Eight steps of accounting cycle | Get an idea of the accounting cycle

Eight steps of accounting cycle | Get an idea of the accounting cycle

Eight steps and you get an idea of basics accounting from accounting cycle.

The accounting cycle is a series of work in an organization of bookkeepers. In an organization’s activates of the firm has daily transactions and the transactions will be recorded on categorizing of the different steps of accounting which are called accounting cycle at the end of the reporting period and the beginning of the accounting period occur another cycle that is accounting cycle definition.The accounting cycle has eight fundamental steps which list and explain the steps in the accounting cycle are shown below as a cycle chat;

Accounting cycle definition

 

Accounting Cycle Steps in Order:

 

    (1)Transactions:

Businesses start up with his transactions and it may occur every day. Transactions can include sales, sales return supplies, purchase and other transactions which are added value in our business or any other financial activates which is involved in the exchange of the company’s assets, debt what the company borrows from others and the investment which is invested by the owners. There have transactions is taking place which is external and internal transactions.

  • External transactions: taking place for change in cost of goods sold and exchange with other company
  • Internal transactions: is taking place the transactions of internally in an organization. The transactions always affect the recoding process and also effects in the financial position of the company.

    (2)Journal Entry:

Journal entry is known as a book of “original entry” this is also known as journalized. A journal entry lists the transactions in a chronologically and they decorate the transaction in terms of debit and credit to accounts. The journal entries form in four parts which are given below;

  1. Date of the transactions
  2. Particulars of the transactions
  3. Debit amount of the transactions
  4. Credit amount of the transactions   

   (3)Posting:

When the transactions of the business are properly journalized in a journal which is posted and impacts. These accounts are part of the Ledger accounts where you can find the summary balance of the every detail accounts transactions.

   (4)Trial Balance:

Where the General ledger task is the end then here the trial balance accounts task at the beginning. The summary of the every accounts balance in ledger transferred to trial balance.

Trail balance prepares at the end of the accounting period which may occur a month, quarter or a year. After that, you can calculate debit and credit balance which is equal and proven your accounts is correct. The trial balance consists of four items;

  • Serial number or date of the accounts
  • Particulars of accounts
  • Debit balance of accounts
  • Credit balance of accounts

8 steps of accounting cycle

    (5)Work Sheet:

In many times balance amount is not equal to trial balance. In that case, you must correct your error though adjustments which are trace my worksheet. In worksheet advance, accrual and accumulated depreciation are adjusted in a month which is allocated in revenue and expense accounts in assets as well as liabilities. After that, you may prepare another trial balance and make sure correct the balance amount equally in both debit and credit side.

    (6)Adjusting Journal Entry:

After the journal, ledger and trial balance in the accounts, many transactions may occur in last day of the accounting period which is not included in this balance. In that case, those transactions adjusted in another trial balance and the balance effects in the financial statement in all adjusted items in an accounting period.

    (7)Financial Statement:

The financial statement will be prepared after adjusted trial balance. The statement shows the position of the company’s and the users of this statement are interested to know the position of the business. It can prepare an income statement, balance sheet, and cash flow statement.

    (8)Closing Book:

At last, you close the books all the accounts such as revenue and expenses accounts and it would be the entire cycle zero balance in all accounts in closing entries. An account that will have a zero balance after closing entries have been journalized and posted is the closing book.

As a business owner, you want to calculate your income statement a monthly, quarterly and yearly basis. In that case, revenue and expense accounts must start with zero balance in the beginning of the accounts. It will continue assets, liabilities and equity accounts on a cycle to cycle.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.