An accounting cycle is a systematic process of recording, classifying and summarizing business activities/transactions so that the accounting information can be transformed into a more readable/understandable format for internal as well as external users of accounting information. That format is simply called a financial statement. Therefore, Accounting Cycle is a 6 step process of preparing financial statements. In this article, I will try to elaborate this process step by step using images and figures. I will try to make it as simple as possible that a layman can understand this process easily. Let’s start!
After reading this article you will be able to:
- Understand the use of debits and credits
- Record transactions in the general journal
- Post journal entries to the general ledger
- Prepare a trial balance
- Record adjustments at the end of an accounting period
- Prepare an adjusted trial balance
- Prepare financial statements using an adjusted trial balance
- Post Closing Trial Balance
Following flowchart demonstrates the steps needed to create formal financial statements and complete the accounting cycle. Click on any step from 1 to 6 or Continue from below.
Additional Information Related to Accounting Cycle:
- What are Debit and Credit? Read to know: Most of the readers get confused when an accountant debit and credit transactions. Readers who don’t have accounting background ( even with little accounting background) generally think that a debit meaning an increase in the account and a credit meaning a decrease in the account. This is totally wrong thinking…
- Chart of Accounts: A list showing the total number of accounts used by an organization is known as a chart of accounts. Different businesses have different types of accounts and the different number of accounts. Small organizations may have one or two thousand number of accounts but a big organization may have hundred thousand accounts.
- Define Account: Distinctive sorts of organizations use diverse sorts of accounts. For instance, a manufacturing business will require different records for reporting manufacturing costs. A retail business, notwithstanding, will have accounts for the purchases of finished goods…