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

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.

The Ledger

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.