ACCOUNTING CYCLE

ACCOUNTING CYCLE

• The Accounting Cycle is a

series of steps.
• Starts with making accounting
entries for each transaction and
goes through closing the books.
 DEFINITION
• The accounting cycle refers to
nine steps, repeated in each
reporting period, to verify
transactions and prepare
financial statements for internal
and external users.
• These 9 steps are-
• Analyze
• Journalize
• Post A Business
Transaction
• Unadjusted Trial Balance
• Adjusting
• Preparing
• Preparing Financial
Statements
• Closing the account
 9-Post closing
Trial
Balance
8-Closing
Account 1-Analyze

7-Preparing
Financial 2-Journalize
Statement Accounting
Cycle

3-Post
A
6-Preparing Transaction
4-
Unadjusted
5-Adjusting Trial
Balance
1-Analyze-
• The first step of accounting
cycle.
• First analyze a transaction
and its source documents.
• Apply double-entry
accounting to recognize its
effect on account balances.
2- Journalize-

• Transactions are recorded in a

General Journal.
• Journalizing leaves a record of
all transactions in one
document.
• Helping to prevent mistakes and
linking the debits and credits
for each transaction.
3-Post A Business Transaction-
• The third step in the accounting cycle
is posting.
• Also known as LEDGER Account.
• After recording in the journal,
transaction are transferred and posted
to the ledger.
• All transactions for the same account
are collected and summarized.
• It is important to leave this paper trail
to verify accuracy and troubleshoot
later in the process if accounts are
not adding up.
4-Prepare An
Unadjusted Trial
Balance
• Preparing an
unadjusted trial balance tests
the equality of debits and
credits as recorded in the
general ledger.
• Additionally, this provides the
balances of all the accounts
that may require adjustment in
the next step.
• Debit and credit merely signify
position— left and right,
respectively .
• Both sided recorded amount
must be equal.
5-Adjusting of Trial
Balance-
• The fifth step, adjusting, accounts
for internal transactions, like the use
of prepaid rent or unearned revenue.

• Adjustment may be required to

record an expense that may have
been incurred but not yet recorded.
6-Prepare an adjusted
trial balance-
• The sixth step is the
preparation of the adjusted trial
balance.
• Again tests the equality of
debits and credits,
encompassing all internal and
external transactions for the
reporting period.
7-Preparing Financial
Statements-
• Financial statements are prepared.
• The Income Statement and
Statement of Owner's Equity are
prepared first, followed by the
Balance Sheet, which pulls
information from the Statement of
Owner's Equity.
• These are one of the primary
outputs of the financial accounting
system.
8-Closing the
account
• The eighth step in the accounting
cycle is to close accounts in
preparation for the next accounting
period.
• Temporary or nominal accounts are
closed, while permanent or real
accounts carry their balances into
the next period.
• Once completed, all revenue,
expense, withdrawal and Income
Summary balances should be zero.
9-Post-Closing Trial
Balance-
• Finally, the post-closing trial balance
lists the balances of the accounts
that were not closed, such as
assets, liabilities, and owner's
equity.
• This trial balance helps verify that
permanent accounts balance, with
equal debit and credit sums, and
that all temporary accounts were
closed properly.
• DEFINITION-
• Series of steps in recording an
accounting event from the time a
transaction occurs to its reflection
in the financial statements; also
called bookkeeping cycle, The order
of the steps in the accounting cycle
are: recording in the journal, posting
to the ledger, preparing a trial
balance, and preparing the financial
statements.