The Accounting Cycle
The Accounting Cycle
The accounting cycle refers to a series of sequential steps or procedures performed to accomplish the accounting process. The steps in the cycle arc as follows :
Step 1 Transactions are recorded in the journal
Step 2 Journal Entries are posted in the Ledger
Step 3 Preparation of a Trial Balance
Step 4 Adjusting journal entries are journalized and posted
Step5 Preparation of the worksheet
Step 6 Preparation of the financial statements
Step 7 Closing journal entries are journalized and posted
Step 8 Preparation of the post-closing trial balance
Step 9 Reversing journal entries are journalized and posted
The journal is a chronological record of the entity's transactions. A journal entry shows all the effects of a business transaction in terms of debits and credits. Each transaction is initially recorded in a journal rather than directly in the ledger. A journal is called the book of original entry. Of only two accounts are affected- one account is debited and the oilier account is credited- it is called a Simple Journal entry. When three or more accounts are required in a journal entry, the entry is referred to as a Compound entry.
A grouping of the entity's accounts is referred to as the ledger. Although some firms may use various ledgers to accumulate certain detailed information, all firms have a general ledger. A general ledger is the reference book of the accounting system and is used to classify and summarize transactions, and to prepare data for the basic financial statements.
The Trial Balance
The Trial Balance is a list of all accounts with their respective debit or credit balances. It is prepared to verily the equality of debits and credits in the ledger at the end of each accounting period or at any time the postings are updated.
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