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Accounting Cycle
Accounting Cycle
CYCLE
ACCOUNTING CYCLE is a
series of recurring accounting
steps or processes that span from
the start to the end of a particular
accounting period.
The accounting cycle is composed of the following
steps:
1. Analyzing business transactions from source
documents
2. Journalizing business transactions
3. Posting journal entries to the ledger
4. Preparing trial balance
5. Journalizing and posting adjusted journal
entries
6. Preparing adjusted trial balance.
7. Preparing financial statements
8. Journalizing and posting closing journal
entries
9. Preparing post-closing trial balance
10. Journalizing and posting reversing journal
entries.
Transactions
Let us revisit the 10-step accounting cycle
using the transactions of Jordan River
Grocery Store, a sole proprietorship
merchandising business, which started on
September 2, 2015. The initial investments of
Mr. Jordan were:
Cash – P500,000
Store Equipment – P100,000
Furniture & Fixtures – P22,500
During the month of September, the
following transactions occurred:
Sept 8 – Bought merchandise from Mirzi
Outlet for P150,000. Jordan paid 30%
down payment and the balance on
account.
Sept. 10 – Jordan Grocery Store rendered
sales totaled P195,000 of which 40% on
account.
Sept. 12 – Collects receivable amounted
to P220,000 from various customers
Sept. 14 – Purchased a delivery van from
Renzo Motors for P250,000. Paid
P150,000 cash and the balance on account.
Sept. 15 – Paid various operating expenses
during the month: Water and electricity,
P28,000; telephone expense, P6,000; and
repair expense, P3,500.
Sept. 26 – Purchased merchandise from
Ivanna Co., P12,000. Paid P8,000 cash and
the balance on account.
Sept. 29 – Mr. Jordan withdrew P3,000 for
personal use.
Sept. 30 – Paid the wages of two staffs,
P10,000 each.
STEP 1: Analyzing business transactions from
source documents.
Recall the transaction analysis entails a
thorough understanding of the business
transaction itself and its implication on assets,
liabilities and owners equity. It is also helpful to
remember the normal balances of each account
and how they increase or decrease.
Normal Balance Increase Through Decrease Through
(+) (-)