post-closing trial balance which will be transferred onto the next fiscal period for the beginning balances of the permanent accounts. Make sure to list both the debit and credit accounts and compare to make sure the two balance. No temporary accounts are included because their totals equal zero.

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