The Accounting cycle

Accounting processes are repetitive. The accounting cycle is the sequence of procedures used to keep track of what has happened in the business and to report the financial effect of those things. Following is a depiction of the steps in the accounting cycle.

Another example for accounting cycle in Bahasa indonesia :

The accounting cycle is the sequence of procedures used to keep track of what has happened in the business and to report the financial effect of those things. Following is a depiction of the steps in the accounting cycle and a brief description of each.

Basically, a transaction is doing business. A financial transaction (which is the kind of transaction we are interested in here) is doing something in business that involves the exchange of money.
Source Documents
Usually, the accounting department is not where the transaction takes place. It is necessary that a paper or computer record be prepared at the point-of-the-transaction so that the accounting department is aware that a transaction occurred.
When personnel in accounting get the source documents, it is necessary to determine:1.) What happened? What kind of exchange took place? Did we charge our customer for something, get money for something, buy something, etc.?2.) What accounts will change? An account (Asset, Liability, Owner’s Equity) is where we keep information on anything we wish to know about individually. For example, we have an account for Cash where we keep track of the increases, decreases and the balance. Any time there is a transaction, at least two accounts will change.

3.) How will they change? Will the account increase or decrease?

4.) Do they get a Debit or Credit? T-accounts may help in the analysis. It is a method to help your thought process without the formality of general journal entries.

Journals are also called the “book of original entry” and are basically a chronological list of transactions and the accounts that changed and what to post in them. In VCE you are required to master four special journals (CRJ, CPJ, SJ, PJ) and a General Journal.
Post and Balance
Posting is the act of transferring the information in the journal to the appropriate ledger accounts. Balancing is adding the increases to and subtracting the decreases from the previous balance in an account. Post referencing is essential. Write the number of the journals in the ledgers, and the account numbers of ledgers in the journal.
Trial Balance
A trial balance is a list of all the accounts and their balances. What we call Debit balances are written in one column and Credit balances are written in another column. Each column is totaled and compared to make sure that Debits = Credits.
Generally speaking, adjusting entries are made at the end of a period to ensure that Revenues are reported when earned and Expenses are reported when incurred.
Adjusted Trial Balance
A trial balance after all adjustments have been: Analyzed, Journalized, Posted and the affected accounts Balanced.
Prepare Financial Statements
Financial Statements are used to report the financial position and results from operating a business. They are the Statement of Financial Position, Statement of Financial Performance and the Cash Flow Statement.


(you may close before preparing the Reports)

Closing an account means to “bring the balance to zero”. We close what we call the temporary accounts. They are the temporary Owner’s Equity accounts – Revenues, Expenses and Withdrawals.
Post-closing Trial Balance
A trial balance after all temporary accounts have been closed. The accounts remaining open are called real accounts and include: Asset accounts, Liability accounts and the Capital account. In other words, the Statement Financial Position accounts remain open.
One reporting period has been concluded and it is time to begin the next cycle.
Subsequent (next) Period
Preparation for the ensuing period includes:

  • Creating new Revenue, Expense and Drawings accounts.
  • Using the same Asset, Liability and OE accounts as previous periods.
  • Dealing with the accruals from the last period.

source: internet


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Posted on February 28, 2012, in All About Accounting and tagged , , . Bookmark the permalink. Leave a comment.

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