The primary purpose of the accounting function in an organization is to process financial information and prepare financial statements at the end of the accounting period. To meet the purposes, a series of steps are required.

The Accounting Cycle is a 9 standardized practice used by organizations to record and calculate financial transactions & activities that will be discussed in this post.

1. Analyzing the Business Transition

The documents are analyzed in the first stage to determine the nature of accounts or transitions. The source of documents is checking bank statements and other financial measures that are relevant to be journalized in the next step.

2. Journalize Transition

In the second step of the accounting process, the transaction ae journalized in a journal book of original entries. The accountant uses double-entry accounting was each transaction is recorded in two accounts namely debit and credit. The journal entries consist of debit and credit amounts, the date transaction, and a description of the transaction. It can also be called a summary of all business accounts.

3. Posting to a Ledger Account

After journalizing the information is posted to general ledger accounts. ledger books of final entry are a detailed collection of all accounts. transaction recorded in the journal ledger is used to create financial statements of the company. This also assures that the company has a complete accounting transaction record. Each transaction impacts the subsidiary ledger.

4. Preparing a Trial Balance

the entries of a particular period are summarized. This does guarantee no errors were made. this is done to verify that the sum of debits is equal to the sum of credits. there is a difference between the two values. By doing adjustments in the unadjusted trial balance.

5. Journalize and Post Adjustments

Adjustments are made for accrued and differed items. the entries are journalized and posted in the ledger. The actual position is made to know basically, by these adjustments of the company. Normalization and post-adjustments follow the principle of matching from the double-entry bookkeeping system.

6. Prepare an Adjusted Trial Balance

After new entries are made, a new trial balance is calculated to test if the debits are equal to credits. The trial balance shows the balance of all the accounts which also includes adjusting entries at the end of an accounting period. It will help you clear the financial events that happened in the company throughout the accounting cycle.

7. Prepare Financial Statements

The financial statements summarize the changes that occur from the business transaction in the accounting period. It is one of the last phases in the company reporting period that tells the financial condition of the company with its cash flow.

The company has primarily 3 financial statements:

Statement of Comprehensive Income
Statement of Financial Position
Statement of Cash Flow

8. Journalize and Post-closing Entries

The balances in the temporary accounts are closed or reduced to zero and the net income or loss is transferred to the capital accounts to prepare for the next financial accounting period. The balances at the end of the year will be the basis for the next fiscal year as an opening balance. Closing entries are only made for temporary accounts and not for permanent accounts, not for balance sheets.

9. Preparing a Post-closing Trial Balance

This is done to determine that all revenue and expense accounts have been properly closed and to ensure total credit and debt are equal after putting closing entries. The only entries that remain in the book are permanent namely assets, liabilities, and owner’s equity

Learn More: Bad Debts Accounting: How Bad Debts Can Affect Your Business

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