What is an accounting cycle and its steps?



Accounting cycle consists of an art of recording, classifying, and summarizing accounting information. Accounting cycle includes;

Recording refers to all transactions that should be recorded in the journal or books of original entry known as subsidiary books as and when they take place

Classifying the act of posting all entries in the journal of books of original entry to the appropriate ledger accounts so as to find out at a glance the total effect of all such transactions in a particular account.

Summarizing the last stage is to prepare the trial balance and final accounts with a view to ascertaining the profit or loss made during a trading period and the financial position of the business of a particular date.


The followings are steps within an accounting cycle

Journalising
   This is the act of recording transactions in journal. The original information to be recorded is to be found in source documents which include sales and purchases invoices, debit and credit notes for returns, bank paying-in slips and cheque counterfoils, receipt for cash paid out and received and correspondence containing other financial information.

Posting
This is the process of transferring the debit and credit entries from the journals to respective accounts in the ledger. The journals include sales and purchases journals, returns inwards and outwards journals, general journal and the cashbooks

Preparing a Trial Balance
In this step an arithmetical accuracy of double entry accounts is checking. A list of the balances of all accounts in the ledger are prepared at a particular date in order to check the equality of debit and credit balances and to provide a summary of the data from the ledger.  Furthermore, at the end of period adjustments are journalized and posted to update accounts, and an adjusted trial balance is prepared afterwards.

Preparing Financial statements
Usually, an income statement to determine profit or loss; and the balance sheet to ascertain financial position; are prepared from the adjusted trial balance. The use of work sheet facilitates the preparation of the financial statements

Closing entries
Entries to close the revenue and expense accounts are journalized and posted. These entries close the balance of these accounts


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