Balance Sheet

Category Amount ($)

Assets
Cash 12,000
Inventory 2,000
Total Assets 14,000
Liabilities

Accounts Payable 2,000

Loan Payable 10,000
Equity
Retained Earnings 2,000
Total Liabilities & Equity 14,000

Cash Flow Statement

Category Amount ($)

Operating Activities

Cash Inflows (Revenue) 8,000

(-) Cash Outflows (6,000)

Net Cash Flow 2,000

This long, detailed example ties together the six steps of the accounting cycle, showcasing how
transactions are processed into meaningful financial reports. Let me know if you'd like further
clarifications!

combine the last example with your the overview of the 6 steps of accounting cycle and page by
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Accounting Cycle Example

Detailed Explanation and Example of the Six Steps of the Accounting Cycle

This document provides an in-depth discussion of the six steps in the accounting cycle. It includes an
overview of each step, a page-by-page explanation of Step 6: Preparing Financial Statements, and a
comprehensive example to illustrate the process in detail.

Overview of the Six Steps of the Accounting Cycle

1. Transaction Analysis
Analyze financial transactions to determine their impact on the accounting equation (Asset
= Liabilities + Equity).

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 Example: A company purchases office supplies for cash. This decreases cash (asset) and
increases supplies (asset).
2. Journalizing

Record each transaction in the journal with proper debit and credit entries.
Example: Debit "Office Supplies" and credit "Cash" to record the above transaction.

3. Posting to the Ledger

Transfer journal entries to the general ledger accounts.

Example: Post the office supplies and cash amounts into their respective accounts in the
ledger.
4. Preparing the Trial Balance

Summarize all ledger accounts to ensure total debits equal total credits.

Example: If total debits and credits are not equal, there may be an error in journalizing or
posting.

5. Adjusting Entries

Adjust entries for items such as depreciation, accruals, or deferrals.

Example: Record accrued salaries for employees at the end of the period.

6. Prepare Financial Statements

Use the adjusted trial balance to compile the income statement, balance sheet, and cash
flow statement. This step provides insights into the company’s financial performance and
position.

Step 6: Preparing Financial Statements

Explanation

Step 6 involves creating three key financial statements from the adjusted trial balance:

1. Income Statement

Summarizes revenues and expenses to calculate net profit or loss.

Example: Revenue of $50,000 and expenses of $30,000 result in a net income of $20,000.

2. Balance Sheet

Shows the financial position, including assets, liabilities, and equity.

Example: Assets = $100,000, Liabilities = $40,000, Equity = $60,000.

3. Cash Flow Statement

Tracks cash inflows and outflows.

Example: Cash inflows from operations = $35,000, Cash outflows from investments =
$10,000.

Key Insights

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 Temporary accounts are closed at the end of this step.

The system resets to prepare for the next cycle, ensuring clear separation between accounting
periods.

Detailed Example: ABC Company

ABC Company performs the following transactions during December 2024:

1. December 1: Borrowed $10,000 from the bank.

2. December 5: Purchased inventory for $5,000 on credit.

3. December 10: Paid $1,000 in rent.

4. December 15: Paid $3,000 toward accounts payable.

5. December 20: Sold inventory worth $3,000 for $8,000 (cash).

6. December 31: Paid employee salaries of $2,000.

7. December 31: Depreciated equipment by $500.

1. Transaction Analysis

Date Transaction Assets ($) Liabilities ($) Equity ($)

Borrowed $10,000 from the +10,000 Loan
Dec 1 +10,000 Cash
bank Payable
Purchased inventory on +5,000 Accounts
Dec 5 +5,000 Inventory
credit Payable
Dec
Paid $1,000 in rent -1,000 Cash -1,000 Rent Expense
10
Dec Paid $3,000 toward -3,000 Accounts
-3,000 Cash
15 accounts payable Payable
Dec Sold inventory for $8,000 +8,000 Cash, -3,000 +8,000 Revenue,
20 (cost $3,000) Inventory -3,000 COGS
Dec Paid employee salaries of -2,000 Salaries
-2,000 Cash
31 $2,000 Expense
Dec Depreciated equipment by -500 Accumulated -500 Depreciation
31 $500 Depreciation Expense

