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Accounting Cycle

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12 views

Accounting Cycle

Uploaded by

zyraa amni
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING CYCLE

1) TRANSACTION OCCURS
- A transaction is a monetary activity that is recorded as an entry in accounting
records and has a monetary effect on the financial statements.
- In other meaning :
 A transaction is a completed agreement between a buyer and a seller to
exchange goods, services, or financial assets in return for money. The term
is also commonly used in corporate accounting.
- Some examples of transactions: Making a payment to a business for their service or
products delivered.

2) ANALYSE TRANSACTIONS
- Meaning
 Accounting transaction analysis involves documenting every transaction that
has an impact on your company's finances.
 This recordkeeping step is very important in the accounting process and
helps to show how your business transactions impact your assets, liabilities,
and equity.

3) JOURNALIZE TRANSACTION
- Journalizing in accounting is the system by which all business transactions are
recorded for your financial records.
- A business transaction is first recorded in a journal, also called a Book of Original
Entry.
- In other meaning :
 The process of journalizing transactions involves making journal entries for a
business' financial transactions into the journal.
 The journal can be either general or special.
 The general journal is the most common type of journal for small businesses
and keeps a record of every type of transaction.
4) POST JOURNAL TO LEDGER
- Meaning
 Posting in accounting refers to moving a transaction entry from a journal to
a general ledger, which contains all of a company's financial accounts.
 A journal's entries are chronological while a ledger compiles its transactions
by accounts, such as assets or liabilities.
- What is process of posting from a journal to the ledger?
 Posting is the process of transferring the entries from the book of original
entry (journal) to the ledger.
 In other words, posting means grouping of all the transactions in respect to a
particular account at one place for meaningful conclusion and to further the
accounting process.

5) PREPARE TRIAL BALANCE


- Meaning
 Preparing a trial balance for a company serves to detect any mathematical
errors that have occurred in the double entry accounting system.
 If the total debits equal the total credits, the trial balance is considered to be
balanced, and there should be no mathematical errors in the ledgers.
- In other meaning :
 A trial balance is a financial report showing the closing balances of all
accounts in the general ledger at a point in time.
 Creating a trial balance is the first step in closing the books at the end of an
accounting period.

6) ADJUST ENTRIES
- An adjusting entry is simply an adjustment to your books to better align your
financial statements with your income and expenses.
- Adjusting entries are made at the end of the accounting period. This can be at the
end of the month or the end of the year.

7) ADJUST TRIAL BALANCE


- What is an adjusted trial balance?
 An adjusted trial balance lists the general ledger account balances after any
adjustments have been made.
 These adjustments typically include those for prepaid and accrued expenses,
as well as non-cash expenses like depreciation. It's that simple.
8) CLOSE ENTRIES
- Meaning
 A closing entry is a journal entry made at the end of the accounting period.
 It involves shifting data from temporary accounts on the income statement
to permanent accounts on the balance sheet.
 All income statement balances are eventually transferred to retained
earnings.
- In other meaning :
 A closing entry is a journal entry that is made at the end of an accounting
period to transfer balances from a temporary account to a permanent
account.
 Companies use closing entries to reset the balances of temporary accounts −
accounts that show balances over a single accounting period − to zero.

9) PREPARE FINANCIAL REPORTS


- What is preparing financial reports?
 A financial report, or financial statement, consists of a balance sheet, an
income statement, a statement of retained earnings, and a statement of
cash flows.
 These 4 documents together communicate a company's performance over a
period of time.
- What is the meaning of financial report in accounting?
 Financial reporting is the way businesses communicate financial data to
external and internal stakeholders.
 External stakeholders — like regulatory agencies, current and potential
shareholders and investors, and lenders — use financial reports to draw
conclusions about a company's current and future financial health.
JOURNAL & LEDGER
1) JOURNAL
- Meaning of journal :
 A journal is a concise record of all transactions a business conducts; journal
entries detail how transactions affect accounts and balances.
 All financial reporting is based on the data contained in journal entries, and
there are various types to meet business needs.

2) LEDGER
- Meaning of ledger :
 An accounting ledger is an account or record used to store bookkeeping
entries for balance-sheet and income-statement transactions.
 Accounting ledger journal entries can include accounts like cash, accounts
receivable, investments, inventory, accounts payable, accrued expenses, and
customer deposits.

- There are three main types of accounting ledgers to be aware of:


 General ledger.
 Sales ledger.
 Purchase ledger.

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