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    The Accounting Cycle

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    Indu Gupta
    The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time. It involves journalizing transactions, posting to accounts, adjusting accounts, and closing accounts to prepare financial statements. Source documents record transactions, which are then entered in journals. The journals are posted to ledger accounts organized as T-accounts. A trial balance is prepared to check that debits equal credits before finalizing the financial statements, which include the statement of financial position, statement of profit or loss, and statement of cash flows. Debits and credits represent left and right sides of accounts but do not inherently mean increases or decreases.

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    The Accounting Cycle

    Uploaded by

    Indu Gupta
    35 views16 pages
    The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time. It involves journalizing transactions, posting to accounts, adjusting accounts, and closing accounts to prepare financial statements. Source documents record transactions, which are then entered in journals. The journals are posted to ledger accounts organized as T-accounts. A trial balance is prepared to check that debits equal credits before finalizing the financial statements, which include the statement of financial position, statement of profit or loss, and statement of cash flows. Debits and credits represent left and right sides of accounts but do not inherently mean increases or decreases.

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    The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time. It involves journalizing transactions, posting to accounts, adjusting accounts, and closing accounts to prepare financial statements. Source documents record transactions, which are then entered in journals. The journals are posted to ledger accounts organized as T-accounts. A trial balance is prepared to check that debits equal credits before finalizing the financial statements, which include the statement of financial position, statement of profit or loss, and statement of cash flows. Debits and credits represent left and right sides of accounts but do not inherently mean increases or decreases.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    35 views16 pages

    The Accounting Cycle

    Uploaded by

    Indu Gupta
    The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time. It involves journalizing transactions, posting to accounts, adjusting accounts, and closing accounts to prepare financial statements. Source documents record transactions, which are then entered in journals. The journals are posted to ledger accounts organized as T-accounts. A trial balance is prepared to check that debits equal credits before finalizing the financial statements, which include the statement of financial position, statement of profit or loss, and statement of cash flows. Debits and credits represent left and right sides of accounts but do not inherently mean increases or decreases.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 16

    THE ACCOUNTING CYCLE

    The Accounting Cycle


    The accounting cycle is the process by which accountants prepare financial statements for an entity for a specific period of time.

    Accounting Cycle
    Journalize Transaction Post to Accounts Adjust Accounts Close Accounts
    Prepare Financial Statements

    Basic Terminology
    The following is a brief summary of selected terms.
    Event: A happening of consequence. May be external or internal. Generally triggers a change in assets, liabilities or equity. Transaction: An external event involving a transfer or exchange between two or more entities. Account: A systematic recording of transactions or events that affect assets, liabilities, equity, revenue and expense areas. An account represents an area of similar economic interest.

    There is a cycle of action in accounting for any business. This cycle is depicted diagrammatically below:

    1. SOURCE DOCUMENTS
    Source documents are documents, such as cash slips, invoices, etc. that form the source of (and serve as proof for) a transaction. In other words, they are the first documents that exist relating to a transaction. Invoices, cash slips, receipts, check counterfoils, bank deposit slips and even internet payment confirmations are all source documents.

    2. JOURNALS
    These are chronological (date-order) records of transactions entered into by a business. Journals are that first basic entry of debit and credit for each transaction. It used to be an actual book that the bookkeeper would use to make accounting entries. Our recording in the journal is also called a journal or a journal entry.

    The journals look like this:

    3. LEDGER (T-ACCOUNTS)
    - The ledger is a collective term for the accounts of a business. (A ledger of accounts is like a school of fish). The accounts are in the shape of a T and thus are often referred to as T-accounts.

    4. TRIAL BALANCE
    A sheet displaying all the accounts of a business, drawn up as a trial (test) of whether the total of all the debit balances equal the total of all the credit balances (A balance is the amount of an item at a point in time. For example, The balance in the bank account on the 1st of January was $5,000.). The trial balance is prepared as a final check just before the financial statements are drawn up.

    5. FINANCIAL STATEMENTS
    A statement is a report. Financial statements are the most important reports of a business. These statements are prepared from the information in the trial balance. The purpose of these statements is to show the reader the financial position, financial performance and cash flows of a business, as well as other useful information concerning the business. Financial statements are usually prepared once a year.

    Debits & Credits


    Debits and credits:
    Debit means entering an amount on the left-hand side of an account. It does not mean increase or decrease. Credit means entering an amount on the right-hand side of an account. It does not mean increase or decrease.

    Debits & Credits


    Debits are the left of the T account. Debits do not mean increase. Debits are not good or bad. Credits are the right of the T account. Credits do not mean decrease. Credits are not good or bad.

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