2. Journal Entries

Date Account Debit ($) Credit ($)

Dec 1 Cash 10,000

Loan Payable 10,000

Dec 5 Inventory 5,000

Accounts Payable 5,000

Dec 10 Rent Expense 1,000

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 Cash 1,000

Dec 15 Accounts Payable 3,000

Cash 3,000

Dec 20 Cash 8,000

Revenue 8,000

Dec 20 Cost of Goods Sold (COGS) 3,000

Inventory 3,000
Dec 31 Salaries Expense 2,000

Cash 2,000
Dec 31 Depreciation Expense 500

Accumulated Depreciation 500

3. Posting to the Ledger

Account Debit ($) Credit ($) Balance ($)

Cash 10,000 10,000

1,000 9,000

3,000 6,000

8,000 14,000
2,000 12,000

Inventory 5,000 5,000

3,000 2,000

Accounts Payable 5,000 5,000

3,000 2,000
Loan Payable 10,000 10,000

Revenue 8,000 8,000

Rent Expense 1,000 1,000

Salaries Expense 2,000 2,000

COGS 3,000 3,000

Depreciation Exp. 500 500

Accum. Depreciation 500 500

4. Trial Balance

Account Debit ($) Credit ($)

Cash 12,000

Inventory 2,000

Accounts Payable 2,000

Loan Payable 10,000

Revenue 8,000
Rent Expense 1,000

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 Salaries Expense 2,000

COGS 3,000
Depreciation Expense 500

Accumulated Depreciation 500

Totals 20,500 20,500

5. Adjusting Entries

Date Account Debit ($) Credit ($)

Dec 31 Depreciation Expense 500

Accumulated Depreciation 500

6. Financial Statements

Income Statement

Category Amount ($)

Revenue 8,000
(-) Cost of Goods Sold (3,000)W

Gross Profit 5,000

(-) Rent Expense (1,000)

(-) Salaries Expense (2,000)

(-) Depreciation Exp. (500)

Net Income 1,500

Balance Sheet

Category Amount ($)

Assets
Cash 12,000

Inventory 2,000

Total Assets 14,000

Liabilities

Accounts Payable 2,000

Loan Payable 10,000

Equity

Retained Earnings 2,000

Total Liabilities & Equity 14,000

Cash Flow Statement

Category Amount ($)

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 Operating Activities

Cash Inflows (Revenue) 8,000

(-) Cash Outflows (6,000)

Net Cash Flow 2,000

Conclusion

The six-step accounting cycle ensures accurate financial reporting, from analyzing transactions to
preparing financial statements. This process provides reliable financial data for informed decision-
making and transparency in business operations.

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from fpdf import FPDF

# Create a PDF instance

pdf = FPDF()
pdf.set_auto_page_break(auto=True, margin=15)
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# Content of the document

content = """
# Detailed Explanation and Example of the Six Steps of the Accounting Cycle

This document provides an in-depth discussion of the six steps in the accounting cycle. It i
ncludes an overview of each step, a page-by-page explanation of Step 6: Preparing Financial
Statements, and a comprehensive example to illustrate the process in detail.

---

## Overview of the Six Steps of the Accounting Cycle

1. Transaction Analysis
- Analyze financial transactions to determine their impact on the accounting equation (As
sets = Liabilities + Equity).
- Example: A company purchases office supplies for cash. This decreases cash (asset) and
increases supplies (asset).

2. Journalizing
- Record each transaction in the journal with proper debit and credit entries.
- Example: Debit "Office Supplies" and credit "Cash" to record the above transaction.

3. Posting to the Ledger

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